The Lok Sabha has passed the Insolvency and Bankruptcy Code Bill 2016, which is seen as a “transformational” legislation that will help improve India’s ranking in the World Bank’s ‘Ease of Doing Business’ index.

• The new legislation has also provided for cross-border insolvency (which was not covered in the original Bill introduced in 2015).
• The Bill has also strengthened workmen rights as well as creditor rights. It has sought to provide a better deal for workmen in the waterfall (priority of repayment of dues post liquidation).
• The Bill ensures that there won’t be any “cherry picking” on the category of persons and that everybody (workmen, secured creditors etc) will get liquidation proceeds on a pari-passu basis, according to Sinha.

Restrictions on a bankrupt person or partners of a bankrupt firm:

A bankrupt person cannot do the following things –

• Acquire any commercial or personal debt

• Act as a trustee or representative of any trust, estate or settlement

• Be appointed as a Magistrate

• Stand as an electoral candidate

• Act as a director of any company

• Directly or indirectly take part in the promotion, formation or management of a company

• Travel overseas without taking prior permission from the Adjudicating Authority.

Who can apply for bankruptcy?

A person or firm can apply for a fresh start process, if:

• The gross annual income of the debtor is under Rs 60,000

• The total value of assets of the debtor is under Rs 20,000

• The total value of the qualifying debts does not exceed Rs 35,000

• No existing cases of bankruptcy is associated with the debtor

• No previous fresh start process has been issued for the debtor in the twelve months prior to the date of application.

Note: This does not apply to people and firms based in Jammu and Kashmir.