INSOLVENCY AND

BANKRUPTCY CODE, 2016

- Latest Developments in 2018

Dr AMAN
 NEED FOR IBC IN INDIA
 Existing Mechanism – Inadequate & Insolvency Reso-
Ineffective : World
 No single Law dealing with IB in India; lution Bank
 overlapping jurisdiction 160 Ranking

 Painfully Slow Pace – Min 5 Yrs

140
120
 Recovery rate is so less
100
 More NPAs lying in Banks
80
136
 High Process Cost of Insolvency 60

 No Chance of Ease of Doing Business and 40

Easy Exit 1 55
20 5 27
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 JOURNEY OF THE IBC
21.12.2015- IBC Bill of 2015 -introduced in LS

23.12.2015 - IBC Bill of 2015 - Referred to Joint

Committee of both Houses of Parliament

28.04.2016- IBC Bill of 2015 -Joint Committee

placed its Report to both Houses of Parliament

05.05.2016- IBC Bill of 2015 -passed by LS

11.05.2016- IBC Bill of 2015 -passed by RS

28.05.2016- IBC, 2016 -Assented by President of

India & Notified
 OLD DISEASE,NEW
PRESCRIPTION WHY ?
Promote Entrepreneurship
Improve Credit Availability
Avoid Prolonging Time
Interest of all Stakeholders
Minimize the Role of Adjudicating
Authority
Lesser Compliance mechanism
Avoid Combination and Complication of many
Laws
APPLICABILITY OF IBC,2016
Any Company incorporated under the Companies
Act, 2013 or under any provisions of previous Acts

Any other Company governed by any Special Act

Any LLP incorporated under the LLP Act, 2008

Any other body, as notified by the Central

Government

Partnership Firms

Individuals
 OBJECTS OF THE CODE
• Creditor in control regime(incentive to creditor of control to help debtors
come out of the insolvency)
• Consolidates existing insolvency laws and amends other legislations
• Overriding effect on all other laws inconsistent with the provisions of the
Code.
• Time bound resolutions for evaluation and viability determinations of
companies referred for CIRP(corporate insolvency resolution process)
• Clearly defined order of priority ( *waterfall mechanism)(sec cr-usec
cred,shareh last)
• Investigation of antecedent transactions in case of illegal diversion of
assets of company.(trans before liquidation)eg favouring 1 creditor
• Establishment of IBBI(insolvency & bankruptcy board of India) as an
independent monitoring body for administration and governance of the
insolvency and bankruptcy law
 BASIC TERMS
• Creditor
• Debtor
• Insolvency
• Bankruptcy
• Winding up
• Liquidation
• Dissolution
WHO CAN INVOKE?(use law)
 CODE
DEFAULT

In case of Partnership &

In case of Co. & LLP
Individual
Minimum amount of ` 1 Minimum amount of ` 1
lakh thousand
Minimum amount of ` 1 lakh & ` 1 thousand can be increased upto `
1 Cr & ` 1 lakh respectively by CG
Where any Company or LLP
commits-

A default in paying its

Financial debt Operational debt

Then a financial creditor/ operational creditor/ Company &

LLP itself

May file an application, for initiating corporate insolvency resolution process

with the Adjudicating Authority.
SCHEME UNDER THE CODE
(committee of
creditors)/information
memorandum
 Adjudicating Authority
 NCLT
- Deal with insolvency matters of Co. & LLP
- Appeal to NCLAT
 Debt Recovery Tribunal
- Deal with insolvency matters of individual & Partnership firm
- Appeal as to DRAT

GROUNDS FOR REJECTION

Adjudicating Authority within 14 days of receipt of application, by an
order -

Admit the Reject the

application application
If it is
If it is complete incomplete Default Default not
occurre occurred
d
NOTICE OF REJECTION
Adjudicating Authority shall before rejecting application, give notice
to applicant to rectify defects in application within 7 days from the
date of receipt of such notice
TIME BOUND
180 270
days 90 days days
(Maximum)

