The ministry of finance recently released the draft Insolvency and Bankruptcy Code (IBC), proposed by the Bankruptcy Law Reforms Committee. The government of India greeted this bill as among its biggest and most crucial reforms. To a person unconnected with finance, it may be unclear why this is important or what ails the current framework. A well-functioning insolvency resolution framework is fundamental for dealing with business failures that inevitably occur in any economy. Additionally, an effective insolvency resolution process is one tool, among others, for banks and other creditors to address low recovery rates.

A well-functioning insolvency resolution framework is fundamental for dealing with business failures.

(a) Empowers all creditors—secured, unsecured, financial and operational to trigger resolution,

(b) Enables the resolution process to start at the earliest sign of financial distress,

(c) Provides a single forum overseeing all insolvency and liquidation proceedings,

(d) Enables a calm period where other proceedings do not derail existing ones,

(e) Replaces existing management during insolvency proceedings while keeping the enterprise as a going concern,

(f) Offers a finite time limit within which debtor’s viability can be assessed and

(g) Under bankruptcy, lays out a linear liquidation mechanism.