Spark Plug – Know About Insolvency & Bankruptcy Bill Code 2015

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Spark Plug – Know About Insolvency & Bankruptcy Bill Code 2015

Dear Aspirants,

In continuation with our ‘Spark Plug’ series, today we are presenting a detail article on‘Insolvency & Bankruptcy Bill Code 2015′. Must read this article to know the importance of this bill and also get the answer of the questions like – How this Bill will help the Entities? When and why this bill is proposed?

This article will help in your preparation for Descriptive test for upcoming exams like SBI PO, UIIC & IBPS PO 2016.

What is insolvency and bankruptcy?

Insolvency, the word itself describes as a – state of confusion or which is unresolved. It is the situation in which an individual or an organization is unable to pay their debts. It shows the financial state of the organization.

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So how can we understand that when the individual or organization is unable to repay?

Bankcrupt

(i) It can be identify from the balance sheet of the organization, like by checking its year by year sales increase or decrease, repayment tracks of the banks (loans), liabilities exceed the total assets.

(ii) If it is irregular, sales is not increasing and the company is in losses for more than 2 years then the firm is consider to be in a state of Insolvency.

(iii) On the other hand, Bankruptcy is when an individual or a organization is unable to pay the debts, then the court declare them as bankrupt. It is a legal status.

Aim The aim of the Bill is to create  a Insolvency Resolution Process (IRP) for business entity, either by survival mechanism or by their speedy Liquidation.

When and why this bill is proposed?

The Insolvency and Bankruptcy Bill is proposed on Dec 21, 2015 by Finance Minister, Shri Arun Jaitley in Lok Sabha.

According to the report published by World Bank Group, “Ease of doing Business”, 2016 India is in 130th position out of 189 countries, while India was in 134th position in 2015, only 4 positions up we came in 1 year, hence, this bill is proposed by understanding the importance of Economic Growth through businesses in India.

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The Bill is based on the recommendations of the Joint Parliamentary Committee on the insolvency and Bankruptcy Code, 2015. The government nodded by accepting the Joint Committee report “in toto” (in toto means completely, wholly, entirely) which will help the firm who is in danger to shut their businesses. It was passed on May 5th 2016.

Let’s understand this by taking an example of a firm who is doing business in India since 10 years.

For the expansion and to increase its business it recruited employees to the firm to manage day to day activities and various departments of the firm.

To expand his business in other state or allover India,

the firm took loan from Bank and the bank sanctioned loan

on the basis of financials of the firm.

And If Unfortunately, the firm sales go down for more than 2 year, it can survive and salaried its employees for sometime on the basis of past turnover but if the firm is not growing then 

(i) What should be done?

(ii) How this will be managed?

(iii) Who will provide salary to the employees of the firm? They have to lose Job.

Debt

Here the case is with only one firm but in India there are so many cases which are in the state of Insolvency. If they have to windup the business, then all dues should be clear first. But if the firm is in loss how they can repay the loan/debt.

So, to resolve this kind of situation, The Insolvency and Bankruptcy Bill Code, 2015 has been passed to help the entities.

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