5. 1.Journey of the Act
2.Applicability
3.Objectives
4.Insolvency and Bankruptcy Code
5.Inception of Insolvency and Bankruptcy Laws in India
6.Code
7.IBC in India
8.Structure of the Code
9.Key Points
10.Role Players
11.Impact of IBC
12.Resolution Process
13.Risky Points
14.Difference between Insolvency Bankruptcy and Liquidation
15.Role Players
16.Amendments
17.Role of CS
18.Role of PCS
19.Role of Directors
20.Role of Promotes
21.Conclusion
5
7. Any Company incorporated under the Companies
Act, 2013 or under any provisions
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
APPLICABILITY
7
10. OBJECTIVES
The objective of the new law is to promote entrepreneurship, availability of
credit, and balance the interests of all stakeholders by consolidating and
amending the laws relating to reorganization and insolvency resolution of
corporate persons, partnership firms and individuals in a time bound manner
IBC proposes a paradigm shift from the existing ‘Debtor in possession’ to a
‘Creditor in control’ regime
IBC aims at consolidating all existing insolvency related laws as well as
amending multiple legislation including the Companies Act.
10
11. The code would have an Overriding Effect on all other laws relating to
Insolvency & Bankruptcy.
The code aims to Resolve Insolvencies In A Strict Time-bound Manner - the
evaluation and viability determination must be completed within 180
days.
Moratorium period of 180 days (extendable upto 270 days) for the Company.
Insolvency professional to take over the management of the Company.
OBJECTIVES
11
13. INTRODUCTION
The Insolvency and Bankruptcy Code, 2016 (IBC) is
the bankruptcy law of India which seeks to
CONSOLIDATE the existing framework by creating
a single law for insolvency and bankruptcy.
An Act to consolidate and amend the laws relating to reorganization
and insolvency resolution 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 the stakeholders including
alteration in the order of priority of payment of Government dues and
to establish an Insolvency and Bankruptcy Board of India, and for
matters connected therewith or incidental thereto
13
17. What is a CODE ?
“Code” is usually known as a
collection or compendium of laws.
It refers to a systematic and
comprehensive compilation of laws,
rules or regulations that are
consolidated and classified
according to a particular subject
matter.
17
21. Regime of Insolvency in India
For individuals
As old as a century
The PresidencyTowns InsolvencyAct, 1909
The Provincial InsolvencyAct, 1920
this included insolvency as proprietors too
For corporates
The provisions of the 1956Act were as old as 6 decades
LLPAct, 2008 for closure of LLPs
MSMEDevelopment Act, 2006 also registers a MSME
but has noframework for closure of MSMEs.
21
22. 7
SARFAESIAct, 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 InstitutionsAct, 1993
Grants special rights to unsecured creditors for recovery of defaulted debts.
Sick IndustriesCompanies (Special Provisions)Act, 1985
Revival of sickcompanies
Applicableto industrial companies only
The moratorium provision under SICAwas used by defaulters to keep the
creditors at bay.
Other informal frameworks by RBI
Regime of Insolvency in India
22
25. 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
25
27. IBC FOR INDIA
India currently ranks 136 out of 189 countries in the World Bank's index on the
ease of Resolving Insolvencies.
Ease of DoingBusiness
The Code promises to bring about far-reaching reforms with a thrust on
Creditor Driven Insolvency Resolution.
It aims at early identification of financial failure and Maximizing The
Asset Value Of Insolvent Firms.
27
28. Manifold laws & forums
BIFR
SICA1985 INDUSTRIALSICKNESS
SARFAESI Act, 2002
RECONSTRUCTION OF
FINANCIALASSETS
REGULATE
SECURITISATION
S.3(1) Recovery of Debts Due to Banks
and Financial Institutions Act,1993
To attain objectives Of
SARFAESIAct.
28
30. Applicability
Applicable ToAll Kinds
Of:
- Corporate Enterprises;
- Limited Liability
Partnerships;
- Partnership Firms; and
- Individuals.
STRUCTURE OF ACT
Scope
Relates to:
- Insolvency;
- Liquidation;
- Voluntary Liquidation
(solvent insolvency); and
- Bankruptcy
30
31. STRUCTURE OF ACT
In entirety, the Code has 255 sections which are
divided into 5 Parts as given below
Part V
Miscellaneous (enables
amendments in other
statues such as Companies
Act 2013)
Part IV
Regulation of Insolvency
Professionals, Agencies
and Information Utilities
Part II
Insolvency Resolution
and Liquidation for
Corporate Persons
Part I
Preliminary
(Definitions)
Part III
Insolvency
Resolution and
Bankruptcy for
individuals and
Partnership Firms
31
33. Corporate Debtor (Sec.10)
- A corporate person who owes a debt to any person
Financial Creditor (Sec.7)
- Any person to whom a financial debt is owed &
- Includes a person to whom such debt legally assigned or transferred
Operational Creditor (Sec.9)
- A person to whom an operational debt is owed &
- Includes any person to whom such debt legally assigned or transferred
WHO CAN INVOKE?
