Government sets up committee to study corporate bankruptcy framework

NEW DELHI: The finance ministry has set up a committee to study the corporate bankruptcy legal framework in the country, following up on finance minster Arun Jaitley's announcement in his maiden budget speech in July that an entrepreneur friendly, legal bankruptcy framework would be developed for small and medium enterprises (SMEs) to enable easy exit.

The committee, set up under TK Vishwanathan, a former Lok Sabha secretary general and former law secretary, will submit a report by February next year, the ministry said in a statement on Monday.

"The committee will examine the whole gamut of issues relating to bankruptcy," the ministry said, adding that the committee will look into early detection and resolution of financial distress and protection of interest of stakeholders. The ministry said that the committee will also study the rescue mechanism and suggest ways of improving it. Besides, the panel will further examine the role of the institutions engaged in the process of rescue and liquidation. The ministry has also sought comments from all stakeholders. Bankers hope that the new reforms will usher greater clarity and give more teeth to existing recovery laws.

"We are hopeful that it will also address the issue of wilful defaulters and ensure that quick action is taken against them," said an executive director with a state-run bank, requesting anonymity. The government is also looking to set up fast track courts to try loan default cases of over.`100 crore as part of a plan to reduce the pileup of bad loans at state-run banks.