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Insolvency and Bankruptcy
Code, 2016
Disclaimer: This presentation is based on my internal research. It is notified that t...
2
BasicTerminologies
Insolvency, Bankruptcy and Liquidation
3
Insolvency:
a state in which financial
difficulties of a company
are such it is u...
Insolvency v/s Bankruptcy
4
 Black s law dictionary defines the following:
 Insolvency
 The condition of a person who i...
What lead to enactment of the Code?
5
Regime of Insolvency in India
6
 For individuals
 As old as a century
 The PresidencyTowns Insolvency Act, 1909
 The P...
7
 SARFAESI Act, 2002
 Enforcement of security interest without intervention of any authority.
 The stake of stakeholde...
Some statistics
8
Ease of doing business Rank 2017
12
10
4
8 7
12
9
13
22.7
18
0
5
10
15
20
25
Recovery Rate (in %)
88.6
7...
Why Code was needed?
9
Journey of the Code
10
Bankruptcy Law Reform Committee
11
 Mandate of BLRC
 Setup by the Department of Economic Affairs, MoF, through office or...
Key changes under the Code
12
 Government dues take a backseat
 Fragmented status gets clubbed into one
 Scope of profe...
Key Highlights
13
 Resolution before Liquidation: If possible, the business should be revived before
liquidation
 Time b...
When a entity does into red zone !!!
14
Creditors willingness
15
Options to
creditors
secured
creditors
unsecured
creditors
Individual
remedies
Collective
remedie...
Why collective remedies are better suited?
16
 Individual remedy put the debtor under serious stress.
 This does not all...
Structure of the Code
17
What all gets amended?
18
SCH AMENDMENTTO
I The Indian PartnershipAct, 1932
II The Central ExciseAct, 1944
III The Income ...
Applicability of the Code
19
 Applies to whole of India
 Except for Part III [J&K excluded]
 Piecemeal commencement pos...
The Ecosystem of the Code
20
SC / NCLAT / NCLT
IBBI
IU IU
IPA - 1 IPA - 2
Certificate of Registration
Certificate of Regis...
How does one become Insolvency Professional?
21
The IBBI had notified Insolvency and Bankruptcy Board of India (Insolvency...
Important terms under the Code
22
Some definitions (1/2)
23
Section Term Definition
2 (7) Corporate person • Company as defined in CA, 2013
• An LLP [As per...
Some definitions (2/2)
24
Section Term Definition
4(6) Dispute Includes a suit or arbitration proceedings
relating to—
• t...
Corporate Insolvency Resolution Process
25
CIRP
26
 Applicability –
 Minimum amount of default – Rs.1 lac
 CG may provide for higher minimum amount not beyond Rs....
CIRP: Snapshot
27
 When can an application be filed?
 Occurrence of default
 Operational creditor to deliver 10 days de...
Who cannot apply?
28
 A corporate debtor who is already undergoing CIR
 A corporate debtor who has completed CIR 12 mont...
CIRP Process: Key points
29
 Sec 3(20), 3(21) - Operational Creditor includes employees, Central and State
Governments -N...
CIRP: In brief
30
Filing of
application to
NCLT
Admission of
application
0
3
Public
announcement
14
–ve 14
Appointment
of ...
CIRP: Phase I
31
Financial Creditor Operational Creditor Corporate Applicant
- Filing of application on occurrence
of defa...
CIRP: Phase II
32
The entire process shall be completed within Resolution Period (180 days; extendable by 90 days)
- Order...
Moratorium
33
 Moratorium - till the completion of the Corporate Interim Resolution process
institution of suits or conti...
CIRP initiation: Operational Creditor and Corporate
Debtor
34
 Documents to be furnished along with application –Operatio...
Liquidation of Corporate Person
35
Liquidation Process: Phase III
36
Trigger Event:
-CoC does not agree on RP
-CoC decides to liquidate
-NCLT rejects plan
-D...
Liquidation Estate (Section 36)
37
Inclusions [Section 36(3)]
 Any assets over which the corporate debtor has
ownership r...
Moratorium Again
38
 The company cannot transfer its assets
 Suits will be shifted to NCLT
 SARFAESI action by any secu...
