Don’t bank on it

12 May 2016 By Una Galani Follow @ugalani

The country has passed a new insolvency code. The overhaul is overdue and ambitious. It could take years to implement properly. In the meantime, creditors will have to rely on other innovative fixes to deal with India’s massive pile of bad debt.

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India’s upper house of parliament passed a bill on May 11 giving the country its first unified bankruptcy code.

The new process will allow any creditor, when a default takes place, to initiate an insolvency resolution process that can run for up to 180 days. In this “calm down” period, an insolvency professional would have oversight of the company.

During that time, creditors would stay their claims and decide on whether to sell the company as a going concern, restructure debts, or liquidate. If 75 percent of creditors agree on a revival plan, it can be implemented. Otherwise a company is automatically liquidated.

Implementation of the plan requires the creation of a new insolvency regulator; a new class of insolvency professionals; and several privately owned “information utilities” that will store details of the debt, creditors, and pledged loans of companies.

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