33
34. KEY POINTS
1. Corporate Debtors: Two-Stage Process
(a) The Insolvency Resolution Process (IRP)
(b) Liquidation
22. Insolvency Resolution Process for
Individuals/Unlimited Partnerships
3. Institutional Infrastructure
(a) The Insolvency Regulator
(b) Insolvency Resolution Professionals
(c) Information Utilities
(d) Adjudicatory authorities
34
36. Regulator
Insolvency and Bankruptcy
Board of India (IBBI)
Insolvency Professional Agencies;
Insolvency Professionals; and
Information Utilities
ROLE PLAYERS
36
39. Post IBC - Inter-play between SICA, RDDBI, SARFAESI and
IBC
After IBC being notified and SICA Repeal Act in force, BIFR has been
dissoluted and the new cases are being handled by NCLT.
All pending matters before BIFR are abated as the sickness/ insolvency
criterion in IBC is very different from what is in SICA
SARFAESI & RDDBI will hold the same force.
But now secured creditors can approach under both SARFAESI and IBC
as they found suitable.
Now Adjudicating Authority for the individuals will be DRT while the
NCLT will be governing issues for corporate person.
By virtue of IBC the Voluntary Winding Up Procedure has been
shifted from Companies Act toIBC.
39
44. 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
Adjudicating Authority within 14 days of receipt of application, by an order -
Admit the application Reject the application
If it is complete
If it is
incomplete
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
Default
occurred
Default not
occurred
ADJUDICATING AUTHORITY
44
45. Management of
affairs of Corp.
Debtor shall
vest with IRP
Powers of BOD/
Partners (LLP) shall
stand suspended &
will be exercised by
IRP
Officers &
Managers of
Corp. Debtor
shall report to
IRP
FI maintaining
accounts of
Corp. Debtor
shall follow
instructions of
IRP
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 :
INTERIM RESOLUTION PROFESSIONAL
45
46. 180 days
45 days
(One time)
270 days
Adjudicating Authority after admission of application shall, by an order
Declare a
Moratorium
Cause a Public
Announcement
Appoint Interim
Resolution Professional
FAST TRACK :
90 days
90 days
(Maximum)
135 days
23
46
47. CIRP: In
brief
Filing of
application
to NCL
T
Admission
of
applicatio
n
0
3
Public
announcem
ent
1
4
–ve
14
Appointme
nt of IRP
and
declaration
of
moratoriu
m
Appoint
2
register
ed
valuers
Creditors to
submit
their claims
7 21
2
3
Submission
of records
toNCL
T
3
0
Firs
t
C
ommi
ttee
IRPto verify of
Creditors claims
meeti
ng
4
4
Circulation
of
Information
memorand
um
15
0
Submission
of
Resolution
Plan to RP
Approval of
plan by
Committeeof
creditors
Submission
of plan to
NCL
T
18
0
Acceptance/
Rejection of
plan by NCL
T
47
48. CIRP:
Phase I
3
1
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 aswell
- Deliver a default notice to
the corporate debtor on
occurrence of default
- Filingof occurrence of
default
Alongwith the application, to
furnish record of default and
propose name of interim
resolutionprofessional.
Adequate reply Not
adequatereply
Settlement
of dues
Filing of
application
Along with the application, to
furnish
record of default
and
name of
interim
to
propose
resoluti
on
profession
al
Re-
apply
Priorto rejection
Suggest
rectification
Acce
pt
Proceed with
Phase II
Reje
ct
Dispute
Within 14 days
Toascertain the existence of default, if satisfied, it shall accept, or
otherwise reject
Within 7
days
48
49. CIRP:
Phase II
Theentire processshallbecompletedwithin ResolutionPeriod(180 days;
extendableby90 days)
- Order of admission
of
application byNCL
T;
- Declaration of
moratorium;
- Public announcement as
per the order ofNCL
T;
- Appointment of
Interim
ResolutionProcess
resoluti
on to
appoi
nt
- Interim
Professio
nal
committe
e
of
credit
ors
(financial
creditors);
- First meeting of
creditors;
- CoC may accept the
IRP appointed by NCL
T
or may appoint a new
RP;
- For any option, the
NCL
T 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
pla
n
Applicant;
- RAto submit
Resolution basisthe
IM;
- RPto examine and approve
the Resolution Plan and
submit to CoC for
approval.
- CoCto approve plan (75%)
and submit to NCL
T;
- NCL
Tmayaccept / reject
plan;
- Implementation of plan;
- Moratorium ceaseshere;
- RPto submit records to IU
/ IBBI
Liquidati
on
If contraventionon implementationof
resolution plan
If plan
rejected
49
50. The Ecosystem of the Code
SC/ NCLA
T/
NCL
T
IBB
I
I
U
I
U
IPA-
1
IPA-
2
Certificate of
Registration
Certificate ofRegistrationto conductbusiness
& enrollIPs
IP
1
IP
2
IP
3
IP
4
IP
5
K
Ltd.
A
LLP
XY
Z
Ltd
.
Q
Ltd.