Distribution of Assets
39
Insolvency Resolution and
Liquidation Cost
Secured Creditors +
Workmen s dues
Wages and unpaid d...
Remuneration of Liquidator
40
The Insolvency and bankruptcy (Liquidation) regulations 2016 specifies that remuneration of ...
VoluntaryWinding Up
41
 Member s & Creditor s winding-up – distinction has been removed
 Code has no provision for credi...
Certain transactions and its probe
42
Preferential transactions
43
 Transactions covered:
 transfer of property for benefit of a particular creditor;
 granti...
Undervalued transactions
44
 Incase if the RP or the liquidator is of the view that
transactions referred in section 43 a...
Application for undervalued transactions
45
 If the resolution professional or the liquidator does not report
undervalued...
Extortionate credit transactions
46
 Where the corporate debtor has been a party to a extortionate
credit transaction:
 ...
Miscellaneous
47
Does Cross Border Insolvency gets addressed?
48
 Code has not adopted the UNCITRAL Model of cross border insolvency
 Cur...
What overrides what?
49
 The Code shall have an over riding effect where other laws,
for the time being in force are inco...
Transfer of proceedings to NCLT
50
December 7 - MCA notifies theTPP Rules
51
 MCA vide Notification no. G.S.R. 1119(E) issued the Companies (Transfer
of Pen...
Winding up on inability to pay
52
 While the proceedings of winding up on the ground of inability to pay debts, if transf...
VoluntaryWinding Up
53
Voluntary Winding up
Remains with High Court
under 1956 Act
Pending as on April 1,
2017 before High...
Proceedings under SICA, 1985
54
Stages of proceedings
under SICA
Reference to BIFR / Appeal
to AAIFR
Scheme of revival
san...
Litmus test of the Code
55
Needs attention
56
 Debtors management
 Adequacy of information
 Extent to which information can be seeked
 Involvemen...
Needs attention (Continued)
57
 Process
 favour to creditors
 game of financial creditors has not necessitated level pl...
Needs attention (Continued)
58
 Boost to MSMEs?
 will it really happen as operational creditors have greater skin as
com...
The litmus test of the success of the Code
will be on how these technical issues are
being dealt and how it is implemented...
60
Insolvency and
Bankruptcy Code,
2016
A presentation by:
Saurabh Dugar
Email: cs.saurabhdugar@gmail.com
Mobile: +91-9867...
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Insolvency and Bankruptcy Code, 2016

PPT on Insolvency and Bankruptcy Code, 2016 analysis the jargons, processes, access, limitations, opportunities, etc. A bried comparison with US Bankruptcy Code has also been stated and addressing issues like cross border insolvency amongst others issues. Also, the probe of recently notified transfer of pending proceedings has been made in the presentation.

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Insolvency and Bankruptcy Code, 2016

  1. 1. Insolvency and Bankruptcy Code, 2016 Disclaimer: This presentation is based on my internal research. It is notified that the presenter and any other person related to him shall be not responsible for any damage or loss of any action taken based on this presentation. It is suggested to seek professional advice before initiating any action. A presentation by: Saurabh Dugar Company Secretary Date: March 24, 2017 1
  2. 2. 2 BasicTerminologies
  3. 3. Insolvency, Bankruptcy and Liquidation 3 Insolvency: a state in which financial difficulties of a company are such it is unable to run its business at its current pace. Liquidation: The process of winding up a company Bankruptcy: When a person is legally declared as incapable of paying their dues and obligations  Insolvency precedes bankruptcy and liquidation follows bankruptcy.  Insolvency warnings:  drop in sales  delay in payments  Increasing reliance on credit  Cash flow test:  when cash flow in is less than cash flow out .
  4. 4. Insolvency v/s Bankruptcy 4  Black s law dictionary defines the following:  Insolvency  The condition of a person who is insolvent; inability to pay one s debts; lack of means to pay one s debts. Such a relative condition of a man s assets and liabilities that the former, if all made immediately available, would not be sufficient to discharge the latter. Or the condition of a person who is unable to pay his debts as they fall due, or in the usual course of trade and business.  Bankruptcy  The state or condition of one who is a bankrupt; amenability to the bankruptcy laws; the condition of one who has committed an act of bankruptcy, and is liable to be proceeded against by his creditors therefore, or of one whose circumstances are such that he is entitled, on his voluntary application, to take the benefit of the bankruptcy laws.
