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The Biased Position of Operational Creditors- Code Requires Revamping

Authors: Harsh Kumar and Akhil Kumar Goyal, Students, Army Institute of Law, Mohali and Chanakya National Law University, Patna, India

Abstract

It is a fact that civil recovery issues take a long time to resolve. Due to the low recoverability, there is little credit discipline in commerce. This concerns company, as it often involves a high need for working capital and therefore greater pressure on margins. Previously, there was an option to initiate liquidation petitions of insolvent corporate debtors to higher courts under the Companies Act of 1956. However, the prohibitive cost of litigation and the long litigation period often dampened creditors' actions. There has been a major change with the insolvency and bankruptcy code (hereafter "the code"), and now an operating creditor can also take action under IBC to recover their instalments very profitably. IBC, 2016 was notified by the Government of India on May 28, 2016. The law consolidates and amends the laws relating to the reorganization and resolution of insolvency of legal entities, partnerships and individuals within a specified time period to maximize the value of I assets of these people, to promote entrepreneurship, the availability of credit and balance the interests of all stakeholders. The code also changed the order of priority of the various payment instalments and gave top priority to payments of workers' dues even above government dues, which are now only made after the payment of financial debts contracted with unsecured creditors.

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