M
LLP
Enroll
individual
IPasa
member
Registration
Committee of
Creditors
SC:SupremeCourt, NCLA
T
:NationalCompanyLawAppellate Tribunal, NCL
T
:NationalCompanyLawTribunal, IBBI:InsolvencyandBankruptcy Board
of India, IPA:InsolvencyProfessionalAgency
,IP:InsolvencyProfessional,IU: Information Utilities 50
54. RISKY POINTS
The NCLT will face the biggest challenge in the process of transitioning
existing cases to the IBC
As of March 2015, there were around 4,200 pending CLB cases. All of these
will now be transferred to the NCLT.
CRIMINAL LIABILITY UNDISPUTED DEBT
54
57. INSOLVENCY is the
inability of a person or
corporation to pay their
bills as and when they
become due and payable.
LIQUIDATION
is the process of
winding up a
corporation or
incorporated
entity.
BANKRUPTCY
is when a person is
declared incapable
of paying their due
and payable bills.
57
58. What all getsamended?
1
8
SCH AMENDMENTTO
I The Indian PartnershipAct, 1932
II The Central ExciseAct, 1944
III The Income –TaxAct, 1961
IV The Customs Act, 1962
V The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
VI The Finance Act, 1964
VII The Securitisation &Reconstruction of FinancialAssets &Enforcement Of Security
Interest Act, 2002
VIII The Sick IndustrialCompanies (Special Provisions) RepealAct, 2003
IX The Payment and Settlement Systems Act, 2007
X The Limited Liability PartnershipAct, 2008
XI The CompaniesAct, 2013
60. 29A.
A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such
person_____
(a) is an undischarged insolvent;
(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act,
1949;
(c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person
is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under
the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date
of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be
eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges
relating to non-performing asset accounts before submission of resolution plan;
(d) has been convicted for any offence punishable with imprisonment for two years or more;
(e) is disqualified to act as a director under the Companies Act, 2013;
(f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;
(g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction,
undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of
which an order has been made by the Adjudicating Authority under this Code;
(h) has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor against which an application
for insolvency resolution made by such creditor has been admitted under this Code;
(i) has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or
(j) has a connected person not eligible under clauses (a) to (i).
60
61. The Ordinance fine tunes Section 29A of IBC, which specifies persons not eligible to submit a resolution plan. With
this provision, the intent was not to restrict genuine applicants, but only to exclude participation from habitual
miscreants or applicants who might themselves be sick. However, the provision has been criticized for having the
effect of eliminating people who might genuinely be interested in buying stakes in the entity.
“With a view to encouraging resolution as opposed to liquidation”, the voting threshold has been brought down to 66
percent from 75 percent for all major decisions such as approval of resolution plan, extension of CIRP period, etc. The
voting threshold for routine decisions has also been reduced to 51%, in order to facilitate functioning of the corporate
debtor as a going concern.
Homebuyers will now be recognized as financial creditors, with the promulgation of the Insolvency and Bankruptcy
Code (Amendment) Ordinance, 2018 on Wednesday. The recognition would give them due representation in the
Committee of Creditors, and would also enable them to initiate corporate insolvency resolution process under
Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers.
The Ordinance lays down a stricter procedure for an applicant to withdraw a case after its admission under IBC, 2016.
Such withdrawal would now be permissible only with the approval of the Committee of Creditors with 90 percent of
the voting share.
The Ordinance provides for a minimum one-year grace period for the successful resolution applicant to fulfill various
statutory obligations required under different laws. This allows more time for the new management to efficiently
implement the resolution plan.
The Ordinance now exempts pure play financial entities from being disqualified on account of an NPA.
61
63. Powers of the Board of Directors are suspended
immediately after the commencement of
insolvency proceedings but Duties of the Director
remain the same
Powers :
Financial Powers
Administration Powers
Duties :
Legal
Operational
Duties assigned by NCLT
Duties assigned by a Resolution Professional.
63
64. What are the threats and
opportunities for directors?
64
65. Opportunity
• Set back and
Relax
• Fresh Start
Threats
• Negative Brand
Image
• Disqualifying
the position as
Director
65
69. In many cases filed under
the code, there are no
resolution plans received
other than from promoters.
While the big cases in the
IBC process, may not face
this situation, in others the
level of interest by investors
is low, as India does not
have a developed market
for distress asset investors.
Disqualifying promoters as a
class, to submit the
resolution plan even by
perception, can have deep
implications for the
resolution process.
69
72. The Code was enacted to consolidate & amend various laws relating to
insolvency, bankruptcy, liquidation & further delete some infructuous
provisions due to change in the business complexities, opening of
economies & further participation of Foreign Investors in domestic
arena.
With the government focus on ‘Ease of doing business’. It was
imperative to adopt a new & uniform institutional framework to
facilitate a formal and time bound insolvency resolution process &
liquidation.
CONCLUSION
72
73. A new chapter has been added in the history of insolvency, bankruptcy,
liquidation litigation where a single window is given to the corporate
litigants, individuals, LLP to adjudicate upon the matters complained
off in a fast track mode.
This will not only change the landscape of Corporate litigation avenues
but will also pave path of robust defaulted assets recovery.
CONCLUSION
73