  5. 5. What lead to enactment of the Code? 5
  6. 6. Regime of Insolvency in India 6  For individuals  As old as a century  The PresidencyTowns Insolvency Act, 1909  The Provincial Insolvency Act, 1920  this included insolvency as proprietors too  For corporates  The provisions of the 1956 Act were as old as 6 decades  LLP Act, 2008 for closure of LLPs  MSME Development Act, 2006 also registers a MSME but has no framework for closure of MSMEs.
  7. 7. 7  SARFAESI Act, 2002  Enforcement of security interest without intervention of any authority.  The stake of stakeholders other than the concerned creditor gets diluted.  Recovery of debts due to Banks and Financial Institutions Act, 1993  Grants special rights to unsecured creditors for recovery of defaulted debts.  Sick Industries Companies (Special Provisions) Act, 1985  Revival of sick companies  Applicable to industrial companies only  The moratorium provision under SICA was used by defaulters to keep the creditors at bay.  Other informal frameworks by RBI Regime of Insolvency in India
  8. 8. Some statistics 8 Ease of doing business Rank 2017 12 10 4 8 7 12 9 13 22.7 18 0 5 10 15 20 25 Recovery Rate (in %) 88.6 78.6 88.7 82.8 87.4 15.8 38.6 26 36.9 35.1 0 10 20 30 40 50 60 70 80 90 100 Cost of liquidation (in %) 1.5 1.5 0.8 1 0.8 4 2 4.3 1.7 2.1 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Time taken for liquidation (in years) 7 8 2 15 22 123 40 130 78 74 0 20 40 60 80 100 120 140
  9. 9. Why Code was needed? 9
  10. 10. Journey of the Code 10
  11. 11. Bankruptcy Law Reform Committee 11  Mandate of BLRC  Setup by the Department of Economic Affairs, MoF, through office order dated August 22, 2014  Chairman: Mr.T.K.Vishwanathan  Objective of BLRC  To study the framework of Corporate bankruptcy in India  To submit a report to the government for reforming the system  Reports  Interim Report (February 2015)  Served as an approach paper for the proposed new Code  Reforms suggested for improving the insolvency regime in India  Final Report (November 2015)  Two parts:  Volume I: Rationale and Design model of theCode  Volume II: Draft Insolvency and Bankruptcy Code
  12. 12. Key changes under the Code 12  Government dues take a backseat  Fragmented status gets clubbed into one  Scope of professionals like CS / CA / CWAs has been enhanced  Individual bankruptcy gets included  Financial creditors are voting at par as per their credit value  Application under the Code can be made by financial creditor / operational creditors / debtor himself  But decision making is in the hands of financial creditors  Decentralisation on the part of government
  13. 13. Key Highlights 13  Resolution before Liquidation: If possible, the business should be revived before liquidation  Time bound process: Unlike previous practice, now the entire insolvency resolution process shall complete in at max 270 days  Information Utilities have been formed under the Code to provide timely dissemination of information to the concerned  Automatic liquidation if revival process does not complete within 180 or 270 days as the case may be  Creditors Voluntary winding up done away with  Shareholders have no say during the process of revival as well as resolution  Operational creditors with more than 10 percent aggregate exposure may participate during the CoC meetings
  14. 14. When a entity does into red zone !!! 14
  15. 15. Creditors willingness 15 Options to creditors secured creditors unsecured creditors Individual remedies Collective remedies Enforcement of security right Monetary claim Resolution Liquidation
  16. 16. Why collective remedies are better suited? 16  Individual remedy put the debtor under serious stress.  This does not allow the debtor to focus on business and bring it back on track.  Collective remedy ensures that business remains a going concern.  The objective of insolvency is to ensure that equitable distribution takes place.  Might is right might not always be right.
