This document provides an overview of the Insolvency and Bankruptcy Code 2016 in India. It defines key terms like insolvency, bankruptcy, financial creditor and operational creditor. It outlines the objectives of the code to have a uniform law and faster resolution process. It describes the insolvency resolution process for companies/LLPs which includes a moratorium, creditors committee and resolution plan within 180 days. If this fails, the process is liquidation. It also describes the process for individuals/partnerships. The code sets up institutions like the Insolvency and Bankruptcy Board, NCLT and Resolution Professionals to handle insolvency cases. It impacts other existing laws dealing with insolvency

2. The Insolvency & Bankruptcy
Code 2016
Suchi Agarwal
Associate Director – Business Advisory
Email – suchi.Agarwal@cci.in

3. INDEX
Sl NO Particulars
1. Insolvency and Bankruptcy- Defined
2. Objective of Insolvency and Bankruptcy Code
3. Applicability
4. Understanding Few Terms
5. Insolvency Resolution Process for Companies/ LLPs
6. Insolvency Resolution Process for Individuals /
Partnerships
7. Institutional Infrastructure
8. Other Acts dealing with Insolvency and impact of
IBC on those Acts

4. Difference between Insolvency & Bankruptcy
Insolvency
• Insolvency occurs when an individual or a firm is unable to meet
their financial obligations
• Insolvency is a state of affairs in which the financial difficulties of a
company are such it is unable to run its business at its current
pace
Bankruptcy
• Bankruptcy is a legal status of a person or other entity that cannot
repay the debts it owes to creditors. In most
jurisdictions, bankruptcy is imposed by a court order, often
initiated by the debtor

5. OBJECTIVE OF INSOLVENCY AND
BANKRUPTCY CODE

6. RESOLUTION TIME
Country In years
India 4.3
United States 1.5
United Kingdom 1
Malaysia 1
Singapore 0.8
Japan 0.6

7. Process Cost of Insolvency
An Indian entity on an average has
to spend 9 per cent of its estate as compared to 3.5 per cent in
countries like Finland, Japan and Korea.
Recovery Rate
In India, the average recovery rate as a result of insolvency or
liquidation is 25.7 per cent compared to more than 80 per cent in
countries such as Finland, Japan, Germany and USA

8. Objectives of Code
• To offer a uniform, comprehensive insolvency legislation
encompassing all companies, partnerships and individuals (other
than financial firms)
• Promote entrepreneurship
• Availability of credit
• Time bound resolution of insolvency matters

9. APPLICABILITY OF INSOLVENCY AND
BANKRUPTCY CODE

10. Applicability
Section 2:
• company incorporated under the Companies Act, 2013 or under any
previous company law
• any other company governed by any special Act
• any Limited Liability Partnership
• partnership firms and individuals

11. Default
DEFAULT
In case of Company
and LLP
(CORPORATE
DEBTOR)
In case of
Partnership &
Individual
Minimum amount of Rs.
1,00,000/-
Minimum amount of Rs.
1000/-
Central Government can increase the amount of One Lakh to a max of One Crore
and One Thousand to a max of One Lakh

12. UNDERSTANDING FEW TERMS

13. NEW TERMS
Financial Creditor means any person to whom a financial debt is owed
and includes a person to whom such debt has been legally assigned or
transferred to.
Financial Debt incudes:
i. Money borrowed against the payment of interest
ii. Any amount raised pursuant to the issue of bonds, debentures, loan
stock or any similar instrument
iii. The amount of any liability in respect of any lease or hire purchase
contract
iv. Any counter indemnity obligation in respect of guarantee, indemnity,
letter of credit or other instrument of bank or financial institution

14. NEW TERMS
OPERATIONAL CREDITOR means any person to whom a operational debt
is owed and includes a person to whom such debt has been legally assigned
or transferred to.
Operational Debt means a claim in respect of provision of goods or services
including employment or a debt in respect of the repayment of dues arising
under any law for the time being in force and payable to the Central
Government, any State Government or any local authority

15. NEW TERMS
MORATORIUM
This operates as a 'calm period' during which there shall be no:
(a) institution of suits or continuation of pending suits or proceedings by
any court of law, tribunal, arbitration panel or other authority;
(b) transfer, encumbrance, or disposal of by the corporate debtor any of its
assets or any legal right or beneficial interest therein;
(c) the recovery of any property by an owner or lessor where such property
is occupied by or in the possession of the corporate debtor.
The supply of essential goods or services to the corporate debtor as may be
specified shall not be terminated or suspended or interrupted during
moratorium period.

