The framework should seek to preserve estate and maximize the value of assets; recognize inter se rights of creditors and provide equal treatment of similar creditors while dealing with small creditors equitably.
It should enable a timely and efficient resolution of insolvency and establish a framework for cross border insolvency.
The Committee noted that the Companies (Second Amendment) Act, 2002 had brought about significant changes in the provisions dealing with rehabilitation/winding up / liquidation of companies in the present Act and had also proposed that an institutional structure for the purpose be set up in the form of NCLT/NCLAT.
This Institutional Structure, which would provide the desirable single independent forum is yet to be constituted.
Businesses need efficient and speedy procedures for exit as much as for start-up.
World over, insolvency procedures help entrepreneurs close down unviable businesses and start up new ones.
Similar initiatives have been taken up by other multilateral institutions.The existing time frame in India is too long and keeps precious assets locked in proceedings for many years, destroying their value in the process.9.2 A period of one year should be adequate for rehabilitation process from commencement of the process till sanction of a plan.The present framework does not provide a balanced resolution of various stakeholder issues, is time consuming and inefficient.6.2 Corporate insolvency should be addressed in the Company Law.
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The Committee hope that this is done speedily and are of the view that its establishment would provide a major initiative for the reform of the insolvency system in the country. Law should provide a reasonable opportunity for rehabilitation of a business before a decision is taken to liquidate it so that it can be restored to productivity and become competitive.