  17. 17. Structure of the Code 17
  18. 18. What all gets amended? 18 SCH AMENDMENTTO I The Indian PartnershipAct, 1932 II The Central ExciseAct, 1944 III The Income –TaxAct, 1961 IV TheCustomsAct, 1962 V The Recovery of Debts Due to Banks and Financial InstitutionsAct, 1993 VI The FinanceAct, 1964 VII The Securitisation & Reconstruction of Financial Assets & EnforcementOf Security InterestAct, 2002 VIII The Sick IndustrialCompanies (Special Provisions) RepealAct, 2003 IX The Payment and SettlementSystemsAct, 2007 X The Limited Liability PartnershipAct, 2008 XI The CompaniesAct, 2013
  19. 19. Applicability of the Code 19  Applies to whole of India  Except for Part III [J&K excluded]  Piecemeal commencement possible  Persons covered  Companies incorporated under the Companies Act, 2013  Companies governed by any special Act, to the extent the provisions are consistent with that Act;  LLPs  Any other body corporate, incorporated under any Act for the time being in force, as the Central Government may specify  Partnership firms  Individuals  Financial entities - Not covered
  20. 20. The Ecosystem of the Code 20 SC / NCLAT / NCLT IBBI IU IU IPA - 1 IPA - 2 Certificate of Registration Certificate of Registration to conduct business & enroll IPs IP1 IP2 IP3 IP4 IP5 K Ltd. A LLP XYZ Ltd. Q Ltd. M LLP Enroll individual IP as a member Registration Committee of Creditors SC: Supreme Court, NCLAT: National Company Law Appellate Tribunal, NCLT: National Company Law Tribunal, IBBI: Insolvency and Bankruptcy Board of India, IPA: Insolvency Professional Agency, IP: Insolvency Professional, IU: Information Utilities
  21. 21. How does one become Insolvency Professional? 21 The IBBI had notified Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 . Salient features of the regulations are: Insolvency Professionals Examination  The Board shall conduct a National Insolvency Examination and Limited Insolvency Examination . The syllabus, format and frequency of the Limited Insolvency Examination , including qualifying marks, shall be published on the website of the Board at least one month before the examination. Eligibility and Qualification for registration of insolvency professionals (Reg 5)  Any person resident of India who:  has passed National insolvency examination; or  has passed the Limited Insolvency Examination, and has 15 years of experience in management, after graduation; or  has passed the Limited Insolvency Examination and has ten 10 years of experience as a member of ICAI; ICSI; ICAI (Cost) and Bar council Application for registration  An individual enrolled with an insolvency professional agency may make application to IPA with application fee of Rs 10,000 Registration for a limited period (Reg 9)  an individual who has been in practice for 15 years as a CA, CS, CA (Cost), and advocate  Valid for a period of 6 months  This is notwithstanding Regulation 5 (i.e without exams) Recognition of IP Entities (Reg 12)  LLP, partnership firm, or a company if:  a majority of the partners of the LLP or partnership firm or a majority of whole time directors of the company are registered as insolvency professionals.
  22. 22. Important terms under the Code 22
  23. 23. Some definitions (1/2) 23 Section Term Definition 2 (7) Corporate person • Company as defined in CA, 2013 • An LLP [As per LLP Act, 2008] • Any other person incorporated with limited liability under any law for the time being in force • Excludes - Financial service provider 2(10) Creditor • Any person to whom debt is owed • Financial or operational Creditor / Decree holder 2(11) Default • Non-payment of debt – whole/part/installment 2 (27) Property • Money, goods, actionable claims, every description of property • Within & outside India • Includes interest [present/future/vested/contingent] incidental to the property
  24. 24. Some definitions (2/2) 24 Section Term Definition 4(6) Dispute Includes a suit or arbitration proceedings relating to— • the existence of the amount of debt; • the quality of goods or service; or • the breach of a representation or warranty; 4(13) Insolvency commencement date • Date of admission of application for Corporate Insolvency Resolution process by NCLT 4(14) Insolvency resolution process period Period of 180 days beginning from the insolvency commencement date and ending on 180th day
  25. 25. Corporate Insolvency Resolution Process 25
  26. 26. CIRP 26  Applicability –  Minimum amount of default – Rs.1 lac  CG may provide for higher minimum amount not beyond Rs. 1 Crore  Who can initiate CIR process  Financial creditor  Operational creditor  Corporate debtor itself
  27. 27. CIRP: Snapshot 27  When can an application be filed?  Occurrence of default  Operational creditor to deliver 10 days demand notice to corporate debtor  After effects?  NCLT either admits or rejects the application;  If admitted, Corporate Insolvency Resolution commences and the date of admission of application is called the insolvency commencement date.
