insolvency and bankruptcy code,...
TRANSCRIPT
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Overview on Insolvency and Bankruptcy Code, 2016
Speaker:-
CA Hans Raj Chugh
FCA, FCS
Insolvency Professional
08.02.2019(Friday)
Organized by
NORTH EX CPE STUDY CIRCLE OF NIRC OF ICAI
OUTLINEWhy IBC Needed
Roadmap to Code
Applicability
Invoking Provisions of Code
Timelines
Effect of Moratorium
Duties of Resolution Professional/IRP
Committee of Creditors
Prepare IM & Resolution Plan
Opportunities for CAs under IBC
Latest in IBC
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Insolvency and Bankruptcy code, 2016PART-I
Preliminary Section
1-3
PART-II
Section
Chapter-I
Preliminary
4-5
Chapter-II
Corporate Insolvency Resolution Process (CIRP)
6-32
Chapter-III
Liquidation Process
33-54
Chapter-IV
Fast Track Corporate Insolvency Resolution
Process
55-58
Chapter-V
Voluntary Liquidation of Corporate Persons
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Chapter-VI
Adjudicating Authority for Corporate Persons
60-67
Chapter-VII
Offences and Penalties
68-77
Insolvency and Bankruptcy code, 2016PART-III
Chapter-I
Preliminary
Section
78-79
Chapter-II
Fresh Start Process
80-93
Chapter-III
Insolvency Resolution Process
94-120
Chapter-IV
Bankruptcy Order for Individuals and Partnership firms
121-148
Chapter-V
Administration and Distribution of the Estate of
the Bankrupt
149-178
Chapter-VI
Adjudication Authority for Individuals and
partnership Firms
179-183
Chapter-VII
Offences & Penalties
184-187
Insolvency and Bankruptcy code, 2016PART-IV
Chapter-I
The Insolvency and Bankruptcy Board of India
Section
188-195
Chapter-II
Powers and Functions of the Board
196-198
Chapter-III
Insolvency Professional Agencies
199-205
Chapter-IV
Insolvency Professional
206-208
Chapter-V
Information Utilities
209-216
Chapter-VI
Inspection and Investigation
217-220
Chapter-VII
Finance, Accounts and Audit
221-223
Part-V
Miscellaneous Section
224-255
Schedules 1-11
• Existing Mechanism –Ineffective & Inadequate : No single Law dealing
with Insolvency & Bankruptcy in India;
multiple and overlapping jurisdiction
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3 1418
56
103
0
20
40
60
80
100
120
Insolvency Resolution
World BankRanking
6
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0.6 0.8 1 1 1
4.3
0
1
2
3
4
5
Japan Singapore Malaysia United Kingdom United States India
RESOLUTION TIME – It takes App. 4.5 years to Windup an Existing
Co. and recovery is only 26.40%
In years
92.40%88.30%
80.60% 82.10%
36.90%
26.40%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
JAPAN FINLAND GERMANY USA CHINA INDIA
RECOVERY RATE
RECOVERY RATE
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• Indian Banks – Deep in Bad Loans
Gross NPA till June-17 – 8.29 Lakh Crores & Huge amount of Restructured Loans
Total Stressed Assets – 11% of Total Lending
Bad Loans has grown from 3.49% (2013) to 11.00% (2017)
Corporate Bad Loans – 56% - Bad Loans of India Bank.
