 "'The Bankruptcy Bill improves protection for blue-collar employees'")
The original Bill contained a provision that required insolvency professionals to deposit a performance security at the time of their appointment. The joint committee of Parliament suggests that this requirement may create barriers to entry and recommends that it should be removed. A similar provision that required insolvency professional agencies (self-regulatory bodies for regulating professionals) to submit a performance bond to the insolvency regulator has also been removed. These changes will help in establishing and deepening the market for insolvency professionals. This requirement can always be brought back by way of amendment after the sector has developed sufficiently.
The revised Bill also proposes to improve the level of protection offered to workmen (blue collar employees) in the event a company goes into liquidation. The provision relating to distribution of proceeds in liquidation originally provided that after the cost of proceedings are paid out, debts owed to secured creditors and 'workmen dues' for up to a year should be repaid before other stakeholders are paid out. The term, 'workmen dues', includes unpaid wages, salaries, holiday remuneration, dues under any welfare funds and unpaid statutory compensation, if any. This protection has now been extended for dues up to two years. Further, in a measure aimed at protecting employees' interests in general (and not just blue-collar employees), the Code now clarifies that employee provident funds, pension funds and gratuity funds will be excluded from the purview of the liquidation estate. In other words, such funds will be insulated from the liquidation proceedings and will not be available for distribution to other stakeholders. It is important to mention that the authorities constituted under the employee welfare legislations are sufficiently empowered to ensure that such statutory obligations are discharged while the company is a going concern. The bankruptcy regime should not be seen as an enforcement mechanism for those legislation.
The writer leads the corporate law financial regulation vertical at Vidhi Centre for Legal Policy
The revised Bill also proposes to improve the level of protection offered to workmen (blue collar employees) in the event a company goes into liquidation. The provision relating to distribution of proceeds in liquidation originally provided that after the cost of proceedings are paid out, debts owed to secured creditors and 'workmen dues' for up to a year should be repaid before other stakeholders are paid out. The term, 'workmen dues', includes unpaid wages, salaries, holiday remuneration, dues under any welfare funds and unpaid statutory compensation, if any. This protection has now been extended for dues up to two years. Further, in a measure aimed at protecting employees' interests in general (and not just blue-collar employees), the Code now clarifies that employee provident funds, pension funds and gratuity funds will be excluded from the purview of the liquidation estate. In other words, such funds will be insulated from the liquidation proceedings and will not be available for distribution to other stakeholders. It is important to mention that the authorities constituted under the employee welfare legislations are sufficiently empowered to ensure that such statutory obligations are discharged while the company is a going concern. The bankruptcy regime should not be seen as an enforcement mechanism for those legislation.
The writer leads the corporate law financial regulation vertical at Vidhi Centre for Legal Policy