  28. 28. Who cannot apply? 28  A corporate debtor who is already undergoing CIR  A corporate debtor who has completed CIR 12 months preceding the date of making of the application  A corporate debtor or a financial creditor who has violated any of the terms of a resolution plan - approved 12 months before the date of making an application  A corporate debtor in respect of whom a liquidation order has been made
  29. 29. CIRP Process: Key points 29  Sec 3(20), 3(21) - Operational Creditor includes employees, Central and State Governments -Needs to give a 10-day notice to the debtor for repayment before taking action  Corporate Debtor - Defaulting company, its shareholder or management personnel can start proceedings by making a application to the NCLT upon occurrence of any default  Creditors in possession approach as against Debtors in possession approach  Potentially creates risk the minority creditors being mooted out  Threat of automatic liquidation can create strange results –May push the recoverable companies into liquidation, thereby disrupting markets  Suspended BoD or partners eligible to attend meetings of Committee of creditors, but not eligible to vote
  30. 30. CIRP: In brief 30 Filing of application to NCLT Admission of application 0 3 Public announcement 14 –ve 14 Appointment of IRP and declaration of moratorium Appoint 2 registered valuers Creditors to submit their claims 7 21 IRP to verify claims 23 Submission of records to NCLT 30 First Committee of Creditors meeting 44 Circulation of Information memorandum 150 Submission of Resolution Plan to RP Approval of plan by Committee of creditors Submission of plan to NCLT 180 Acceptance / Rejection of plan by NCLT
  31. 31. CIRP: Phase I 31 Financial Creditor Operational Creditor Corporate Applicant - Filing of application on occurrence of default; - Based on the information from IU, other financial creditor may file an application as well - Deliver a default notice to the corporate debtor on occurrence of default - Filing of occurrence of default Alongwith the application, to furnish record of default and propose name of interim resolution professional. Adequate reply Not adequate reply Settlement of dues Dispute Filing of application Along with the application, to furnish record of default and to propose name of interim resolution professional To ascertain the existence of default, if satisfied, it shall accept, or otherwise reject Suggest rectification Re-apply Proceed with Phase II Prior to rejection Accept Reject Within 14 days Within 7 days
  32. 32. CIRP: Phase II 32 The entire process shall be completed within Resolution Period (180 days; extendable by 90 days) - Order of admission of application by NCLT; - Declaration of moratorium; - Public announcement as per the order of NCLT; - Appointment of Interim Resolution Process - Interim resolution Professional to appoint committee of creditors (financial creditors); - First meeting of creditors; - CoC may accept the IRP appointed by NCLT or may appoint a new RP; - For any option, the NCLT is required to be communicated. - RP to conduct the corporate insolvency resolution process; - As many number of CoC meetings can be convened as necessary; - RP shall prepare Information memorandum. - RP to appoint Resolution Applicant; - RA to submit Resolution plan basis the IM; - RP to examine and approve the Resolution Plan and submit to CoC for approval. - CoC to approve plan (75%) and submit to NCLT; - NCLT may accept / reject plan; - Implementation of plan; - Moratorium ceases here; - RP to submit records to IU / IBBI Liquidation If contravention on implementation of resolution plan If plan rejected
  33. 33. Moratorium 33  Moratorium - till the completion of the Corporate Interim Resolution process institution of suits or continuation of pending suits or proceedings against the Corporate Debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority transferring, encumbering, alienating or disposing of any of its assets or any legal right or beneficial interest action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESIAct, 2002 recovery of any property by an owner or lessor  DURING MORATORIUM  Public announcement is done for the creditors to give the claim  Creditors appoint Resolution Professional  Resolution Professional to prepare Information Memorandum -- based on this the ResolutionApplicant will make the plan
  34. 34. CIRP initiation: Operational Creditor and Corporate Debtor 34  Documents to be furnished along with application –Operational Creditor  To be furnished along with application  a copy of the invoice demanding payment or demand notice delivered by the Operational Creditor to the Corporate debtor  an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt  a copy of the certificate from the financial institutions that there is no payment from debtor  Documents to be furnished along with application – Corporate debtor  its books of account and such other documents relating to such period as may be specified; and  May propose name of Resolution Professional to act as Interim Resolution Professional
