The working group formed by the Insolvency and Bankruptcy Board of India has come out with draft regulations for repayment plan for individuals and firms declaring insolvency. These regulations will serve as a framework for resolution of personal insolvency issues, and have been put out for comments that would be accepted till October 31st.
The draft regulations require the plan to take into account factors like the duration of repayment, implementation schedule and a minimum budget for the survival of the debtor and immediate family for the repayment period. The repayment plan also needs to specify the manner in which funds held for the purpose are to be banked, invested or otherwise dealt with, pending distribution to creditors.
“Where the amount claimed by a creditor is not precise due to any reason, the resolution professional shall make the best estimate of the amount of the claim based on the information available with him,” says the draft. Anshul Jain, partner, Luthra & Luthra said, “There are major gaps that need to be tweaked. We need to have a process for identifying creditors since the process is more creditor-driven. In case of individuals it is very difficult to verify… In some cases, the resolution professional is supposed to decide the claim value.”
Excluded assets have been specified in the draft regulations. These include unencumbered personal ornaments or house in use by the individual that will not be transferred or sold. Procedures to be followed by creditors and duties of the insolvency resolution professional in carrying out the proceedings for individuals and guarantors have also been spelt out.
In the rules for insolvency for individuals, the working group has laid out the formula for calculating actual value of a dwelling unit using three methods — rent capitalisation, comparable land and building method.
Experts feel that gaps in resolution of insolvency issues should be plugged. They have also their concern about the ability of Debt Recovery Tribunal to find a solution on account of lack of the required infrastructure and knowledge by the body.