Similar to INSOLVENCY & BANKRUPTCY REFORMS IBC-DESIGN IMPLEMENTATION & THE WAY FORWARD-GLOBAL PERSPECTIVE – ISSUES & CHALLENGES- PPT 17.11.2023.pptx (20)
3. 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.
3
4. 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
dues and
payable bills.
Differentiation
- Insolvency;
- Bankruptcy; and
- Liquidation
Why is it 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.
UNDERSTANDING THE CODE
8. 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.
9. OBJECTIVES
The code would have an Over riding 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 + 60 days (in
case of legal proceedings in relation to such resolution process of the corporate
debtor))for the Company. Insolvency professional to take over the
management of the Company.
14. Government dues take a backseat
Fragmented status gets clubbed into one
Scope of professionals like CS / CA / CWAs to be 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
14
16. IBC FOR BHARAT
cs.ahaladarao@gmail.com
India currently ranks 52nd out of 195 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.
16
17. 17
TIMELINE
2014 2015 2016 2016
Nov 2015 – Draft
bill submitted by
BLRC
Dec 2015 - IBC
Bill was
introduced in Lok
Sabha
August 2014
Bankruptcy Law
Recovery
Committee
was formed
05 May 2016 -
Passed by
Lok Sabha
11 May 2016 -
Passed by
Rajya Sabha
28 May 2016-
Received
President’s
accent
01 Dec 2016 - IBC
came into effect.
&
Amendments in the Acts & Regulations
18. 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.
18
20. APPLICABILITY STRUCTURE
In entirety, the Code has 255 sections which are
divided into 5 Parts as given below
Part I
Preliminary
(Definitions
)
Part II
Insolvency
Resolution and
Liquidation for
Corporate Persons
Part III
Insolvency
Resolution and
Bankruptcy for
individuals and
Partnership Firms
Part IV
Regulation of
Insolvency
Professionals,
Agencies and
Information
Utilities
Part V
Miscellaneous
(enables
amendments in
other statues such
as Companies Act
2013)
Schedules
(11 Schedules)
Provides for
amendments to be
carried out in other
statues
All kinds of:
- Corporate Enterprises;
- Limited Liability
Partnerships;
- Partnership Firms; and
- Individuals.
SCOPE
- Insolvency;
- Liquidation;
- Voluntary Liquidation
(solvent insolvency); and
- Bankruptcy
APPLICABILITY, SCOPE & STRUCTURE
21. Applicability
Applicable ToAll Kinds Of:
- Corporate Enterprises;
- Limited Liability
Partnerships;
- Personal guarantors to
corporate debtors;
- Partnership Firms; and
- Individuals.
STRUCTURE OF ACT
Scope
Relates to:
- Insolvency;
- Liquidation;
- Voluntary Liquidation
(solvent insolvency); and
- Bankruptcy
- PPIRP (Pre-packaged
Insolvency Resolution
Process)
21
22. 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
22
24. 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 has been legally assigned or transferred
Operational Creditor (Sec.9)
- A person to whom an operational debt is owed &
- Includes any person to whom such debt has been legally assigned or transferred
WHO CAN INVOKE?
24
25. 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
25
27. 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
27
28. Regulator Adjudicator
Insolvency and Bankruptcy Board of
India (IBBI)
National Company
Law Tribunal
Debt Recovery
Tribunal
Corporate
Entities
Non-Corporate
Entities
Companies/LLPs Individuals and
Partnership Firms
Insolvency Professional Agencies;
Insolvency Professionals; and
Information Utilities
FRAMEWORK OF THE CODE
CS Dr AHALADA RAO VUMMENTHALA
29. Collation of claims and constitution of committee of creditors by Interim Resolution
Professional
Appointment of Resolution Professional in the creditors meeting held within 7 days of
constitution of committee of creditors
Resolution Professional to prepare Information Memorandum
Resolution Applicant to prepare (on the basis of Information Memorandum) and
submit resolution plan to Resolution Professional for examination & further submission
for approval of committee of creditor
Resolution
plan approved
by committee
Resolution
plan rejected
by committee
NCLT
approves
plan
NCLT
rejects
plan
Liquidation
process starts
Admission of application and appointment of Interim Resolution Professional
BROAD CIRP - PROCESS
30. Regulator
Insolvency and Bankruptcy
Board of India (IBBI)
Insolvency Professional Agencies;
Insolvency Professionals; and
Information Utilities
ROLE PLAYERS
30
34. NCLT shall appoint an IRP within fourteen days from the insolvency
commencement date.
From the date of appointment of the IRP-
the management of the affairs of the corporate debtor shall vest in the IRP;
the powers of the board of directors or the partners of the corporate
debtor, shall stand suspended and be exercised by the IRP;
Role of IRP
the officers and managers of the corporate debtor shall report to the IRP
and provide access to documents of the corporate debtor as may be
required by IRP
the financial institutions maintaining accounts of the corporate debtor shall
act on the instructions of IRP in relation to such accounts and furnish all
information relating to the corporate debtor available with them to the
interim resolution professional.
The interim resolution professional shall make every endeavor to protect and preserve the value of the
property of the corporate debtor and manage the operations of the corporate debtor as a going concern.