16. INSOLVENCY RESOLUTION FOR
COMPANIES/ LLPs

17. Companies/LLPs
(Insolvency)
Insolvency
Resolution &
Revival
Liquidation
Voluntary
Liquidation
Fast Track
Insolvency
Resolution
Process

18. Corporate Debtor
(A) Insolvency Resolution Process (IRP) (Rescue &
Revival)
Insolvency resolution process starts from the date of admission of the
application which is called ‘insolvency commencement date’ and the
process must be completed within 180 days of its commencement
 Commencement
• A financial creditor (for a defaulted financial debt) or an
operational creditor (for an unpaid operational debt) can
initiate an IRP against a corporate debtor at the National
Company Law Tribunal (NCLT).

19. Corporate Debtor
 Moratorium
• The NCLT orders a moratorium on the debtor's operations for the
period of the IRP.
 Public Announcement
NCLT shall make a public announcement of the IRP covering :
• Name and address of the corporate debtor under the IRP
• Name of the authority with which the corporate debtor is
registered
• Last date for the submission of claims
• Details of the Insolvency Resolution Professsional who shall be
vested with the management of the corporate debtor
• Penalties for false or misleading claims
• The date on which the IR process shall close

20. Corporate Debtor
 Appointment of Resolution Professional
• The NCLT appoints an insolvency professional or 'Resolution
Professional' to administer the IRP.
• Take over the management of the corporate borrower and operate its
business as a going concern under the broad directions of a
committee of creditors
• Shift of control from the defaulting debtor's management to its
creditors, where the creditors drive the business of the debtor with
the Resolution Professional acting as their agent.

21. Corporate Debtor
 Creditors Committee and Revival Plan
• The Resolution Professional identifies the financial creditors and
constitutes a creditors committee.
• Operational creditors above a certain threshold are allowed to
attend meetings of the committee but do not have voting power.
• Each decision of the creditors committee requires a 75%
majority vote. Decisions of the creditors committee are binding
on the corporate debtor and all its creditors
• The creditors committee considers proposals for the revival of
the debtor and must decide whether to proceed with a revival
plan or liquidation within a period of 180 days (subject to a one-
time extension by 90 days).

22. Corporate Debtor
(B) Liquidation
• If the insolvency resolution process fails or financial creditors
decide to wind down and distribute the assets of the debtor.
• Other scenarios for liquidation:
i. A 75% majority of the creditor's committee resolves to
liquidate the corporate debtor at any time during the
insolvency resolution process.
ii. The creditor's committee does not approve a resolution
plan within 180 days (or within the extended 90 days)
iii. The NCLT rejects the resolution plan submitted to it on
technical grounds
iv. The debtor contravenes the agreed resolution plan and an
affected person makes an application to the NCLT to
liquidate the corporate debtor

23. Liquidator to admit
or reject claim
Liquidator to
distribute
assets
Liquidator to
make
application to
NCLT
NCLT to
order
dissolution
IRP to be appointed
as Liquidator
Liquidator to
form
Liquidation
Estate
Liquidator to
consolidate
claims
Liquidator to
verify claims
LIQUIDATION

24. VOLUNTARY LIQUIDATION
 Declaration from the directors verified by an affidavit that the
company has no debts or that it shall be able to pay its debts from
the proceeds of assets sold in the liquidation and that the company
is not being liquidated to defraud any person
 Special Resolution to be passed in the general meeting resolving
voluntary liquidation and appointment of Insolvency Professional to
act as the liquidator
 Where the company owes any debt to any person, creditors
representing 2/3rd in value of the debt of the company shall also
approve the resolution
 Liquidator to form Liquidation estate, consolidate claims and
distribute assets
 Liquidator to make an application to NCLT
 Dissolution of corporate debtor by NCLT order

25. FAST TRACK IRP
Can be made by:
 A company/ LLP with assets and income below a level as may be
notified by Central Govt
 A company/ LLP with such class of creditors or such amount of debt
as may be notified by Central Govt
 Such other category of corporate persons as may be notified by the
Central Govt.
IRP to be completed within 90 days with single extension of upto
45 days, if needed.