FAST TRACK :

45 days
135
90 days (One time) days

Adjudicating Authority after admission of application shall, by

an order

Appoint Interim
Declare a Cause a Public
Resolution
Moratorium Announcement
Professional
 MORATORIUM EFFECT(hold)
[Sec.14 (1) (A) – (D)]
Adjudicating Authority shall by order prohibit the
following:
 Institution/continuation/proceedings of suits including
execution of any judgment, decree or order in any
Court
 Transferring, encumbering, alienating or disposing of
assets/legal right/beneficial interest
 Any action to Foreclosure, Recover or enforce any
security interest created including any action under
SARFAESI Act, 2002
 Recovery of any property by owner or lessor where
such property is occupied
 MORATORIUM EFFECT
[Sec.14 (1) (A) – (D)]
• Objective
 Maximizing value of the Entity to Continue Operation
 No additional stress on Business
- Supply of essential goods or services to the Corporate Debtor as may be
specified shall not be terminated or suspended or interrupted
- Central Government in consultation with any financial regulator may specify
such transactions.

• Order of Moratorium made by

Adjudicating Authority;
-
Start from Date of Admission of
MORATORIUM PERIOD
[sec 14(1)]
Application;
• Cease to effect
– Date of
Approval of Resolution Plan or
Liquidation Order
 PUBLIC ANNOUNCEMENT

 Public announcement contain following information:

 Name & address of defaulted Corp. Debtor

 Name of Registrar with which Corp. Debtor is incorporated
or registered
• Last date for submission of Claims
• Details of Interim Resolution Professional
- Management of Corporate Debtors
- Responsible for Receiving claims
• Penalties for False or Misleading Claims
• Date on which the Insolvency Resolution Process close (i.e.
180 days from the date of admission of application)
 Public Announcement shall be made in such manner as may
be specified
 INTERIM RESOLUTION
PROFESSIONALS
APPOINTMENT:
Appointment by Adjudicating Authority within 14 days from Admission of
Application

TENURE:
Shall not exceed 30 days from date of Appointment

Once IRP is appointed :

FI maintaining
Management Officers & accounts of
Powers of BOD/
of affairs of Managers of Corp. Debtor
Partners (LLP) shall
Corp. Debtor Corp. Debtor shall follow
stand suspended &
shall vest with shall report to instructions of
will be exercised by
IRP IRP IRP
IRP
 RESOLUTION PROFESSIONAL
 Appointment by Committee of Creditors may in their first
meeting
 within 7 (Seven) days of Constitution of Committee
 Resolve to appoint the Interim Resolution Professional as a
Resolution Professional (OR)
 Replace the Interim Resolution Professional by another
Resolution Professional.
 Resolution Professional shall conduct the entire Insolvency
Resolution Process and manage the operations of the
company during the corporate Insolvency Resolution Process
Period.
 Resolution Professional shall exercise all such powers and
duties as are vested on the Interim Resolution Professional.
 All Meetings of the Committee of Creditors shall be
conducted by the Resolution Professional
DUTIES OF RESOLUTION PROFESSIONALS
MEETING OF THE COMMITTEE OF CREDITORS
• Convene & attend all meetings
• Present all resolution plans at the meetings

DOCUMENTS
• Maintain an updated list of claims
• Prepare the information memorandum

RIGHTS
• Take immediate custody and control of all the assets including
business records of the company/LLP
• Represent and act on behalf of the company/LLP with third
parties
REPLACEMENT OF RESOLUTION
PROFESSIONALS
CoC to replace the Resolution Professional any
time during the pendency of IRP.
CoC may forward name of another Insolvency
Professional to the Adjudicating Authority
The Adjudicating Authority shall forward name
of proposed Resolution Professional to the
Board for confirmation
On confirmation being received from the Board,
appoint him as Resolution Professional
 COMMITTEE OF CREDITORS
Position of Financial Creditor when he is an Operational
Creditor:
 shall be considered Financial Creditor to the extent of
Financial Debts;
 Voting Shares to the extent of Financial Debts;
 Operational Creditor to the extent of Operational Debt;
Assignment of Operational Debt
 If an Operational Creditor has assigned or legally
transferred any Operational Debt to a Financial Creditor, the
Assignee of Transferee shall be considered as an
Operational Creditor to the extent of such assignment or
legal transfer.
 Determination of Voting Share by Financial Creditor
 IBC Board may specify the manner of determining of voting
 COMMITTEE OF CREDITORS
The Interim Resolution Professional shall -