INTERIM RESOLUTION PRFESSIONAL (IRP)
35. From the date of appointment of the IRP-
collect all information relating to the assets, finances and operations of
the corporate debtor for determining the financial position of the
corporate debtor
receive and collate all the claims submitted by creditors to him,
pursuant to the public announcement made;
constitute a committee of creditors
file information collected with the information utility.
take control and custody of any asset over which the corporate debtor
has ownership rights as recorded in the balance sheet of the corporate
debtor, or with information utility or the depository of securities or any
other registry that records the ownership of assets
The personnel of the corporate debtor, its promoters or any other person associated with
the management of the corporate debtor shall extend all assistance and cooperation to IRP
The interim
resolution
professional shall
after collation of all
claims received
against the corporate
debtor and
determination of the
financial position of
the corporate debtor,
constitute a
committee of
creditors
DUTIES OF IRP
36. IRP has been vested with the powers to-
Appoint accountants, legal counsels who may provide specialist advice
to the IRP;
Enter into contracts on behalf of the corporate debtor or to amend/
modify the contracts which were entered into before the
commencement of the CIRP;
Raise interim finance;
Issue instructions to the personnel of the corporate debtor to keep the
corporate debtor as a going concern;
Take all such actions as are necessary to keep the corporate debtor as a
going concern.
IRP has to manage the operations of the corporate debtor as a going concern to enable him
to protect and preserve the value of the property of the corporate debtor.
The IRP may sell
unencumbered
assets of the
corporate debtor,
other than in the
ordinary course of
business, if he is of
the opinion that
such a sale is
necessary for a
better realization
of value.
POWERS OF IRP
40. 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:
The term of the interim resolution professional shall continue till the date of
appointment of the resolution professional under section 22
Once IRP is appointed :
INTERIM RESOLUTION PROFESSIONAL
40
41. 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
41
42. CIRP:INBRIEF
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
42
43. CIRP: PHASE I
3
1
FinancialCreditor OperationalCreditor CorporateApplicant
- 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
43
44. CIRP: PHASE II
Theentire processshallbecompletedwithin ResolutionPeriod180 days;
extendableby90 days)
- Order of admission of
application byNCL
T;
- Declaration of moratorium;
- Public announcement asper
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 anew RP;
- For any option, the NCL
Tis
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 / rejectplan;
- Implementation of plan;
- Moratorium ceaseshere;
- RPto submit records to IU /
IBBI
Liquidati
on
If contraventionon implementationof
resolution plan
If plan
rejected
44
50. 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.
50
52. Repealed Acts
Presidency Town Insolvency Act, 1909; and
Provisional Insolvency Act, 1920
Some of the amended Acts
Sick Industrial Companies (Special Provisions) Repeal Act, 2003;
Recovery of Debts Due to banks and financial institutions Act, 1993;
Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002; and
Companies Act, 2013
IMPACT ON OTHER STATUTES
53. 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 find suitable.
Now Adjudicating Authority for the individuals will be DRT while the
NCLT will be governing issues for corporate persons.
By virtue of IBC, the Voluntary Winding Up Procedure has been
shifted from the Companies Act toIBC.
53
54. OTHER ACTS
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
56. 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.
56
57. Public
Announcement by
IRP in FORM A.
Submission of Proof of
Claims by creditors,
workmen and employees to
IRP in FORMs B,C,D,E as may
be applicable.
Verification of Claims by
IRP within 7 days of
receipt
Constitution of
Committee of Creditors
(“COC”)
Where corporate debtor has
no financial debt, COC shall
consist of-
• 18 largest operational
creditors by value
• 1 workmen representative
• 1 employee representative
IRP to file Report certifying
constitution of COC to NCLT
IRP to convene first meeting
of COC
IRP to appoint 2 registered
valuers to determine the
liquidation value of corporate
debtor
IRP shall provide the Liquidation
value to COC in electronic form
IRP/RP shall submit Information
Memorandum in electronic form
to each member of COC
RP shall present all Resolution
plans that meet requirements of
Code to COC for its consideration
RP on instruction of COC may
apply for Extension of CIRP
period before NCLT.
By sending pdf file to
public.ann@ibbi.gov.i
n
PARTICIPATION IN ALL STAGES
59. Insolvency resolution and liquidation cost
Secured creditor (in case he has
relinquished security)
Wages and unpaid dues to employees (other than workmen) for a period of 12 months
preceding liquidation commencement date
Unsecured creditors
Central and State government dues
Any remaining debts or dues
Preference shareholders, if any
Equity shareholders or partners, as the case may be
Workmen’s dues ( for period of 24 months
preceding liquidation commencement date)
+
In case of liquidation,
the asset of the
corporate debtor will
be sold and the
proceeds will be
distributed amongst
the creditors in the
following order of
priority:- +
Secured creditor for an unrealised amount
for enforcing security interest
WATERFALL MECHANISM
Insolvency Resolution & Liquidation for Corporate Debtors shall only be available if minimum amount of default is one lakh rupees. Central Government may specify higher value which shall not be more than one crore rupees.
