IBC Introduction Guide

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An Introduction to the Insolvency and Bankruptcy Code 2016
Workshop on IBC, Bangalore Branch of SIRC – August 28, 2018
Presented By: Sandeep Jhunjhunwala, FCA

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Presentation Overview
Summary
Why is it needed?
Belling the Bankruptcy Cat!
Why India's bankruptcy laws are such a mess?
Can the new bankruptcy law prevent more Vijay Mallyas?
The Build up to the Code
The Legal Framework
Key Features
Insolvency resolution process for corporate debtors
Liquidation process
Cross Border Insolvency
Insolvency resolution process for non-corporate debtors
International Experience
New Opportunities/ Scope for Chartered AccountantsWorkshop on IBC
Bangalore Branch of SIRC
August 28, 2018
Sandeep Jhunjhunwala

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Old disease, New Prescription
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Why is it needed? Indian banks, neck-deep in bad debts
Content
India has one of the worst bad-loan ratios among the world’s 10 largest economies, with the Reserve Bank
of India predicting an increase to 12.2 percent by March 2019 from 11.6 percent in March 2018
Banks have become increasingly vulnerable to poor recovery on loans made to corporates
The RBI had introduced new rules on February 12, 2018 on restructuring bad loans and a 180-days
timeline for banks to recast loans once payments are missed, scrapping previous methods that could take
an indefinite amount of time
With the deadline ending on August 27, 2018, banks will be required to push unresolved cases to NCLT
benches for resolution
Workshop on IBC
August 28, 2018
Source: The Hindu

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Belling the Bankruptcy Cat!
Content India is a capital starved country - essential that capital isn’t frittered away on weak and unviable
businesses. Quick resolution of bankruptcy can ensure this.
Economy saddled with NPAs
‘19th Century’ approach to doing business will only create ‘third-class’ companies - Niti Aayog CEO
Erstwhile laws governing insolvency were fragmented, multi-layered and adjudication of insolvency matters
take place in multiple fora, resulting in development of an unpredictable regime
Entire process of winding up was very long-winded, with Courts, Debt Recovery Tribunals and the Board for
Industrial and Financial Reconstruction (BIFR) all having a say in the process
Erstwhile system did not address the interests of unsecured creditors (such as Bond holders etc), foreign
creditors or institutions other than Banks (NBFCs etc)
Creditors should not be stymied by red-tape and promoters should directly become accountable for any
financial lapses
The Code, by forcing failed firms to shut shop, can lead to a survival of the fittest in the market too
US has a Bankruptcy Code that provides for fairly quick liquidation or reorganisation of business. It's
time for India to follow suit if it needs to prevent the economy from tumbling southwardsWorkshop on IBC
August 28, 2018

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Content World Bank reckons that it takes more than 4 years to wind up an ailing company here, almost twice as long
as it does in China, 1.5 years in high-income member countries of OECD – Dismal Statistic!
Recovery of debts - stuck at ~26 cents on the dollar, among the worst in emerging economies (78.6 cents in
the US, 88.6 cents in the UK)
Nearly 60,000 bankruptcy cases languish in India's overburdened courts
Painfully slow pace as courts try to interpret a variety of conflicting laws that cover insolvency:
– Ailing companies have to wait until their net worth is reduced by half before they qualify as “sick”
– Regulations on land and labour which prevents selling of property/ laying off
– Some laws forbid creditors from taking any legal action against the defaulter until a restructuring plan is
in place which can take several years
Kingfisher, once India's second-biggest airline, provides an illuminating example. The Company was
grounded in 2012 with debts of over USD 1.5 billion. But it was not until February of this year that its long-
suffering creditor banks got their hands on its former headquarters in Mumbai.
With respect to insolvency resolution, India's rank is as low as 136 (out of 189) compared to Singapore's
27, Australia's 14, UK's 13, and USA's 5
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Workshop on IBC
August 28, 2018
Source: Debtwire.com and The Hindu

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Can the new Bankruptcy law prevent more Vijay Mallyas?
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Can the new bankruptcy law prevent more Vijay Mallyas?
Content Defaulting promoters, wilful or otherwise, are known to hide behind the shield that the law provides, treating
a company as a separate legal entity, distinct from its promoters, shareholders and directors
Ruse of many defaulters - Following the doctrine of limited liability, the law recognises that the liability of
the shareholders of a company is limited to the extent of their contribution
When lenders turn on the heat, defaulters take a ride on the creaky over-burdened Bankruptcy and
insolvency system
Piercing the corporate veil for default may have a chilling effect on entrepreneurial activity, the Courts
have been conscious of this
IBC proposes to bring recalcitrant defaulters to book by empowering creditors to initiate the process at an
early stage to replace the Management
Provides for takeover of Management by Insolvency Professionals nominated by the creditors.
Professionals to have the flexibility to bring in turnaround specialists and consultants to achieve the desired
business results
Provides for liquidation of a company at the earliest opportunity to minimise losses for debtors and
shareholders. To deal with instances of asset stripping, the Code provides for avoidance actions to set
aside fraudulent transactions intended to siphon of assets (or Extortionate credit transaction etc)
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Dead Horses
Content Troubled companies in India, or their creditors, largely turn to the Official Liquidator, a government-
appointed officer attached to the Country's High Courts, who administers assets and oversees liquidation
Based on performance records so far, Official Liquidator system seems to have been a complete disaster!
Banks can also turn to separate Debts Recovery Tribunals (DRT), partly staffed by officials on assignment
from the banks themselves and overseen by the Ministry of Finance
DRT - officials have little power to draw a line under languishing cases
Both are overstretched - always outnumbered by teetering pillars of files
Presence of multiple adjudication fora creates opportunities for debtor firms to exploit arbitrage to frustrate
the recovery efforts of creditors and to adversely impact timeliness of resolution process
Reform process has so far taken the approach of "interim fixes designed to solve the problem at hand"
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August 28, 2018