Collate all claims Determine of financial

AND
position

Constitute a Committee of Creditors– comprising of all Financial

Creditors
All decisions of Committee taken by vote of not less
than 75%
• .
A resolution plan is a proposed rehabilitation
plan submitted by the resolution applicant
including provisions for
restrcturing,merger,amalgamation,demerger.it
is an expression of interest from potential
resolution applicants and is prepared on the
basis of the information memorandum given
by the resolution professionals.
 RESOLUTION PLAN
 Preparation of Information Memorandum for formulating a Resolution
Plan
 Providing to Resolution Applicant access to all relevant information
 Resolution Applicant will submit a Resolution Plan to the Resolution
Professional prepared as per Information Memorandum
 Examination of Resolution Plan
 Presentation of RP to CoC for Approval
 Submitting Resolution Plan to Adjudicating Authority
 Adjudicating Authority may by order approve the Resolution Plan;
 Moratorium Period ends
 R P will be binding on the Corp. Debtor, its Employees, Members,
Creditors, Guarantors & other Stakeholders
 If Resolution Plan not approved or
- Not ready within 180 days or
- Adjudicating Authority rejects the Resolution Plan
 It will pass a Liquidation Order.
 R P will act as a Liquidator and all the powers of the Board of Directors
 WATERFALL MECHANISM UNDER IBC
The following debts will be paid in PRIORITY given below:

Insolvency Resolution Cost & Liquidation Cost;

Debts to Secured Creditor (who have relinquished their security

interest) & Workmens’ dues (for 24 months before commencement);

Wages & Unpaid Dues to employees (other than workmen) (for 12

months before commencement);
Financial Debts to Unsecured Creditors;
Workmen’s Dues for earlier period;
Crown Debts
(due to king/states)and Debts to Secured Creditor following
Enforcement of Security Interest;
Remaining Debts;

Preference Shareholders;

Equity Shareholders or partners.

 NEW INSTITUTIONS
INSOLVENCY & INSOLVENCY
INFORMATION
BANKRUPTCY PROFESSIONAL
UTILITY
BOARD OF INDIA AGENCY
KEY BENEFITS
Time bound settlement of
Insolvency.

Banks & Asset

reconstruction companies
immediate gainers

Comprehensive coverage-
Companies, LLP, Individuals
& more can be added

Database of Serial
Defaulters

Protect workers
 CHALLENGE
Not a Magic – Benefits follow after 3-5 years from now.
 To create Large pool of Insolvency Professionals.
 Draft Procedural Rules for
 Insolvency Professionals
 Information Utilities (record of asset.L or debt )
 Establishment of several new institutional mechanisms.
 High value of Performance Bond
 Order of priority to Distribute Assets
 Secured Creditors – why not upto Collateral Value?
 Unsecured creditors have priority over Trade Creditors?
 Government Dues – after unsecured creditors ?
 Formation of Multiple Information Utilities – Information about a
Company may not be available through a Single IUs
 Insolvency & Bankruptcy Fund- manner of usage of the Fund ?
 PROFESSIONAL AVENUE
Interim Resolution Professional
Resolution Professional
To prepare Resolution plan
To Represent
- Financial Creditor;
- Operational Creditor;
- Corporate Debtor
before NCLT- DRT & NCLAT- DRAT
To represent the Winding Up cases before the
Tribunal
To prepare scheme & seek approval from Tribunal
for Revival & Rehabilitation of Sick Cos.
THANK YOU!