The World Bank’s Doing Business Report, 2016, ranks India 130 among 189 economies on “ease of doing business”. One of the sub-indexes on which the ranking depends is resolving insolvency. It is interesting to note that even though India’s ease of doing business ranking rose from 134 in 2015, its ranking for resolving insolvency did not improve and remained at 136.
It takes an average of 4.3 years to resolve insolvency in India with a recovery rate of only around 20% of the net present value of the debt. To address this problem, the government introduced the Insolvency and Bankruptcy Code, 2016, based on the principles in the UNCITRAL Legislative Guide on Insolvency Law.
India’s current framework for dealing with insolvency and bankruptcy is highly fragmented, with overlapping legislation addressing the same issue. This gives companies an opportunity to delay insolvency proceedings by filing appeals against the decisions of the authorities in different forums, and delays the final outcome even when there are chances of revival, leading to deterioration of the value of the company’s assets.
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Siddharth Srivastava is a partner and Kanika Kadam is an associate at Link Legal India Law Services.
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