26. Distribution of assets
1. Insolvency Resolution Process Costs to be paid in full
2. (a) Workmen dues for the period of 24 months preceeding the
liquidation commencement date (b) debts owed to a secured
creditor
3. Wages and any unpaid due to employees other than workmen for
the period of 24 months preceeding the liquidation
commencement date
4. Financial debts owed to unsecured creditors
5. Amount due to Central Govt or State Govt for the period of 24
months preceeding the liquidation commencement date
6. Any remaining debts or dues
7. Preference shareholders , if any; and
8. Equity shareholders or partners as the case may be.

27. INSOLVENCY RESOLUTION FOR
INDIVIDUALS/ PARTNERSHIP FIRMS

28. Individuals/Partnership
(Insolvency)
Fresh Start
Insolvency
Resolution &
Discharge Order
Bankruptcy
Order

29. Individuals/Partnership
(A) Fresh Start Process
• Eligible debtor can apply to the Debt Recovery Tribunal for
discharge from qualifying debts not exceeding a specified
threshold, allowing them to start afresh.
• Insolvency Resolution Professional on being satisfied about
the correctness of the debts and the financial status of the
debtor make a list of qualifying debts and report to the Debt
Recovery Tribunal (DRT). DRT shall then pass a Discharge
Order.

30. Individuals/Partnership
Eligible Debtor:
 Whose gross annual income does not exceed Rs 60,000;
 Whose total value of assets does not exceed Rs 20,000;
 Whose total value of qualifying debts does not exceed Rs 35,000
 Who does not own a dwelling unit, whether encumbered or not;
 There is no pending bankruptcy proceeding against him.
Qualifying Debt means any amount due including interest owed
under any contract but does not include a secured debt or debt incurred
3 months prior to making application for fresh start process

31. Individuals/Partnership
(B) Insolvency Resolution
 A defaulting debtor or a creditor can make an application either
himself of through Insolvency Resolution Professional
 Preparation of a repayment plan by the debtor, for approval of
creditors.
 If approved, the DRT passes an order binding the debtor and
creditors to the repayment plan
 ON completion of the repayment proceedings, discharge order is
given by DRT
 If the plan is rejected or fails, the debtor or creditors may apply for
a bankruptcy order wherein Bankruptcy trustee shall be
appointed and the estate of the debtor shall vest with him till
discharge orders are given by DRT

32. INSTITUTIONAL INFRASTRUCTURE

33. Institutional Infrastructure
 Insolvency and Bankruptcy Board of India
• Overseeing the functioning of insolvency intermediaries i.e.,
insolvency professionals, insolvency professional agencies and
information utilities
• Regulating the insolvency process
• Consists of :
• A Chairperson
• Three members not below the rank of joint Secretary or
equivalent, one of each to represent the Ministry of Finance,
the Ministry of Corporate Affairs and Ministry of Law, ex-
officio
• One member to be nominated by the Reserve Bank of India,
ex-officio
• Five other members to be nominated by the Central
Government, of whom at least three shall be the whole-time
members

34. Institutional Infrastructure
 Information Utilities
• Information utilities collect, collate, authenticate and disseminate
financial information of debtors in centralised electronic
databases
• Such information would be available to creditors, resolution
professionals, liquidators and other stakeholders in insolvency
and bankruptcy proceedings
 Adjudicating Authorities
• For Corporate Insolvency: NCLT, NCLAT and Supreme Court
• For Individual and Other Persons: DRT, DRAT and Supreme Court

35. Institutional Infrastructure
 Insolvency Resolution Professionals
• Intermediaries who would play a key role in the efficient working
of the bankruptcy process
• Consists of Class of regulated but private professionals having
minimum standards of professional and ethical conduct
• Verifies the claims of the creditors
• Constitutes a creditors committee
• runs the debtor's business during the moratorium period and
helps the creditors in reaching a consensus for a revival plan
• Acts as a liquidator and bankruptcy trustee

