The TK Viswanathan-headed committee on Bankruptcy Law Reforms has proposed an easy exit option for low-income individuals unable to repay debts.
The comprehensive draft Insolvency and Bankruptcy Bill, part of a report on ‘Bankruptcy law reforms’ that was submitted to Finance Minister Arun Jaitley on Wednesday, envisages two distinct processes — Fresh Start and Insolvency Resolution — to deal with individual bankruptcy.
In the Fresh Start process, indigent individuals with income and assets lower than specified thresholds (annual gross income not exceeding ₹60,000 and aggregate value of assets not exceeding ₹20,000) shall be eligible to apply for a discharge from their “qualifying debts”.
A resolution professional will investigate and prepare a final list of all qualifying debts of the individual within 180 days from the date of application.
On the expiry of this period, the adjudicating authority will decide whether to discharge the debtor from the qualifying debts and accord him an opportunity to make a fresh start financially.
In the Insolvency Resolution Process, the creditors and debtor will negotiate to arrive at a mutually agreeable repayment plan under the supervision of a resolution professional.
The bankruptcy of an individual can be initiated only after the failure of the resolution process.
The bankruptcy trustee will be responsible for administration of the estate of the bankrupt and for distribution of the proceeds on the basis of priority, said the panel’s report.
The Finance Ministry has invited stakeholder comments on the report, which has now been put up on its website. Earlier in the day, at a World Economic Forum (WEF) event, Jaitley had said that he hoped to introduce a Bill on bankruptcy law reforms in the next session of Parliament.
Consolidating laws The draft Bill has consolidated existing laws relating to insolvency of companies, limited liability entities (including limited liability partnerships and other entities), unlimited liability partnerships, and individuals, which are currently scattered in a number of legislations. It has also recommended the setting up of an “Insolvency Regulator” to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and informational utilities.
The draft Bill also seeks to 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.
It aims to address the challenges preventing swift and effective resolution of bankruptcy cases.
The proposed legislation seeks to improve the handling of conflicts between creditors and debtors, avoid destruction of value, distinguish malfeasance vis-à-vis business failure and clearly allocate losses in macroeconomic downturns.