Process Cost of Insolvency in India vis-a-vis- Other Countries
Ease of Doing Business – Easy Exit--Where India Stands
EASE OF DOING BUSINESS
Ranking
NEW
ZEALAND
SINGAPORE
HONKONG
RUSSIA
CHINA
SOUTH
AFRICA
INDIA
BRAZIL
2017 2016
1
35
78
82
100
125
2
5
1
4
40
78
74
130
123
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• Time Bound Manner
• Promote Entrepreneurship
• Improve Credit Availability
• Balance Interest of all
Stakeholders
• Minimise the Role of Adjudicating Authority
• Standardise the procedure
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February, 2015-Interim Report by Committee
November, 2015-Final Report
21.12.2015- IB21.12.2015- IBC Bill of 2015 -introduced in LSC Bill of 2015 -introduced in LS
23.12.2015 - IBC Bill of 2015 - Referred to Joint Committee of both Houses of Parliament
28.04.2016- IBC Bill of 2015 -Joint Committee placed its Report to both Houses of Parliament
05.05.2016- IBC Bill of 2015 -passed by LS
11.05.2016- IBC Bill of 2015 -passed by RS
28.05.2016- IBC, 2016 -Assented by President of India & Notified (Effective from 01.12.2016
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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
Individuals11
WHO CAN INVOKE
Corporate Debtor (Sec.10)
- A corporate person who owes a debt to any person
Operational Creditor (Sec.9)
- A person to whom an operational debt is owed &
- Includes any person to whom such debt legally assigned or transferred
Financial Creditor (Sec.7)
- Any person to whom a financial debt is owed &
- Includes a person to whom such debt legally assigned or transferred
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• 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 completeIf 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
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DEFAULT
In case of Co. & LLP In case of Partnership & Individual
Minimum amount of Rs.1 lakh Minimum amount of Rs.1 thousand
Minimum amount of Rs. 1 lakh & Rs.1 thousand can be increased upto Rs.1 Cr & Rs. 1 lakh respectively by CG
Where any Company or LLP commits-
A default in paying its
Financial debt Operational debt
Then a financial creditor/ operational creditor/ Company & LLP itself
May file an application, for initiating corporate insolvency resolution process with the Adjudicating Authority.
Process For insolvency resolution/liquidation of a Corporate Debtor
Application To Be filed before NCLT by (a) Financial
Creditor [ section 7 of IBC] , Operation Creditor [
section 9 of IBC] and (d) Corporate Debtor [ section 10
of IBC] for insolvency resolution and liquidation of
Corporate Debtor.
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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
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• Adjudicating Authority shall by order prohibit thefollowing:
Institution/continuation/proceedings of suits includingexecution of any judgment, decree or order in any Court
Transferring, encumbering, alienating or disposing ofassets/legal right/beneficial interest
Any action to Foreclosure, Recover or enforce anysecurity interest created including any action underSARFAESI Act, 2002
Recovery of any property by owner or lessor where suchproperty is occupied
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• Order of Moratorium made by Adjudicating Authority; - Start from Date of Admission of Application;
• Cease to effect – Date of Approval of Resolution Plan or Liquidation Order .
MORATORIUM PERIOD
[sec 14(1)]
• Objective Maximizing value of the Entity to Continue Operation No additional stress on Business
- Supply of essential goods or services to the Corporate Debtor as maybe specified shall not be terminated or suspended or interruptedduring moratorium period. Such supplies are :-
(i) Electricity, (ii) water, (iii) telecommunication services & (iv) informationtechnology services
- Central Government in consultation with any financial regulator mayspecify such transactions.
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PUBLIC ANNNOUNCEMENT Public announcement contain following
information: • Name & address of defaulted Corp. Debtor• Name of Registrar with which Corp. Debtor is
incorporated or registered• Last date for submission of Claims • Details of Interim Resolution Professional
- Management of Corporate Debtors- Responsible for Receiving claims
• Penalties for False or Misleading Claims • Date on which the Insolvency Resolution
Process close (i.e. 180 days from the date of admission of application)
Public Announcement shall be made in such manner as may be specified
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APPOINTMENT:
Confirmation of Appointment/Appointment by AdjudicatingAuthority within 14 days from Admission of Application
Shall not exceed 30 days from date of Appointment
Once IRP is appointed :
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
TENURE:
• Appointment by Committee of Creditors may in their first meeting within 7 (Seven) days of Constitution of Committee
Resolve to appoint the Interim Resolution Professional as a Resolution Professional (OR) Replace the Interim Resolution Professional by another Resolution Professional.
