Insolvency and Bankruptcy Code (IBC)

• The Code creates time-bound processes for insolvency resolution of companies and individuals.  These processes will be completed within 180 days (unless extended by a one time extendable period of 90 days).  If insolvency cannot be resolved, the assets of the borrower may be sold to repay creditors (known as liquidation).
• The resolution processes are conducted by licensed insolvency professionals (IPs).  These IPs are members of insolvency professional agencies (IPAs). 
• Information utilities (IUs) are established to collect, collate and disseminate financial information to facilitate insolvency resolution.
• The National Company Law Tribunal (NCLT) adjudicates insolvency resolution for companies and Limited Liability Partnerships.  The Debt Recovery Tribunal (DRT) adjudicates insolvency resolution for individuals and partnership firms.
• The Insolvency and Bankruptcy Board of India (IBBI) regulates the functioning of IPs, IPAs and IUs.
• IBC was later amended with the provision to bar promoters from bidding for their own companies. It prevented defaulters from regaining control of their companies at a cheaper value
• The code was again amended in 2019 which mandates a deadline for the completion of the resolution process within 330 days, including all litigation and judicial processes. 

Background

• Recently, the union Cabinet approved a proposal to suspend initiation of bankruptcy proceedings against companies under the Insolvency and Bankruptcy Code for a period of six months, which could be extended to one year.
• The move is expected to provide relief for corporates as the pandemic and subsequent lockdown had significantly impacted economic activities.

Why in News?

• Former RBI deputy governor Viral Acharya said the suspension of insolvency laws for a year is “too long” and India should look at operationalising the bankruptcy rules in the next three months.

Reference:

1. https://timesofindia.indiatimes.com/business/india-business/suspending-ibc-for-a-year-bad-idea-restart-bankruptcy-courts-in-2-3-months-viral-acharya/articleshow/77248303.cms