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The Story so far – Resolved cases
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The Story so far – Top 40 bankruptcy cases
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August 28, 2018
Sandeep Jhunjhunwala Source: Debtwire.com and The Hindu

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The Story so far – Days in resolution process
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August 28, 2018

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The Story so far – Cases by NCLT Bench
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Background
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Content
A Code, as per Black's law dictionary, defined as 'a collection or compendium of laws'
In legal parlance, refers to a systematic and comprehensive compilation of laws, rules or regulations
that are consolidated and classified according to a particular subject matter
Bankruptcy Code - A comprehensive compilation of laws, rules and regulations pertaining to the subject of
bankruptcy law in India
No single umbrella legislation governed insolvency and bankruptcy proceedings in India
Instead, there was a slew of legislation governing the legal framework, including:
– Companies Act 2013
– Sick Industrial Companies (Special Provisions) Act 1985
– Recovery of Debts Due to Banks and Financial Institutions Act 1993
– Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002
– Presidency Towns Insolvency Act, 1909
– Provincial Insolvency Act, 1920
– Forums such as the Debts Recovery Tribunals, Company courts and the National Company Law
Tribunals
Single piece of legislation to connect the various insolvency laws had been on the cards for some time
(nothing moves quickly here!)
Century Old, Archaic
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Content
1 The Tiwari Committee (1985), which introduced the Sick Industrial Companies Act, Narasimhan Committee I and II (1991 and 1998), which
introduced the Recovery of Debts Due to Banks and Financial Institutions Act and the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, Justice Eradi Committee (1999), which introduced changes to the Companies Act and proposed the repeal
of the Sick Industrial Companies Act, LN Mitra Committee (2001) which proposed a comprehensive bankruptcy code
Various committees1 have explored the idea of consolidating India's insolvency and bankruptcy laws
It was not until November 4, 2015 that the Bankruptcy Law Reforms Committee (chaired by former
Secretary General, Lok Sabha and former Union Law Secretary – Sri TK Viswanathan) submitted its final
report which recommended the passage of the Insolvency and Bankruptcy Code, 2015
On December 21, 2015, the FM tabled the Code before the lower house of the Indian Parliament (Lok
Sabha); was referred to a Standing Committee, which gave its report on April 28, 2016
Code 2016 passed by the Lok Sabha (Lower House of the Indian Parliament) on May 5, 2016 and by the
Rajya Sabha (Upper House of the Indian Parliament) on May 11, 2016
Received the assent of the President of India on May 28, 2016
A giant leap forward in terms of streamlining India's somewhat scattered insolvency laws into a single piece
of legislation which governs bankruptcy and insolvency for all debtors, including companies, limited liability
entities (including LLPs and other entities with limited liability), unlimited liability partnerships and
individuals
Substantive provisions of the code commenced from December 2016 (certain provisions of the Code
came into force from August 5, 2016 and August 19, 2016 as well)
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Content Code also seeks to repeal the two insolvency Acts of 1909 and 1920 (Presidency Towns Insolvency Act,
1909 and Provincial Insolvency Act, 1920) and amend many of the existing statutes that govern
insolvency proceedings
Code is aligned with the Government's initiative to make doing business in India easier
Easy of doing business is not only convenient entry into the market but also an easy exit
Aimed at creating an overarching framework to make it easier for sick companies to either wind up their
business or engineer a turnaround, and for investors to exit
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The Legal Framework
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The Legal Framework
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The Legal Framework
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The Legal Framework
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The Legal Framework
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The Legal Framework
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The Legal Framework
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Preamble and Structure
A Code to:
Code has 255 sections divided into
5 Parts as below (+12 schedules)
Part I
Preliminary
1 Chapter
Section 1 - 3
Long Title Structure
Part II
Corporate
Insolvency
Resolution Process
7 Chapters
Section 4 – 77
Part III
Insolvency
Resolution and
Bankruptcy for
individuals and
Partnership Firms
7 Chapters
Section 78 – 187
 Of corporate persons, partnership firms
and individuals in a time bound manner
 For maximization of value of assets of such
persons, to promote entrepreneurship,
availability of credit and
 Balance the interests of all stakeholders
including alteration in the order of priority of
payment of Government dues and
 Consolidate and amend the laws relating to
reorganisation and insolvency resolution
Content
 To establish an Insolvency and Bankruptcy
Board of India, and for matters connected
therewith or incidental thereto
Part IV
Regulation of
Insolvency
Professionals,
Agencies and
Information Utilities
7 Chapters
Section 188 – 223
Part V
Miscellaneous
Section 224 – 255
(Section 245 - 255
enables
amendments in
other statutes such
as Companies Act
2013 etc)
Schedules
First -Twelfth
Schedule
(Schedules provide
for amendments to
be carried out in
other statutes such
as Companies Act
2013, IT Act 1961)
Divided into various chapters, the Code aims to address the different aspects of insolvency and bankruptcy
proceedings and the varying processes used by different types of debtors
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Key Features
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Key Features
Content Aims at consolidating all existing insolvency related laws as well as amending multiple legislation
including the Companies Act
Would have an overriding effect on all other laws relating to insolvency & bankruptcy (Section 238)
IBC proposes a paradigm shift from the existing ‘Debtor in possession’ to a ‘Creditor in control’ regime
Applicable to both corporate and non-corporate persons
Facilitates early detection by permitting all creditors (whether secured, unsecured, domestic, international,
financial or operational) to trigger resolution processes
Establishes the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, the National
Company Law Tribunal (NCLT) as an adjudicating authority for corporate entities, and Debt Recovery
Tribunal (DRT) as adjudicating authorities for non-corporate persons
Establishes a 180+90 day moratorium (quiet/ silent/ standstill period) on acceleration and enforcement of
debts against the company
Provides for the replacement of existing management with resolution professionals during insolvency
proceedings to prevent asset-stripping etc
Provides for predictable and time-bound viability assessment mechanisms, liquidation processes and
distribution waterfalls
Insolvency – A situation when an individual/ firm is unable to meet the financial obligations due to its creditors
Bankruptcy – A legally declared status that an individual/ firm cannot repay debts
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Key Features
Content Provides for penalties on promoters for asset diversion leading up to liquidation
Provides for provisions dealing with extraordinary situations such as Extortionate credit transactions etc
Waterfall to render government dues junior to most others is significant
Provides for penalties on promoters for asset diversion leading up to liquidation (Antecedent
transactions)
