http://www.blonnet.com/businessline/2001/05/18/stories/141818uu.htm
RBI panel moots new law on bankruptcy
Our Bureau
MUMBAI, May 17
THE Reserve Bank India's advisory group on bankruptcy laws has
recommended the passing of a new legislation on a comprehensive
corporate bankruptcy code.
The group, in its report, has suggested that the code must incorporate
provisions relating to reorganisation or renegotiation, corporate
solvency leading to winding up and liquidation of a corporate entity and
settlement of all other related issues, including cross-border claims
and counter-claim settlement and cross-border corporate insolvency.
With the passing of such a legislation on a comprehensive bankruptcy
code, the Company Law can be streamlined and simplified to contain
company formation, capitalisation and finance, management, corporate
governance, accounts and accountability issues, investors' protection,
reorganisation on bipartite renegotiations and enabling provisions for
winding up according to the bankruptcy code.
According to the report, the objectives of the code are to maximise
value of assets, time-bound restructuring on renegotiation on a
voluntary basis and quick and fast-track liquidation failing
restructuring.
``These objectives must be reflected in the procedure and not in any
perambulatory note or long title providing for any external tool for
interpretation of any codified prescription,'' the report said.
The group has recommended the complete repeal of the Sick Industrial
Companies (Special Provisions) Act and abolition of BIFR; the existing
proceedings pending before the BIFR shall be transferred to the
bankruptcy court having jurisdiction.
The introduction of a professional bankruptcy institution known as the
trustee has been suggested, to be appointed by the bankruptcy court from
a designated panel for conducting restructuring on voluntary basis and
failing restructuring, to initiate fast-track liquidation.
``The trustees can be appointed only from professional bodies like
chartered accountants firm, law firm, cost accountants of company
secretaries organisation, a financial institution, companies having
professional expertise and corporate managers organisation,'' the report
said.
The court shall prepare a panel of trustees from such professional
bodies from which a trustee is to be appointed by the court.
One of the critical questions in bankruptcy cases is, who shall remain
in custody of the corporate properties and administer the same once
there is a bankruptcy petition.
The group has recommended that the possession of the company with its
entire assets and liabilities must be vested with the trustee, if the
owner /promoter/ existing management files the petition for the
bankruptcy of a company.
If a creditor files the petition, the possession of the company's assets
and liabilities shall vest on the trustee as soon as the petition is
allowed.
The group has suggested that the office of official liquidator be closed
and all powers and functions be exercised by the trustee.
After examining many trigger points, the group came to the conclusion
that the immediate trigger point is the cash test. It is suggested that
a minimum default limit be raised to Rs 1 lakh from the present
prescription of Rs 500. Therefore, if a company fails to pay a debt of
not less than Rs 1 lakh on the claim being due, the trigger is
immediately operative.
The group also recommends that the country needs a uniform judicial
system in bankruptcy matters. Therefore, there must be a dedicated bench
at every High Court to deal with issues in bankruptcy, the report said.
The advisory group is of the view that workers' claims must have equal
treatment with secured creditor.