Professional Documents
Culture Documents
The three most important aspects for any country to create a robust ecosystem for ease of doing
business are “Easy entrance, Smooth Continuation, and Easy Exit”. The Insolvency law of a
country dictates the growth of entrepreneurship in a country which deals with easy exits. The
Insolvency framework of a country should be capable of offering rescue procedures for the
rehabilitation of the financially distressed companies. Before the introduction of the Insolvency
and Bankruptcy Code, 2016 (“IBC”), the legal, as well as regulatory framework regarding
insolvency, was grossly inadequate. It is only after the IBC that the concept of ‘Corporate
Insolvency Resolution Process (CIRP)’ was introduced. The main objective behind bringing of the
code was to have a single legislation in place to cater for resolution of insolvency of corporate
debtors and also individuals/partnership firms promptly. The procedure was designed to strike a
balance between the interests of the creditors through collective resolution and the interests of the
debtor according to its financial difficulties. This process aims to extract maximum value aimed
at aiding the business operations.
It is interesting to see a comparison of the Indian Insolvency ecosystem which is in its nascent
stage in comparison to other countries which have far more developed Insolvency law:
Page | 1
1. USA
In comparison to Indian laws, debtors in the US have more say in the business and restructuring
plans. Earlier, India also had the debtor-in-possession model under the SICA Act which failed to
address the issue of reviving the sick industries. The courts in the US hear what the creditors have
to say, although ultimately it is the court that determines whether the proposed restructuring plan
is to be carried out or not. However, under IBC the powers of the creditors are widened to vote for
the passing of the proposed plan.
According to the laws in the US, Debtors are responsible for proposing the resolution plan which
is not the case in India. The US bankruptcy code provides that the federal bankruptcy court can
supervise the financial reorganization in case of bankruptcy of individuals. The proceedings in the
US are conducted by the Bankruptcy Court and in India by National Company Law Tribunal
(“NCLT”).
One of the major differences is that in the US there are numerous State laws governing insolvency
and bankruptcy whereas in India the number is comparatively limited which ensures less conflict
between the prevailing laws.
Also, the language of Section 238 of the IBC has conveyed that IBC shall prevail over other laws
in India. Text of the Section is as follows:
Page | 2
“The provisions of this Code shall affect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or any instrument affecting under any
such law.”
2. UK
The rules regarding insolvency professionals in the UK are strict in comparison to India. Moreover,
insolvency professionals in the UK are required to provide a surety bond and the same requirement
might be incorporated soon in the IBC. Furthermore, the license provided to the insolvency
professional is for a lifetime in India but in the UK it needs to be renewed annually. In India, there
is a limitation period of maximum three hundred and thirty (330) days for the committee of
creditors to approve the submitted resolution plan however, no such period is specified under
law in the UK.
3. SINGAPORE
Page | 3
In Singapore, the voluntary liquidation takes place through a shareholder resolution while the
compulsory liquidation is triggered upon default on dues over SGD 10,000 within three weeks of
the demand or inability to pay debts as they fall due. However, in India voluntary liquidation
happens when a special resolution is passed by the shareholders of the company for winding up,
with no declaration of insolvency which has to be in consultation with creditors. In Singapore, a
single adjudicating authority, the High Court deals with the corporate insolvency matters. For non-
corporate insolvency cases in Singapore, a judicial manager is appointed to manage the firm and
to propose the reorganization plan and he can take any actions that are in the best interest of the
creditors.
4. UAE
According to the previous law in the UAE, bankruptcy in UAE could give way to initiation of
criminal proceedings, imprisonment, asset stripping of the personal properties of the management
of the debtor company. This became the reason for the parties opting for out of court settlements
and therefore the court procedures were hardly ever used.
While India has two relief procedures i.e. insolvency resolution process and liquidation, the UAE
has three relief procedures namely Preventive Composition Procedure, Bankruptcy
Proceedings, and Liquidation. The condition for insolvency in UAE is determined through cash
flow test or balance sheet test, unlike India where the occurrence of default in repayment of a
debt by the corporate debtor is the condition.
In the UAE, apart from the debtor and the creditor, the Public Prosecutor can also make
application under the Bankruptcy procedure. In India, the application for the initiation of the
Page | 4
resolution process is to be put up before the National Company Law Tribunal and in the UAE there
are no specialized courts and therefore the civil courts deal with the cases.
The UAE Bankruptcy law creates a debtor-in-possession regime in contrast to the strong control
rights of the Creditors under the Indian law. In India, the Insolvency Professional is appointed by
the Adjudicating Authority whereas in the UAE a trustee is appointed by the court who acts as the
person responsible for maintaining the business of the company.
5. CHINA
India has taken the necessary steps to build a strong ecosystem of insolvency regime by imparting
skills to new professionals, establishing new benches of NCLT, inauguration of Insolvency
Research Foundation, insisting on time bound resolutions and much more. Hopefully, in the years
to come India’s whole Business ecosystem would get benefitted by this.
Disclaimer: The opinions expressed in this article are that of the writer. The facts and opinions expressed here do not reflect the views
of Graduate Insolvency Programme Student Insights.
Page | 5