• Resolution Professional shall conduct the entireInsolvency Resolution Process and manage theoperations of the company during the corporateInsolvency Resolution Process Period.
• Resolution Professional shall exercise all such powers and duties as are vested on the Interim Resolution Professional.
• All Meetings of the Committee of Creditors shallbe conducted by the Resolution Professional
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MEETING OF THE COMMITTEE OF CREDITORS
• Convene & attend all meetings
• Present all resolution plans at the meetings
DOCUMENTS
• Maintain an updated list of claims
• Prepare the information memorandum
RIGHTS
• Take immediate custody and control of all the assets including business records of the company/LLP
• Represent and act on behalf of the company/LLP with third parties
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• CoC to replace the Resolution Professional any time during the pendency of IRP.
• CoC may forward name of another Insolvency Professional to the Adjudicating Authority
• The Adjudicating Authority shall forward name of proposed Resolution Professional to the Board for confirmation
• On confirmation being received from the Board, appoint him as Resolution Professional
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The Interim Resolution Professional shall -
Collate all claims Determine the financial position
Constitute a Committee of Creditors– comprising of all Financial Creditors
AND
All decision of the committee shall be taken by a vote not <66% of voting share of financial creditors.
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• Position of Financial Creditor when he is an Operational Creditor:
shall be considered Financial Creditor to the extent ofFinancial Debts;
Voting Shares to the extent of Financial Debts;
Operational Creditor to the extent of Operational Debt;
• Assignment of Operational Debt
If an Operational Creditor has assigned or legally transferredany Operational Debt to a Financial Creditor, the Assignee ofTransferee shall be considered as an Operational Creditor tothe extent of such assignment or legal transfer.
• Determination of Voting Share by Financial Creditor
Voting rights are in proportion of the debts due to eachcreditor.
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The Insolvency Adjudication Process
Insolvency of Limited Liability Partnership
Individual Insolvency
Corporate insolvency
Debt Recovery Tribunal Adjudicating Authority
National Company Law Tribunal (NCLT) – Adjudicating Authority
Appeal to National Company Law Appellate Tribunal (NCLAT)
Appeal to Debt Recovery Appellate Tribunal (DRAT)
Appeal to Supreme Court
Insolvency of Partnership Firms
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LIQUIDATION PROCESS
Insolvency resolution process and liquidation cost
Secured creditor and workmen dues (Up to 24 months)
Other employee dues(Upto 12 months)
Financial debts of unsecured creditors
Government dues (Upto 2 years); and unpaid secured creditors
Any remaining debt and dues
Preference shareholders, if any
Equity shareholders or partners, as the case may be
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LIQUIDATION PROCESS
Liquidation order
Liquidation order will be passed if:
-CIRP ends
-Plan not submitted to NCLT
-Plan not approved
-Decided by CoC
-Plan not properly implemented
Liquidation steps
-Appointment of liquidator
-Formation of liquidation estate
-No legal proceeding by or against the debtor
-Consolidation of claims
-Distribution of assets(refer Water fall chart alongside)
-Dissolution of debtors (to be completed within 2 years)28
• By Resolution professional
• It shall contain information for preparing resolution plan and shall be furnished to the applicant
Preparation
• Resolution applicant to undertake (a)compliance of Law (b)protect intellectual property of CD and (c) not to share information to third parties
Access to information
• Financial position of corporate debtor
• Information required by applicant for resolution plan
• Other matters pertaining to corporate debtor
Relevant information
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assets and liabilities, as on the insolvency commencement date, classified into appropriate categories for easy identification, with estimated values assigned to each category
the latest annual financial statements;
audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application;
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a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims
particulars of a debt due from or to the corporate debtor with respect to related parties
details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party;
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the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake;
details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities;
the number of workers and employees and liabilities of the corporate debtor towards them
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the liquidation value;
the liquidation value due to operational creditors; and
other information, which the resolution professional deems relevant to the committee
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A resolution applicant may submit a resolution plan to the resolution professional prepared on the basis of the information memorandum.
