IBC boosted ‘ease of doing business’ rank

IBC boosted ‘ease of doing business’ rank

Subject : Economy

Section : Msc 

Ease of Doing Business:

• The Doing Business Report is the flagship publication of the World Bank Group that benchmarks business regulations in 191 economies.
  • The Doing Business Report measures regulations that enhance business activity and those that constrain it.
• The Ease of Doing Business (EoDB) index is a ranking system established by the World Bank Group wherein the ‘higher rankings’ (a lower numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
• The Ease of doing business ranking is an indication of an economy’s position relative to that of other economies.
• In India, these indicators relate to business regulations for small and medium sized firms located in Delhi and Mumbai based on standardized case scenarios.
• The indicators are from 11 areas of business regulation such as: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Minority Investors, Paying Taxes, Trading across Borders, Enforcing Contracts, and Resolving Insolvency.

IBC

• It is a reform enacted in 2016. It amalgamates various laws relating to the insolvency resolution of business firms.
• It lays down clear-cut and faster insolvency proceedings to help creditors, such as banks, recover dues and prevent bad loans, a key drag on the economy.
• Insolvency and Bankruptcy Code (IBC) 2016 was implemented through an act of Parliament. It got Presidential assent in May 2016.
• Centre introduced the IBC in 2016 to resolve claims involving insolvent companies.
• The bankruptcy code is a one stop solution for resolving insolvencies, which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome. The IBC has 255 sections and 11 Schedules.
• IBC was intended to tackle the bad loan problems that were affecting the banking system.
• The IBC process has changed the debtor-creditor relationship. A number of major cases have been resolved in two years, while some others are in advanced stages of resolution.
• It provides for a time-bound process to resolve insolvency. When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency. Under IBC, debtor and creditor both can start ‘recovery’ proceedings against each other.
• Companies have to complete the entire insolvency exercise within 180 days under IBC. The deadline may be extended if the creditors do not raise objections on the extension. For smaller companies, including startups with an annual turnover of Rs 1 crore, the whole exercise of insolvency must be completed in 90 days and the deadline can be extended by 45 days. If debt resolution doesn’t happen the company goes for liquidation.

• Under IBC, either the creditor (banks) or the loaner (defaulter) can initiate insolvency proceedings.
• It is done by submitting a plea to the adjudicating authority, the National Companies Law Tribunal (NCLT).
• According to IBC, a financial creditor holds an important role in the corporate insolvency process.
• The Committee of Creditors (CoC) under IBC includes all financial creditors of a corporate debtor.
• The CoC will appoint and supervise the Insolvency Professional.
• It has the power to either approve or reject the resolution plan to revive the debtor, or to proceed to liquidate the debtor.