The Insolvency and Bankruptcy Code (Amendment) Bill, 2022 includes changes that aim to maximise recovery from questionable transactions and trades made by the suspended management of the defaulting company. These changes include ways to quickly establish that a payment default has occurred warranting bankruptcy action. Here is more information about this topic.
Recovery is a procedure that can be started against a debtor in the event of default. The debtor may be an organisation. Contact the National Company Law Tribunal, authorised to hear matters involving the Insolvency Code, to get the process started.
Recovery Period
Financial creditors may submit a request through NCLT to start the recovery (Corporate Insolvency Resolution) procedure. Within 14 days of receiving an application, the NCLT decides whether to accept or reject it.
Who Can Start the Recovery Process?
- A financial creditor is anyone who is owed a financial debt such as a loan
- An individual owed an operational debt is referred to as an operational creditor.
Before the Insolvency and Bankruptcy Code, the debtor was responsible for starting the resolution process, and the creditor could take separate steps to enforce security interests, money recovery, and debt restructuring. However, the Insolvency and Bankruptcy Code significantly alters the current resolution process by placing the onus of starting the insolvency resolution process against the debtor on the creditor.
How this code is helpful for the Recovery of Debt by the following Creditors
Supplier of Goods/Services:
According to the Act, if someone provided goods or provided services to a corporate debtor, and that corporate debtor made defaults by failing to pay all or part of the debt or by failing to make required payments, the creditor could take legal action against that corporate debtor by filing a petition in the NCLT.
Recovery Period:
After sending the debtor a demand notice, the creditor has 10 days to collect the money owed to them before applying with NCLT to start the recovery (Corporate Insolvency Resolution) procedure. Within 14 days of receiving an application, the NCLT decides whether to accept or reject it.
As a result, under the new code, NCLT must accept or reject a petition submitted by the creditor within 24 days of the date the demand notice was issued. The unified regime envisions an organised and time-limited insolvency process.
Advantages
- The new stringent laws would take care of the existing defaulters in a time-bound manner
- It addresses the issues faced currently in the context of insolvency and winding up
- It improves the ease of doing business in India and also facilitates a better and faster debt recovery mechanism
- Through the Insolvency and Bankruptcy Code, debt can be recovered very quickly. There is no need to go to the high court which is a time taking process.
Small Businesses
As per the requirements mentioned above regarding the supply of goods and services, the creditor has the authority to initiate the process in the NCLT for recovery of the debt in a cost-effective and time-bound manner.
Previously small businesses used to avoid initiating a recovery process against the debtors due to following reasons:
1) It takes a Long time to admit the cases by the adjudicating authorities due to a lack of time-bound rules.
2) Filing a matter in courts which was a costly affair.
3) The Primary onus to initiate a resolution process was under the debtor’s control.
Due to the above-mentioned grounds like time, money, etc., small business owners used to avoid filing applications in the courts against the debtors to recover the pending payment dues.
But with this Insolvency and Bankruptcy Code, within 24 days of the issue of the demand notice, the only creditor will come to know if his petition is admitted or not. It is less costly compared to the application in court.
Employee and workman obligations
In accordance with the code, employees and workers are also regarded as operational creditors. Employees may apply with NCLT to start the recovery process against a company if it fails to pay employees or labourers their salaries in amounts totalling more than ₹1 lac. The application process, timing, and costs for employees and labourers are identical to those for applying on behalf of a supplier of goods or services.
As a result, this act provides an excellent opportunity for Company workers to submit claims to recover unpaid wages.
The Debtor of the Loan
According to the Code, if anyone lends money (a loan) to a corporate debtor and that corporate debtor defaults by failing to make payments on time or at all, the lender may take legal action against the corporate debtor by filing a petition with the NCLT.
Conclusion:
Under this new code, the NCLT must accept or reject the application within 14 days of the petition’s filing date. However, this code gives the debtor a chance to recover his debt. If you have any queries about this recovery process, it’s always better to consult the opinion/ help of experts. Vakilsearch, the best legal service provider in India, provides you with the best legal services, and the paperwork will be done hassle-free!
Visit us at Vakilsearch to get more information.
Read more,
- How Can I file a complaint if someone is not returning my money?
- How do I draft a recovery notice?
- How do I give legal notice for money recovery?