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Key Principles
Content Early trigger, empirical too
Management Workout > Creditors Workout > Formal workout > Liquidation
Individual remedies – Secured/ Unsecured creditors (Enforcement of security, Monetary claim)
Collective remedies – Secured/ Unsecured creditors (Resolution, Liquidation)
Liquidation Estate - Pari Passu Principle/ Equal Footing equally managed without any display of preference
Voidable transactions (fraudulent preference, fraudulent transfer, undervalued transactions, extortionate
credit transactions, anti-deprivation)
Penalties – Stiff and Frivolous
Overriding effect (First charge conflict with laws such as GST?) Recent ruling in the context of income tax -
VNR Infra
Insolvency Resolution Process (IRP) will involve a process of negotiation between debtors and creditors,
outside the court through the Resolution Professional (RP), leading up to a repayment plan
Liquidation is a process led by the Adjudication Authority, once the IRP has failed
Fast track IRP – An abridged version of IRP for smaller firms or corporates with simpler debt structures
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Time Bound Insolvency Resolution Process
Content
Filing of
insolvency
resolution
application before
the NCLT on
occurrence of
“default”
14 Days 14 Days 30 Days
180 Days (extendable by 90 days), Extendable once, only under exceptional circumstances
Adjudicating
Authority
shall admit
or reject the
application
If Admitted
Adjudicating
Authority to
appoint Interim
Resolution
Professional
First
Meeting of
Committee
of Creditors
(“CoC”) and
Appointment
of Final
Resolution
Professional
Restructuring
plan conforming
to the Code
approved by 66
percent of
financial
creditors
If rejected On Admission
7 days
window to
rectify the
application
– Imposition of
Moratorium Period
– Vesting of
Management Powers
– Corporate insolvency
process shall
commence from the
date of admission of
application
Approved Rejection
Resolution Plan
becomes binding
on all
stakeholders
and needs to be
implemented
Adjudicating Authority
issues liquidation
order and public
announcement stating
that corporate debtor
is in liquidation
Who can file application?
Financial Creditors (Banks/ Bond holders), Operational Creditors (Trade Creditors), Corporate Debtor itself
– Application filing procedure for these 3 group of applicants under the Code varies
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Key Points on Insolvency Resolution Process
Content Default [Sec 3(11), 3(12), Sec 4(1)] - State where debt exceeding INR 1 lakh is not paid by corporate debtor
Default cap ie INR 1 lakh could be increased to INR 1 crore by the Central Government [Proviso to Sec 4(1)]
Such cash flow based assessment could aid in early detection of insolvency trends, seems better
than net worth/ balance sheet based assessments prescribed under the erstwhile laws
Sec 5(20), 5(21) - Operational Creditor includes employees, Central and State Governments, any local
authorities – needs to give a 10-days notice demanding payment
Financial Creditor - Can file proceedings with the NCLT along with proof of default. Shall also suggest an
interim resolution professional to manage the defaulter
Corporate Debtor - Defaulting company, its shareholder or management personnel can start proceedings by
making a reference to the Adjudicating Authority upon occurrence of any default
“Creditors in control approach” as against “Debtors in possession” approach in Bankruptcy laws of the
US
Financial creditors to take all key decisions in relation to company’s resolution plan (approbation of 51
percent in value or 66 percent in case of significant decisions)
Potentially creates risk the minority creditors being disenfranchised
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Key Points on Insolvency Resolution Process
Content Operational creditors with more than 10 percent aggregate exposure have mere "observer status" during the
CoC meetings
Suspended BoD or partners eligible to attend meetings of Committee of creditors, but not eligible to vote
Absence of any such director, partner or representative of operational creditors, as the case may be, shall
not invalidate proceedings of such meeting
Threat of automatic liquidation can create strange results – May push the recoverable companies into
liquidation, thereby disrupting markets
The above point also holds true for the resolution applicant too
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Liquidation Process
Content
Trigger event:
– CoC doesn’t agree on
workable resolution plan
with 180 (+90) days
– CoC decides to liquidate
– NCLT rejects plan
– Debtor contravens plan
RP to be appointed as
liquidator by AA, unless
replaced by CoC. Powers
of BoD/ Partners to vest
with the Liquidator
Liquidator to identify the
assets of the corporate
debtor and form
“Liquidation Estate” and
hold such estate as
fiduciary for the Creditors
Liquidator to collect claims
from creditors within 30
days from commencement
of liquidation
Liquidator to verify such
claims within such time as
may be specified by the
Board (IBBI)
Liquidator to either admit
or reject claims and
communicate within 3
days of such admission or
rejection
Secured creditors to
identify assets offered to
them as security against
the sums owed to them
Liquidator to verify claims
of secured creditors and
discharge the secured
payments
Excess money realized by
secured creditors from the
liquidation of secured
assets to be accounted
and remitted to Liquidator
Any short recovery of
secured debts by a
secured creditor to be
treated as unsecured debt
and repaid in the specified
order of priority
After paying off secured
creditors, the unsecured
debts are to be paid off in
specified order of priority
If all the assets of the
corporate debtor are
completely liquidated, the
liquidator shall apply for
dissolution of corporate
debtor before NCLT
NCLT to pass an order
dissolving the corporate
debtor from the date of
such order
Copy of such order to be
forwarded to the RoC
within 7 days from the date
of such order
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Liquidation Estate – Inclusions and Exclusions
Content
Inclusions [Sec 36(3)] Exclusions [Sec 36(4)]
Any assets over which the corporate debtor has ownership
rights
Assets that may/ may not be in possession of the corporate
debtor, including encumbered assets
Tangible assets (movable/ immovable)
Intangible assets (such as IPs), securities, financial
instruments, insurance policies, contractual rights
Assets subject to determination of ownership by Courts
Assets recovered through proceedings for avoidance of
transactions
Asset in respect of which secured creditor has relinquished
security interest
Any other property vested in the corporate debtor on the
insolvency commencement date
All realization proceeds of liquidation
Assets in the possession of corporate debtor
but owned by third parties
Assets in security collateral held by financial
service providers
Personal assets of shareholder or partner of
corporate debtor
Assets of subsidiaries (Indian/ foreign) of the
corporate debtor
Any other assets as may be specified by the
IBBI
Compared with
existing laws, the
ambit of excluded
assets under IBC is
extended
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Distribution of Assets/ Waterfall Mechanism (Sec 53)
Content Insolvency
Resolution and
Liquidation Cost
Secured Creditor
+ Workmen’s
dues (24M)
Wages/ unpaid dues
to employees(12M)
Unsecured
Creditors
Central and State
Government
Dues
Any remaining
debts or dues
Preference
Shareholders
Equity
Shareholders/
Partners
In case of
liquidation, the
assets of the
corporate debtor
will be sold and the
proceeds will be
distributed amongst
the creditors in the
following order of
priority:
1. Government dues
(including tax) rank lower
than the unsecured
creditors and wages as
against the exiting regime,
where after secured
creditors and workmen
dues, Government dues
take preference on
liquidation payouts.
2. Ring-fenced priority for
workers – Priority being
awarded to salaries up to
24 months over all other
creditors (including
secured creditors)
KEY CHANGES
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Real
Estate
Allottee?

