- Proposed Indian Bankruptcy Reforms
- April 15, 2016
- Law Firm: Jones Day - Cleveland Office
In December 2015, the Indian government introduced a long-awaited bill—the Insolvency and Bankruptcy Bill 2015—to overhaul India’s outdated and burdensome bankruptcy process. According to recent World Bank data, India ranks 136th out of the 189 countries surveyed in terms of fast and efficient resolution of insolvencies, with creditors having limited power in the event of a debtor’s default. The proposed bill aims to expedite decisions on whether to rehabilitate or liquidate ailing companies, in a move to curb asset stripping and ensure higher recovery rates for creditors, both of which are key to fostering a modern credit market and increased investment in India.
If adopted, the proposed legislation would:
- Establish a formal insolvency resolution process for businesses by, among other things, appointing an Insolvency and Bankruptcy Board of India as the regulatory authority and creating specialized bankruptcy courts as part of the National Company Law Tribunal.
- Permit corporate debtors that have defaulted on debts, financial creditors (banks and bondholders), and trade creditors to initiate the corporate insolvency resolution process (“IRP”).
- Establish a 180-day deadline for the completion of an IRP, during which time the company must present restructuring proposals to creditors for approval. If the requisite majority of creditors do not agree on a restructuring plan within the 180-day period, the company will automatically be placed into liquidation. The 180-day period may be extended by 90 days if at least 75 percent of the creditors decide that the case is too complex to be resolved within the 180-day period and the court grants the extension.
- In the event a company is placed into liquidation, establish a hierarchy of claim priorities, including, in descending order, administrative costs of any preceding IRP and the liquidation proceeding, secured claims, certain employee claims, and unsecured claims.
- Create a “fast-track” IRP for smaller companies, to be completed within 90 days (unless the period is extended with the consent of creditors).