Bankruptcy Law Reform Panel suggests establishment of insolvency regulator

The Bankruptcy Law Reform Committee headed by former Law secretary T. K. Viswanathan has recommended the establishment of an insolvency regulator to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and informational utilities.

The committee has also prepared a draft Bill to consolidate the existing laws relating to insolvency of companies, limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals which are presently scattered in a number of legislations, into a single legislation.

The draft report, which will be open for public comments for the next two weeks, was submitted to Finance Minister Arun Jaitley on 4th November 2015.

The committee has observed that the enactment of the proposed Bill will provide greater clarity in the law and facilitate the application of consistent and coherent provisions to different stakeholders affected by business failure or inability to pay debt and will address the challenges being faced at present for swift and effective bankruptcy resolution. The Bill seeks to improve the handling of conflicts between creditors and debtors, avoid destruction of value, distinguish malfeasance vis-a-vis business failure and clearly allocate losses in macroeconomic downturns.

The draft Bill lays down a clear, coherent and speedy process for early identification of financial distress and revival of the companies and limited liability entities if the underlying business is found to be viable.

The draft Bill prescribes a swift process and timeline of 180 days for dealing with applications for insolvency resolution.

The draft Bill also provides for a fast track insolvency resolution process which may be applicable to certain categories of entities.

The committee wanted the Debt Recovery Tribunal ("DRT") as the Adjudicating Authority with jurisdiction over individuals and unlimited liability partnership firms and the National Company Law Tribunal ("NCLT") shall be the Adjudicating Authority with jurisdiction over companies, limited liability entities.

The government had constituted the committee to look into various bankruptcy related issues and give its report along with a draft Bill.