36. New Professionals
Insolvency Professional
Enrolled as a
Member of
Insolvency
Professional Agency
Registered with
Insolvency and
Bankruptcy Board of
India
The Board will specify the categories of professionals or persons
possessing such qualifications and experience in the field of finance, law,
management, insolvency or such other field, as it deems fit, which can
be appointed as Insolvency Professionals

37. OTHER ACTS DEALING WTH INSOLVENCY
AND IMPACT OF IBC ON SUCH ACTS

38. Impact of IBC on existing Legislations
Act Purpose Adjudicatin
g Authority
Existing
Provision
Impact of IBC
Sick Industrial
Companies
(Special
Provisions)
Repeal Act,
2003
To repeal
the Sick
Industrial
Companies
(Special
Provisions)
Act 1985
Board of
Industrial and
Financial
Reconstruction
(BIFR)
- • Any appeal made to Appellate
authority or any reference made,
inquiry pending before the BIFR
• Any proceeding pending before
Appellate Authority or BIFR
shall stand abated and can be
referred to NCLT under IBC
Limited
Liability
Partnership
Act 2008
Regulates
Limited
Liability
Partnerships
in India
National
Company Law
Tribunal
Section 64,
clause (c): A LLP
may be wound up
by the Tribunal, if
the LLP is unable
to pay its debts
This shall be omitted
Indian
Partnership
Act 1932
Regulates
Partnership
firms in
India
Registrar of
Firms
A firm has to be
compulsorily
dissolved in case
of adjudication of
all or all except
one as insolvent.
This shall be omitted

39. Impact of IBC on existing Legislations
Act Purpose Adjudicating
Authority
Existing
Provision
Impact of IBC
Recovery of
Debts Due to
Banks and
Financial
Institutions
Act, 1993
Legislature
in ensuring
speedy
recovery of
bank dues
Debt Recovery
Tribunal
Debt Recovery
Appellate Tribunal
- • Establishment of Debt Recovery
Tribunal (DRT) and its benches as
per IBC
• Establishment of Debt Recovery
Appellate Tribunal (DRAT) and its
benches as per IBC
• Powers of DRT and DRAT shall be
as per Schedule III of IBC
•Applications made to the Tribunal
shall be dealt with the manner as
provided under IBC
Securitisation
and
Reconstruction
of Financial
Assets and
Enforcement
Security
Interest Act,
2002
Recovering
Non
Performing
Assets
(NPAs) of
Banks and
FIs
Debt Recovery
Tribunal
Debt Recovery
Appellate Tribunal
- Resolution process shall be as per
IBC

40. Impact of IBC on existing Legislations
Act Existing Provision Impact of IBC
Companies Act
2013
- • Definition of Winding up inserted u/s 2(94A) as
winding up under this Act or liquidation under the
IBC, as applicable
Section 8(9) : Any asset
remaining after winding up of
the Company, it shall be
transferred to another Sec 8
Company or its proceeds
after sale shall be credited to
Rehabilitation and
Insolvency Fund
Insolvency and Bankruptcy Fund shall be
substituted in place of Rehabilitation and Insolvency
Fund
Wherever in the Act mention
as ‘liquidator’ or ‘on the
liquidator’
Appointed under this Act or under the IBC, shall be
inserted
Section 253 to 269 : Revival
and Rehabilitation
These shall be omitted
Section 270: Modes of
Winding Up
Voluntary Winding up shall be omitted

41. Impact of IBC on existing Legislations
Act Existing Provision Impact of IBC
Companies Act
2013
Circumstances of winding up
by tribunal
The following circumstances shall be omitted:
• if the company is unable to its debts
• if Tribunal has ordered winding up under Revival and
Rehabilitation of Sick companies
Section 272: Petition for
winding up
winding up on petition by creditors shall be omitted
Section 275 : Company
Liquidator and their
appointment
The liquidator shall be appointed by the Tribunal
amongst the Insolvency Professionals under IBC
Part II : Voluntary Winding
Up (Section 304 to 323)
This shall be omitted

42. THANK YOU
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