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Fast Track Corporate Insolvency Resolution
Content Application for fast track insolvency resolution may be made in respect of corporate debtor:
– Small company as defined under Clause (85) of Section 2 of Companies Act, 2013 (18 of 2013)
– Startup (other than partnership firms) as defined in the Notification of the Government of India in the
Ministry of Commerce and Industry number GSR 501(E) dated May 23, 2017 published in the Gazette
of India, Extraordinary, Part II, Section 3, Sub-section (i), dated May 23, 2017
– Unlisted company with total assets, as reported in the financial statement of the immediately
preceding financial year, not exceeding INR 10 million
Notified with effect from June 14, 2017 (Sections 55 to 58 under Chapter IV)
Fast Track Insolvency process to be completed within 90 days from commencement date
Provision for 1 extension only, for a period of 45 days (needs a resolution passed at a meeting of CoC
and supported by a vote of 75 percent)
Process may be initiated by a creditor or corporate debtor by furnishing proof of default or any other specified
details
Process largely the same as that for regular insolvency resolution
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Voluntary Liquidation
Content Provisions of Section 59 (under Chapter V) effective from April 1, 2017
May be initiated by the corporate debtor even without existence of default
Declarations from majority of directors needed, to be verified by an affidavit of solvency
Special resolution of members needs to be passed within 4 weeks of declaration by directors
Resolution to be approved by creditors representing 2/3rd value of debt within 7 days of the members
resolution
RoC and the Board to be notified of the decision to voluntarily liquidate within 7 days of passing such
resolution and subsequent approval by the creditors
Liquidation process shall commence from date of passing resolution
Liquidator to make application to NCLT for dissolution
NCLT to pass an order dissolving the corporate debtor from the date of such order
Copy of such order to be forwarded to the RoC within 14 days from the date of order
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The Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018
Content Amends the Insolvency and Bankruptcy Code, 2016 to clarify that allottees under a real estate project should
be treated as financial creditors
- Explanation inserted to the definition of ‘financial debt’ contained in sub-section (8) of Section 5 of IBC
2016 which states that 'any amount raised from an allottee under a real estate project shall be deemed
to be an amount having the commercial effect of a borrowing'.
- Borrows the definitions of ‘real estate project’ and ‘allottee’ from Section 2 of the Real Estate
(Regulation and Development) Act 2016
- Rights of home buyers in case of insolvency of the developer under the Code:
- Participation in the Committee of Creditors: Under Section 21 of IBC the Code, an allottee will be
entitled to participate in the Committee of Creditors and will have a say in the resolution process
(vote share of the home buyers would be proportionate to the value of their advances)
- Distribution of assets: Allottees should now be in a positon to take precedence over non-financial
unsecured creditors and jump ahead in the line to stand as unsecured creditors
- As per Section 6 of IBC, financial creditors can initiate insolvency proceedings against a corporate
debtor upon the corporate debtor ‘committing a default’. The default referred to is default in payment of
monies by the corporate debtor to the financial creditor.
- Generally, terms of allotment letters/ agreements for purchase of under construction flats provide for
repayment of monies by the developer only upon termination of allotment. Thus, for any default in
repayment to have occurred, the home buyer must terminate the agreement/ allotment entered into with
the developer and demand a refund of the monies paid towards such allotment. It remains to be seen
whether allottees will be able to actually initiate insolvency proceedings in the absence of such
termination and demand for refund.
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The Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018
Content - Moreover, in some cases developers direct home buyers to pay allotment consideration to a group
entity or land-owning entity owing to internal arrangements. In such cases home buyers may be left
without any recourse under IBC, in case of insolvency of the developer given that monies have not
actually been paid to the developer at all
- Generally, home buyers are interested in getting constructed homes and not merely their money back.
RERA is the only law in India today which recognises this and specifically provides (under Section 8)
rights to the competent authority or association of home buyers to step in and complete construction in
case the registration of the developer is revoked
- Whether such home buyers can insist on getting constructed flats under IBC is to be seen and its likely
that they would receive refund of their monies paid. Whether interest and compensation would be part
of that refund also needs to be evaluated
Allows the withdrawal of a resolution application submitted to the NCLT under the Code. This decision can
be taken with the approval of 90 percent of the Committee of Creditors
Voting threshold for routine decisions taken by the Committee of Creditors reduced from 75 percent to 51
percent. For certain key decisions, this threshold has been reduced to 66 percent
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Adjudication, Offences and Penalties
Content NCLT – Adjudicating authority in relation to insolvency resolution/ liquidation for corporate persons/ corporate
debtors including personal guarantors thereof