  35. 35. Liquidation of Corporate Person 35
  36. 36. Liquidation Process: Phase III 36 Trigger Event: -CoC does not agree on RP -CoC decides to liquidate -NCLT rejects plan -Debtors contravenes plan RP should be appointed as the liquidator by NCLT, unless rejected by CoC. Powers of BoD / Partners vest with liquidators. 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 claims of secured creditors and discharge the secured payments Secured creditors to identify assets offered to them as security against the sums owed to them Liquidator to either admit or reject claims and communicate within 3 days of such admission or rejection Liquidator to verify such claims within such time as may be specified by the Board (IBBI) 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 C.Dr. from the date of such order Copy of order to be filed w RoC within 7 days from the date of such order DISSOLVED
  37. 37. Liquidation Estate (Section 36) 37 Inclusions [Section 36(3)]  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 Exclusions [Section 36(4)]  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
  38. 38. Moratorium Again 38  The company cannot transfer its assets  Suits will be shifted to NCLT  SARFAESI action by any secured creditor cannot be stayed  The secured creditor will need to inform the liquidator and also prove he is a secured creditor.  A secured creditor also has the right to move separately and his enforce security under SARFAESI Act or relinquish his security right and become a part of the proceedings
  39. 39. Distribution of Assets 39 Insolvency Resolution and Liquidation Cost Secured Creditors + Workmen s dues Wages and unpaid dues to employees Unsecured Creditors State Government and Central Government 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 1956 Act provisions, 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)
  40. 40. Remuneration of Liquidator 40 The Insolvency and bankruptcy (Liquidation) regulations 2016 specifies that remuneration of liquidator shall be determined by the Committee of creditors. However where the committee does not determine the remuneration, the Adjudicating Authority shall determine the remuneration of the Liquidator, which shall at the maximum of the below table:
  41. 41. VoluntaryWinding Up 41  Member s & Creditor s winding-up – distinction has been removed  Code has no provision for creditors voluntary winding up  Declaration from majority of the directors, verified by an affidavit stating that—  Company has no debt or it will be able to pay its debts in full; and  Company is not being liquidated to defraud any person  Within four weeks of a declaration either:  Special resolution at the general meeting; OR  Ordinary resolution at the general meeting, as the case may be  Creditors representing 2/3rd in value of the debt of the company shall approve the winding up of the company  Notify RoC & the Insolvency and Bankruptcy Board of India  Voluntary liquidation process commences from date of passing of resolution
  42. 42. Certain transactions and its probe 42
  43. 43. Preferential transactions 43  Transactions covered:  transfer of property for benefit of a particular creditor;  granting of a security interest to secure existing unsecured debts;  Defence available:  transaction as consistent with normal commercial practice  ordinary course of business  new credit & new value  counterparty proves that it was unaware of a preference  no knowledge of the debtor s insolvency  Reach-back period  Two years in case of related party transactions;  One year in any other case.
  44. 44. Undervalued transactions 44  Incase if the RP or the liquidator is of the view that transactions referred in section 43 are undervalued:  He shall make an application to NCLT to declare such transactions as void and reversal of such transactions.  What constitutes undervalued transaction ?  Gift  Significantly less value and such transaction has not taken place in ordinary course of business.
  45. 45. Application for undervalued transactions 45  If the resolution professional or the liquidator does not report undervalued transactions to NCLT:  a member / partner or creditor may make an application for same.  If NCLT is satisfied that:  undervalued transaction has occurred, and  RP or liquidator has not reported such transaction which he could have then NCLT shall:  restore the position by reversing such transaction;  order IBBI to initiate disciplinary proceedings against RP or liquidator.
  46. 46. Extortionate credit transactions 46  Where the corporate debtor has been a party to a extortionate credit transaction:  the RP or liquidator may make an application to NCLT for reversal of such transaction wherein extremely high price is paid by the corporate debtor.  NCLT upon examination may:  restore the position by reversing the transaction;  set aside the whole part of the debt;  modify the terms of transactions;  order for repayment of such dues;  Order for relinquishment of security interest.
