Govt May Split Bankruptcy Process For Quicker Resolution, Fewer Litigations: Report

The Centre is planning to revamp the Insolvency and Bankruptcy Code during the upcoming Budget session next year.

The IBC was enacted in 2016. It came at a time when the country was facing mounting debt defaults.

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The Centre is mulling sweeping changes to the Insolvency and Bankruptcy Code (IBC) and may split the bankruptcy process into two parts. The move will ensure quicker resolution and fewer litigations, a report in CNBC TV-18 said on Thursday.

The IBC was enacted in 2016. It was brought in at a time when the country was facing mounting debt defaults. IBC’s objective was to simplify insolvency and bankruptcy proceedings and protect the interests of all stakeholders during the process. 

It was previously reported that the Centre was planning to revamp the Insolvency and Bankruptcy Code during the upcoming Budget session. 

According to the report, the government may separate the bid approval part from the distribution of money. The government expects the adjudicating authorities to give quick approval to bids once they come in from the Committee of Creditors (CoC), the report said.

This is being done to ensure that the new promoter comes into the picture immediately and does not wait for the distribution of money to start. 

The undisputed money can be given out to stakeholders in the first stage and the disputed part of the money can be kept separately in an escrow account. It will be distributed after the litigation is finalised. 

It has been noticed that some courts have accepted fresh proceedings even after resolution. Now, the government is considering introducing a challenge mechanism into the IBC to cut delays and maximise the value of potential bids, the report said. The government may also clarify the immunity given to new promoters. 

As of now, new promoters are exempt from fresh tax demands or legal proceedings arising pre-IBC.

Earlier, it was reported that the IBC code revamp is expected to have measures to improve problems related to the domestic insolvency regime as well as have provisions to introduce a cross-border insolvency regime.