The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan confirms to the following
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(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor;
(b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53;
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(c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for the time being in force
(f) conforms to such other requirements as may be specified by the Board
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(3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2) .
(4) The committee of creditors may approve a resolution plan by a vote of not less than seventy five per cent of voting share of the financial creditors.
(5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor.
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(6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.
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Once Resolution Plan is approved it shall be binding the Corporate debtor and related parties mentioned in the resolution plan
If conditions not complied the Adjudicating Authority may reject the Resolution Plan
Once is approved (a) the moratorium order shall cease
(b) all the records along with the resolution Plan shall be forwarded to the Board
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The RP shall send a copy of the order of NCLT, approving orrejecting the plan to the CoC and the resolution applicant
A resolution applicant shall, endeavor to submit a resolution planprepared in accordance with the Code and Regulations thereunder,30 days before the expiry of the maximum period permitted forcompletion of CIRP (180/ 270 days)
The RP shall present all the resolution plans that meet therequirements of the Code and Regulations thereunder to the CoC forits consideration
The CoC may approve any resolution plan with such modificationsas it deems fit
The RP shall submit such approved CoC plan to NCLT
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Any appeal from an order approving the resolution plan shall be in the manner and on grounds laid under in Section 61 (3)
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Resolution plan - What can happen ?
Non submission within Due date
Extension allowed
Non submission within due date
No extension and
liquidation
Submission
Approval and order by NCLT
Submission
Rejection and Liquidation
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Measures in Resolution Plan
(a) transfer of all or part of the assets of the corporate debtor to one or more persons;
(b) sale of all or part of the assets whether subject to any security interest or not;
(c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons;
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Measures in Resolution Plan
(d) satisfaction or modification of any security interest;
(e) curing or waiving of any breach of the terms of any debt due from the corporate debtor;
(f) reduction in the amount payable to the creditors;
(g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;
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Measures in Resolution Plan..
(h) amendment of the constitutional documents of the corporate debtor;
(i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose; and
(j) obtaining necessary approvals from the Central and State Governments and other authorities
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INSTITUTIONS
THE INSOLVENCY REGULATOR
Insolvency Resolution
Professionals
Information Utilities
Adjudicatory Authorities
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PRIORITY
The following debts will be paid in PRIORITY given below:
Insolvency Resolution Cost & Liquidation Cost;
Debts to Secured Creditor (who have relinquished their security interest) & Workmens’ dues (for 24 months before commencement);
Wages & Unpaid Dues to employees (other than workmen) (for 12 months before commencement);
Financial Debts to Unsecured Creditors;
Workmen’s Dues for earlier period;
Crown Debts and Debts to Secured Creditor following Enforcement of Security Interest;
Remaining Debts;
Preference Shareholders;
Equity Shareholders or partners.
KEY BENEFITS
Time bound settlement of Insolvency.
Banks & Asset reconstruction companies immediate gainers
Comprehensive coverage-Companies, LLP, Individuals & more can be added
Database of Serial Defaulters
Protect workers48
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Flow Chart
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Flow Chart
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Flow Chart
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Flow Chart
53
Flow Chart
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Flow Chart
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Flow Chart
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Flow Chart
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Flow Chart
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Flow Chart
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Flow Chart
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Flow Chart
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Flow Chart
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Data Control Chart
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Data Control Chart
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Forms Control Chart
As Valuer : As per IBC code IRP need to appoint two valuers todetermine liquidation value. Valuers also required for valuation of
current assests (akin to stock audit) Valuer is also required for valuing theassets under liquidation. Chartered Accountants with over 10 years ofpractice are allowed to do valuation.