  47. 47. Miscellaneous 47
  48. 48. Does Cross Border Insolvency gets addressed? 48  Code has not adopted the UNCITRAL Model of cross border insolvency  Currently 23 countries (including USA, UK, South Africa, Japan, Australia) have substantially implemented the UNCITRAL Model Law into their domestic legislation  Code for the first time attempts to addresses the issue of cross border insolvency given the multi-jurisdictional spread of assets of large corporate houses  Code stipulates a pronged solution:  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 has 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
  49. 49. What overrides what? 49  The Code shall have an over riding effect where other laws, for the time being in force are inconsistent to this Code.  It is specifically provided that civil courts or authority not to have jurisdiction once an application is filed under this code.  All criminal suits to be tried at Special courts under section 435 of the Companies Act, 2013  Provisions of Code of Criminal Procedure to apply.
  50. 50. Transfer of proceedings to NCLT 50
  51. 51. December 7 - MCA notifies theTPP Rules 51  MCA vide Notification no. G.S.R. 1119(E) issued the Companies (Transfer of Pending Proceedings) Rules, 2016 TPP Rules, 2016 , in exercise of the powers conferred under section 431 (1) and (2) of the Companies Act, 2013 read with section 239 (1) of the Insolvency and Bankruptcy Code, 2016.  The MCA has appointed two different dates on which the provisions of theTPP Rules, 2016 shall come into force.  December 15, 2016 – Entire TPP Rules, 2016 except Rule 4 shall come into force; and  April 1, 2017 – Rule 4 (which provides for pending proceedings relating to voluntary winding up) shall come into force.
  52. 52. Winding up on inability to pay 52  While the proceedings of winding up on the ground of inability to pay debts, if transferred to NCLT, shall be dealt with in accordance with the provisions of the Code;  On the other hand, winding up on grounds other than inability to pay debts, if transferred to NCLT, shall be dealt with in accordance with the provisions of the Act, 2013. Winding up on grounds of inability to pay debts Pending as on December 15, 2016 before HC? New application under the Code, 2016 Petition served under Rule 26 of Company Court Rules/ Remains with High Court under 1956 Act Yes Yes No Transfer to NCLT under the Code No
  53. 53. VoluntaryWinding Up 53 Voluntary Winding up Remains with High Court under 1956 Act Pending as on April 1, 2017 before High Court New Application under the section 59 of the Code Yes No
  54. 54. Proceedings under SICA, 1985 54 Stages of proceedings under SICA Reference to BIFR / Appeal to AAIFR Scheme of revival sanctioned BIFR suggests winding up Pending as on 1st December, 2016 Abatement of proceedings Fresh Application to NCLT / NCLAT under Code, 2016 Yes NCLT / NCLAT under Code, 2016 No No change Initiated on or before 15th December, 2016 Any appeals Remains with High Court under 1956 Act Yes No NCLT under the Code 2016 No Yes
  55. 55. Litmus test of the Code 55
  56. 56. Needs attention 56  Debtors management  Adequacy of information  Extent to which information can be seeked  Involvement of operational creditors  Level playing field  Being disenfranchised  Conflict of interest  Equal treatment  Financial creditor  Will financial creditors really want to move?  Connection between financial creditors and corporate debtor  Turbulent times ahead
  57. 57. Needs attention (Continued) 57  Process  favour to creditors  game of financial creditors has not necessitated level playing field  ouster of directors, members  principle of natural justice  Borrowed from United Kingdom  similar process  though have resulted in higher realization, the corresponding increase in bankruptcy cost has lead to only marginal growth of recoveries  antitrust concerns due to creditor-resolution professional nexus.
  58. 58. Needs attention (Continued) 58  Boost to MSMEs?  will it really happen as operational creditors have greater skin as compared to erstwhile law?  Are 180 / 270 days sufficient?  May lead to disharmony for stakeholders in the longer run?  Resolution applicant:  Financial creditor being resolution applicant;  Number of resolution plans;  Content of resolution plan  Infrastructural environment  Capacity Building
  59. 59. The litmus test of the success of the Code will be on how these technical issues are being dealt and how it is implemented. 59
  60. 60. 60 Insolvency and Bankruptcy Code, 2016 A presentation by: Saurabh Dugar Email: cs.saurabhdugar@gmail.com Mobile: +91-9867110199

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