Skip to main content

Scope of insolvency rules to be extended to individual businesses

Scope of insolvency rules to be extended to individual businesses
The government on Tuesday expanded the scope of the new insolvency rules to bring individual businesses under its purview.On Tuesday, the Insolvency and Bankruptcy Board of India (IBBI) published the draft rules dealing with insolvency resolution process of individuals and firms on its website(www.ibbi.gov.in); public comments can be submitted till 31 October.
Once notified, even individual businesses such as proprietorships will come under the bankruptcy regime. This will enable an orderly bankruptcy resolution within the purview of a transparent rules-based regime. Currently, the existing code applies only to corporate defaulters.“These rules shall apply to matters relating to the insolvency resolution process for individuals and firms under Part III of the code,” said the draft rules issued by IBBI.
Part III of the Insolvency and Bankruptcy Code, 2016, deals with insolvency and bankruptcy of individuals and partnership firms.According to a statement issued by IBBI on Tuesday, the draft rules and regulations have been submitted by a working group which was formed to recommend the strategy and approach for implementation of the provisions of the Insolvency and Bankruptcy Code, 2016, dealing with insolvency and bankruptcy in respect of guarantors to corporate debtors, i.e., personal guarantors, and individuals having businesses.

“So far, the rules were only in respect of the Corporate Insolvency Resolution Process (CIRP) and the rules concerning individuals and partnership firms were yet to come,” said Satwinder Singh, partner at Vaish Associates, a law firm. “The jurisdiction for corporate, companies, limited liability partnership (Llp) lies before the National Company Law Tribunal (NCLT) and with the Debt Recovery Tribunal (DRT) for individuals and firms. The provisions relating to insolvency and bankruptcy of individuals and firms had not been notified earlier, so now the IBBI has come out with the draft rules.”
Harsh Pais, partner at law firm Trilegal, said, “It is a positive step towards consolidating the bankruptcy regime for individuals, for whom there was no systematic approach previously. For companies, at least there was recourse to the Companies Act, whereas for individuals there were only some archaic laws from the early 1900s, which were hardly relied upon in practice.”
Most of the small and medium enterprises (SMEs) take the legal form of either partnership or proprietorship firms. Though the loans are smaller in value, SME borrowers far outnumber companies, resulting in their borrowings exerting a significant influence in the financial sector’s stability.
Bankruptcy resolution is high on the agenda of the central government, which is keen to improve the ease of doing business in India and attract more private investments from domestic and overseas sources. An efficient exit route from failed projects is an essential factor that lenders consider before participating in projects.
The Mint, New Delhi, 11th October 2017

Comments

Popular posts from this blog

At 18%, GST Rate to be Less Taxing for Most Goods

About 70% of all goods and some consumer durables likely to cost less

A number of goods such as cosmetics, shaving creams, shampoo, toothpaste, soap, plastics, paints and some consumer durables could become cheaper under the proposed goods and services tax (GST) regime as most items are likely to be subject to the rate of 18% rather than the higher one of 28%.

India is likely to rely on the effective tax rate currently applicable on a commodity to get a fix on the GST slab, said a government official, allowing most goods to make it to the lower bracket.

For instance, if an item comes within the 12% excise slab but the effective tax is 8% due to abatement, then the latter will be considered for GST fitment.

Going by this formulation, about 70% of all goods could fall in the 18% bracket.

The GST Council has finalised a four-tier tax structure of 5%, 12%, 18% and 28% but has left room for the highest slab to be pegged at 40%. A committee of officials will work out the fitment and the council…

Firms with sales below Rs.50 crore out of ambit

The tax department has reiterated that the PoEM rules, which require foreign firms to pay taxes in India if the effective control is here, will not apply to companies withaturnover of Rs.50 crore or less inafinancial year. Last month, the tax department had come out with the longawaited Place of Effective Management (PoEM) rules, which require foreign companies in India and Indian firms with overseas subsidiaries to pay local taxes if their businesses are effectively controlled by Indians. Then the rules did not setathreshold above which they were to apply. However, the accompanying press release states that the rules will not apply to companies withaturnover of up to Rs.50 crore inayear. That created confusion whether the threshold will be adhered to. Inacircular to clarify things, the Central Board of Direct Taxes (CBDT) said the provision "shall not apply toacompany havingaturnover or gross receipts of ~50 crore or less inafinancial year".

PoEM rules essentially target shell …