Appeal against the order approving resolution plan could be filed on the grounds of contravention of laws,
material irregularity, non-compliance with the statute etc
Appeal lies before the National Company Law Appellate Tribunal (NCLAT) followed by the Supreme Court
for orders issued by NCLT
No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter
on which NCLT or NCLAT has jurisdiction under this Code
Penalties (Sec 68 - 77) prescribed for:
– Concealment of property
– Undertaking transactions defrauding creditors
– Misconduct in course of corporate resolution insolvency process
– Falsification of Books of corporate debtor
– False representation to creditors
– Contravention of moratorium or resolution plan
– Non-disclosure of dispute or repayment of debt by operational creditor
Imprisonment for a term of 1-5 years + Monetary penalty in the range of INR 100,000 - 10,000,000
Insolvency Professional contravening the provisions of this Code liable for imprisonment upto 6 months
and monetary penalty in the range of INR 100,000 – 500,000
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Challenges
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Challenges
Content Are 180/ 270 days enough?
– Notoriously slow legal system in India
– Unlike the US Chapter 11 process, where the resolution plan is initially proposed by the company itself,
in the India Code, any creditor can propose a resolution plan. It is, therefore, likely to be flooded with a
mass of resolution plans
– Insolvency professional would need some time to understand the company, its cash flows, essential
operational creditors, etc, before it can prepare an Information Memorandum (IM), Resolution Plan
– Depends on whether a lively and robust insolvency professionals’ market develops in India
– Failure to adhere to 180/ 270 timeline results in commencement of liquidation process
– Currently winding up of companies vests on the wisdom of the High Court/ NCLT
Financial Creditors vis-à-vis Operational Creditors Bargain:
– Operational creditors denied a seat at the Creditors committee table
– NCLT, when reviewing the resolution plan, needs to ensure that operational creditors are treated fairly
– Overtly benefiting operational creditors may unduly tip the delicate inter-creditor balances
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Challenges
Content Secured creditors vis-à-vis Unsecured creditors Bargain:
– No demarcation for secured and unsecured creditors
– Creditors Committee comprises of all financial creditors and resolution plan is to be approved by 66
percent (in value) of all financial creditors (regardless of whether secured or unsecured)
– If secured creditors constitute less than 34 percent of the financial debt, unsecured creditors could be
able to “cram down” a resolution plan on such creditors
– Statute should respect the seniority of secured creditors as a class; Re-look at the treatment of
secured creditors is merited
– While the Code does protect the rights of secured creditors in a liquidation, at that stage the value of
the secured creditor’s collateral would have further eroded and the costs of the insolvency process
would also rank ahead of the secured creditors
Provision for reinstatement of Management powers after the conclusion of Resolution Plan not
provided
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Challenges
Content Operational Challenges:
– Reaping the slew of benefits entailed by the Code warrants the setup of several new entities (in
tandem with its 4 pillars – NCLT/ DRT, IBBI, Information Utilities and Insolvency Professional
Agency) and addressing existing inefficiencies such as pendency and disposal rate of DRTs
– Huge force of trained and skilled insolvency professionals
– Robust utilities with state of the art technologies
– Looking at the infrastructural requirements and similar to the Companies Act, different provisions of the
Code have been notified on different dates, as and when the corresponding infrastructure is ready for
implementation
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Content
IBC has not adopted the United Nations Commission on International Trade Law (UNCITRAL) model of
cross border insolvency
Currently ~40 countries (including USA, UK, South Africa, Japan, Australia, Canada, Mauritius etc) have
substantially implemented the UNCITRAL model law into their domestic legislation
In order to identify the principal jurisdiction the UNCITRAL model law utilises the Centre of Main Interest (or
COMI) concept. The working assumption is that any international business will nonetheless have COMI,
where the principal insolvency should take place. As far as possible the assets and claims should be
channeled back to that main jurisdiction, and all other jurisdictions should seek to limit the exercise of their
insolvency regimes to assisting with the liquidation of assets in their countries, staying of claims, redirecting
of claims back to the principal jurisdiction.
IBC for the first time attempts to addresses the issue of cross border insolvency given the multi
jurisdictional spread of assets of large corporate houses
Sec 3(27) – ‘Property’ includes "money, goods, actionable claims, land and every description of property
situated in or outside India…."
Code stipulates a two pronged solution (or enabling sections):
– Section 234 – Central Government may enter into agreements with any other country for enforcing the
provisions of the Code and notify applicability of the same from time to time
– Section 235 - Adjudicating Authority to have the ability to issue ‘letter of requests’ to the courts/
authorities of other countries for seeking information/ requesting action in relation to assets of the
debtor situated outside India
– Sections 234 and 235 notified to be effective from April 1, 2017
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August 28, 2018

