BANKRUPTCY BILL : BOON  FOR THE BANKING SECTOR

Kingfisher airlines would be the best example for making anyone understand, why bankruptcy bill needs to be passed. It took two years for the creditors to get hold of company’s prime property, Kingfisher house, for recovering a debt of $1.5 bn. This shows the strength of our current bankruptcy law and the urgent need for reforming it. Our banks have been victims of such financial irregularities as law always gave benefit of doubt to the debtors affecting the financial health of the banking sector and of the economy as a whole.

Bankruptcy bill introduced by the government addresses the issue of fast recovery and ease of doing business for the creditors which get stuck by willful defaulters. Time frame of 180 days has been specified for completing the insolvency process and can be extended by 90 days in certain cases. Thus fast track resolution of bankruptcy issues will allow failed business to windup and freeing up of capital which can be used in other productive assets.

The insolvency process can be started by financial or operational creditor or the corporate itself on the default of debt by filing proceeding with the National Company Law Board. Committee of creditors comprising all financial creditors of the debtor would be set up. The committee needs to come to a consensus with 75% vote for restructuring, if not company will be liquidated. Apart from getting it through parliament, government also needs to put the required infrastructure for implementation of the bankruptcy bill to improve India’s ranking currently 136 in the ease of doing business index.