Preparation of Resolution Plan : Multiple resolution plan can be
submitted to IP by interested parties who are called as resolutionapplicant. CA can assist resolution applicants in preparation ofResolution plan.
OPPORTUNITIES FOR CAs UNDER IBC
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SCOPE FOR OTHER ROLES UNDERS IBC FOR PROFESSIONALS
Due Diligence : As per code IRP need to collect all information relating to theassets, finances and operations of the corporate debtor for determining thefinancial position of the corporate debtor, including information relating to—(i) business operations for the previous two years;
(ii) financial and operational payments for the previous two years;
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified;
Data processing : As per IBC code IRP and RP are needed to collate and verifyclaims of the creditors. In a large operating company data could be huge.IRP/RP may avail services of practicing CA for data processing
Management of borrower : IRP/RP are required to manage business of theborrower on a going concern basis. IRP/RP may engage CA and otherprofessionals for assisting in management e.g. as CFO
OPPORTUNITIES FOR CAs UNDER IBC
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Secretarial and legal work : CIRP process requires huge amount of bookkeeping, holding of meeting, recording minutes, communication with NCLTetc. IP are expected to take help of professionals in this regard.
Representing lenders : Any creditor who is part of COC are allowed to appointother IP (other than RP) as their representative in COC. FCCB and ECB holdersare expected to use this facility.
Representing before NCLT / NCLAT : A party to any proceeding or appealbefore the Tribunal or the Appellate Tribunal, as the case may be, may eitherappear in person or authorise one or more Chartered Accountants to presenthis case before the Tribunal or the Appellate Tribunal.
IRP/ RP/ Liquidator may avail services of other Chartered Accountants in profession.
SCOPE FOR OTHER ROLES UNDERS IBC FOR PROFESSIONALS
OPPORTUNITIES FOR CAs UNDER IBC
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LATEST IN IBC.. (1/3)
Through Amendments to the Insolvency and Bankruptcy Board of India(Fast Track Insolvency Resolution Process for Corporate Persons)Regulations, 2017
The Insolvency and Bankruptcy Board of India (IBBI) amended the Insolvency andBankruptcy Board of India (Fast Track Insolvency Resolution Process for CorporatePersons) Regulations, 2017 on 07th Feb 2018.
The resolution professional shall appoint registered valuers to determine the fair value and the liquidationvalue of the corporate debtor. After the receipt of resolution plans, the resolution professional shallprovide the fair value and the liquidation value to each member of the committee of creditors in electronicform, on receiving a confidentiality undertaking. The resolution professional and registered valuers shallmaintain confidentiality of the fair value and the liquidation value.
The resolution professional shall submit the information memorandum in electronic form to each memberof the committee of creditors within two weeks of his appointment as resolution professional and to eachprospective resolution applicant latest by the date of invitation of resolution plan, on receiving
confidentiality undertaking.
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LATEST IN IBC..2/3
The resolution professional shall issue an invitation, including the evaluation matrix, to the prospectiveresolution applicants. He may modify the invitation as well as the evaluation matrix. However, theprospective resolution applicant shall get at least 15 days from the issue of invitation or modificationthereof, whichever is later, to submit resolution plans. Similarly, he will get at least 8 days from the issue ofevaluation matrix or modification thereof, whichever is later, to submit resolution plans. An abridgedinvitation shall be available on the web site, if any, of the corporate debtor, and on the web site, if any,designated by the IBBI for the purpose.
A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of thecorporate debtor for maximization of value of its assets. These may include reduction in the amountpayable to the creditors, extension of a maturity date or a change in interest rate or other terms of a debtdue from the corporate debtor, change in portfolio of goods or services produced or rendered by thecorporate debtor, and change in technology used by the corporate debtor.
The resolution professional shall submit the resolution plan approved by the committee of creditors to theAdjudicating Authority, at least 15 days before the expiry of the maximum period permitted for thecompletion of the fast track corporate insolvency resolution process.
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LATEST IN IBC..3/3
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Thank You