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Dealing with Personal
Insolvency
Content
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Fresh Start – Eligibility and Process
Content Target group – For indigent, Bottom-of-the-pyramid
individuals with little or no money and assets
– Gross income < INR 60,000
– Assets < INR 20,000
– Qualifying Debt < INR 35,000
– No dwelling unit/ home ownership
– No previous fresh start order under this Chapter
has been made in relation to him in the preceding
12 months of the date of the application for fresh
start
Akin to waiver of debt, based on adjudication
Not automatic – DRT exercises discretion - admission,
discharge order at the end of moratorium period
Creditors can challenge
Discharge from only ‘qualifying debts’ - unsecured, upto
INR 35,000
Moratorium + Completion time – 6 months
Decision of the Resolution professional - Appealable
before the DRT
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August 28, 2018
Source: The Hindu

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Fresh Start – Pluses and Inadequacies
Content Good to abolish politically motivated loan-waivers which destroys the credit culture
Smooth process of dealing with insolvent poor people could potentially de-politicise the problem
Paltry limits of income, assets and debt fixed by the Code
Government should notify/ modify the limits at an agreed time interval, Code should not fix such limits
Thresholds designed using the Deprivation Index and Key indicators of debt and investment in India for
2013 and would need revision/ rethinking over a period of time
Seems impractical that an individual seeking relief in respect of debt upto INR 35,000 could afford the fee
and expenses of resolution process/ insolvency professional
Section 85(3)(f) – Debtor to make overseas travel during moratorium period after getting permission. Can
such segment afford overseas travel!
Idea behind this scheme may be financial inclusion, but whether the population segment covered will at all
be able to reach out to institutional framework is doubtful
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Insolvency Resolution and Bankruptcy
Content Insolvency Resolution Process (Sec 94 – 120)
– Negotiated repayment plan for restructuring debts/ affairs
– Resolution Professional to supervise the implementation of repayment plan
– Trigger of Bankruptcy - Not automatic
– Only failure to comply can lead to Bankruptcy
– Maximum time period - 6 months
Bankruptcy Process (Sec 121 – 178)
– Last resort
– Liquidation of estate of the Bankrupt
– Public notice inviting claims from creditors
– Discharge in a year
– Priority of payment of debts
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Insolvency Resolution and Bankruptcy
Content Linear Process
– Moratorium on fresh legal proceedings
– Trigger event - default in payment of debt
– Waterfall similar to corporate insolvency
– Provision for debt waiver
– Penalties prescribed for the Bankrupt and Bankruptcy trustee
Differences from the corporate process
– Distinction between financial and operational creditors absent
– Liquidation is not automatically triggered
– Secured creditors can stay out of Insolvency Resolution Process by enforcing security interest
– Interim moratorium starting from date of application to prevent coercive debt recovery action
– Fresh start
– NCLT – DRT
– Fast track Scheme
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August 28, 2018

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Insolvency and
Bankruptcy Ecosystem
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August 28, 2018
Content

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Role of IBBI
Content Insolvency and Bankruptcy Board of India (IBBI) - Insolvency Regulator
http://www.ibbi.gov.in/
Exercises a range of legislative, administrative and quasi-judicial functions
Instead of making the IPs and/or IPAs self-regulated, the Board has been assigned with the responsibility of
regulating their performance and laying down the standards of performance
Powers and Functions – Section 196 (Chapter II) of the Code
Advisory committee, Disciplinary Committee, Technical Committee, Internal Complaints Committee
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August 28, 2018
GOVERNING
BOARD

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Insolvency and Bankruptcy Ecosystem
Content
Insolvency Professionals
– IPs are professionals registered with IBBI, who would act as Interim Resolution Professional/
Resolution Professional / Liquidator/ Bankruptcy Trustee in insolvency resolution process
– IBBI is the apex body governing Insolvency and Bankruptcy Code. Its role is to set up the necessary
infrastructure and accredit Insolvency Professionals (IPs) and Information Utilities (IUs).
Insolvency Professional Agencies
– Insolvency Professional Agencies (IPAs) admit insolvency professionals as members amongst other
responsibilities. Currently there are 3 IPAs:
– Indian Institute of Insolvency Professionals of ICAI
– ICSI Insolvency Professional Agency
– Insolvency Professional Agency of Institute of Cost Accountants of India
Insolvency Information Utilities
– Information Utilities collect, store and distribute information related to the indebtedness of Companies
– NeSL (National e-Governance Services Limited) is first Information Utility under IBC 2016
Adjudicating and Appellate Authorities
– Adjudicating Authority (AA) has exclusive jurisdiction to deal with insolvency related matters. National
Company Law Tribunal (NCLT) would be AA for Corporate Person and LLP firms insolvency while Debt
Recovery Tribunal (DRT) would be the AA for individual or partnership insolvency respectively.
– National Company Law Appellate Tribunal (NCLAT) would be Appellate Authority for Corporate and
LLP insolvency while Debt Recovery Appellate Tribunal (DRAT) would be the AA for individual or
partnership insolvency respectively
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Content
International Experience
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Chapter 11 – United States Bankruptcy Code
Aspects
Insolvency A business is allowed time to restructure its debt,
while still in operation, in a pre-insolvency stage
Quick identification of financial distress and a
180-270 day plan to revive a company
Fresh Start Gives the debtor a fresh start, subject to which
the debtor’s fulfilment of its obligations under its
plan of reorganisation
Fresh start provisions apply only to individuals
below the specified income/ asset/ debt threshold
Management
Control
Company management continues to control the
company under court oversight (“Debtor-in-
possession model”) to steer the company out of
troubled waters
Management control passes over to resolution
professional with substantial power once an
insolvency resolution is underway
Reasons for
filing
Impending insolvency, massive liabilities, adverse
outcome in litigation, anticipated liquidity issue
Business failure, inability to pay debts, economic
downturn
Secured vs
Unsecured
Creditors
Categorises creditors into classes treating “like
creditors like”
No differentiation - Appears to club secured
creditors with unsecured creditors
Another liquidation code under Chapter 7 provides for the appointment of trustee by the Court to oversee the liquidation of a
company. Under Chapter 7, the business is closed down before sale and the assets auctioned.
Chapter 11 provides to permit the firm to remain in operation while a plan of reorganisation is worked out with the creditors.
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August 28, 2018
Content

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What does the Code mean
for International creditors?
Content
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What does the Code mean for International Creditors?
Beneficial for international
funds/ financial institutions
looking to invest in new
money financings or
distressed debt situations
in India
All financial creditors, in
general, entitled to
participate in restructuring
process irrespective of
debt size
Level Field
Doesn’t override
exchange control
regulations
Adequate
safeguards
Content
For loans advanced by
offshore lenders to Indian
borrowers under the ECB
route, prepayment would
still require RBI approval
Ability to raise interim
financing from international
sources could be limited
due to restrictions on end-
use and investor classes
for foreign currency
borrowings etc
Protection from “Gaming” -
Debtors who have violated
the terms of a
Restructuring Plan in the
past or undergone a
Restructuring Process in
the last 12 months,
precluded from initiating a
Restructuring Process
again
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Overall Analysis
Content
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Overall Analysis
Content
IBC is one of the biggest economic reforms adopted by India. It is a rare example of a much-needed law
which has witnessed speedy roll-out and implementation
Code has instilled a sense of urgency among all stakeholders to resolve bad loans. Fear of losing control
over their companies has prompted various promoters to settle or resolve their dues which presents a huge
opportunity for investors
Many new age and realty companies should be in a position to access corporate bond market (which is
virtually non-existent for firms below AA ratings and thin for AA categories) and see light of fresh credit lines,
as the Code has reposed investors’ faith in the Indian markets
Practice of large borrowers thumbing noses at the creditors should whittle away
Code has garnered attention of several investors as time is ripe to take the plunge to acquire valuable assets
at attractive prices and reap lucrative double-digit returns
Code recognises the balance required between excessive court intervention and excessive power in the
hands of creditors
Code has started an interesting journey and is a step in the right direction. The success of the Code would,
however, be measured upon continued implementation, which hinges primarily on a tectonic shift in the
mind-set of its stakeholders (lenders, borrowers and judiciary)
Cumulative debt of the first 40 cases mandated for bankruptcy proceedings amounts to INR 4 trillion. Of
these, around 5 cases have been settled (at haircuts varying from 55-75 percent). At an estimated 50
percent haircut the remaining cases themselves represent INR 1 trillion M&A opportunity. At the start of
2018, ~2,500 cases were up for resolution which has now more than doubled - even if a percentage of these
are resolved, it represents significant M&A opportunity
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Role of Professionals
Content
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Regulatory
Role of Chartered Accountants
Content
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August 28, 2018
Insolvency
and
Bankruptcy
Code

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Opportunities
Content
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August 28, 2018
Structuring from Corporate
Law perspective, Advice on
revival/ closure of entity
under IBC, Due diligence,
Cost assessment from
stamp duty and statutory
fees, assistance in voluntary
liquidation process
Advisory from AS, Ind
AS perspective, Book
Keeping, Advisory as
Insolvency
Professional (IP)
undertakes to prepare
the accounts
Business valuations,
Valuation of securities
and assets, Purchase
price allocation,
Financial forecast
model including
working capital
projections,
Assessment of
impairment loss
Post-structuring
integration from
operations, IT, Admin,
HR and other
processes, Business
feasibility study, market
research and analysis,
developing business
plan, operational risk
management
Assistance in raising
capital – private equity/
capital markets,
Strategic and general
corporate advice,
Project finance & public
private partnerships,
Business modelling,
advice on resolution
plan
Appearance/
Representation before
NCLT and to act as IP,
obtaining NCLT
approvals
Structuring from tax
perspective, tax due
diligence, cost
assessment tax
perspective, surrender
of Direct and Indirect tax
registrations in case
winding up, assistance
in obtaining NOC from
Income Tax authorities

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Annexures
Annexures
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Case Study - Kingfisher Airlines
Annexures
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Source: The Businessline

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Debt Watch
Annexures
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Source: The Hindu

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Page 49
OPEN HOUSE & DISCUSSIONS
THANK YOU
Sandeep Jhunjhunwala, FCA, LLB, ACS, B.Com (H)
E: Mailboxofsandeepj@gmail.com
M: +91 97401 55469
The views in this presentation are personal views of the Presenter. The information contained is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although, the overall endeavor is to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. This presentation is meant for general guidance only and no responsibility for loss arising to any person/ entity acting or refraining from acting as a result of
any material contained in this presentation will be accepted. It is recommended that professional advice be sought based on the specific facts and circumstances. This presentation does not
substitute the need to refer to the original pronouncements.

PROFILE - SANDEEP JHUNJHUNWALA
Sandeep is a Fellow member of the Institute of Chartered Accountants of India and an Associate Member of the
Institute of Company Secretaries of India. He also holds Bachelor's degrees in Law and Commerce. Sandeep has
more than 12 years of experience in consulting in varied fields of tax and regulatory matters.
He specialises in advising clients with tax optimised business and operational structures. He has worked on a
number of leading multi-national companies in information technology, communication, real estate, entertainment,
pharmaceuticals, e-commerce and automotive sectors and has been extensively involved in tax and regulatory
advisory, compliance support, planning opportunities and litigation support on direct tax and regulatory matters.
He has been a speaker/ panelist on tax and regulatory matters at various forums such as NASSCOM,
ASSOCHAM, CII, BCIC, NAREDCO, CREDAI etc, industrial/ trade bodies such as TiE, Indo-American Chamber of
Commerce, Indo-Italian Chamber of Commerce, Royal Institution of Chartered Surveyors (RICS), various
Government recognised start-up incubators, Bangalore chapters of the ICAI, ICSI & ICMAI and leading Business
Schools & Engineering/ Commerce colleges in Bangalore. He is also a visiting faculty for taxation at the Bangalore
Chapters of the ICAI and ICSI.
Recently, he has been awarded honorary memberships by the National Real Estate Development Council
(NAREDCO) and Builders and Real Estate Developers Association of India (BREDAI) and also nominated for
non-standing committees of the ICAI including its Career Counselling Committee. He is also a mentor for the
Startup India programme of the Government of India. Sandeep also serves as a member in Taxation and
Representation committees of Karnataka State Chartered Accountants Association (KSCAA).
E: Mailboxofsandeepj@gmail.com
M: +91 97401 55469

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