insolvency and bankruptcy code, 2016

INSOLVENCY AND BANKRUPTCY CODE, 2016SVKM’s NMIMS SCHOOL OF LAWBY PRANAV KHATAVKAR, ADVOCATE9th JANUARY 2017

INSOLVENCY AND BANKRUPTCY 101

• Insolvency- Insolvency is essentially the state of being that prompts one to file for bankruptcy. An entity – a person or company becomes insolvent when it cannot pay its lenders back on time.

• Bankruptcy- Bankruptcy is a legal declaration of one’s inability to pay off debts.

WHY IS THE CODE NEEDED?

• Current bankruptcy regime in India is highly fragmented

• Negative implications of pro-revival approach of the Court

• Conflicting and competing claims• Lack of credible financial data

BANKRUPTCY LAW REFORMS COMMITTEE

• The Bankruptcy Law Reforms Committee (“BLRC”) recommended enactment of the Code.

• The BLRC was chaired by Dr. T.K. Vishwanathan• Interim report submission- February 2015• Final report submission- 4th November 2015Volume I – Rationale and Design for the

introduction of the CodeVolume II- Insolvency and Bankruptcy Bill, 2015

(Draft Code)

OBJECTIVES BEHIND THE INTRODUCTION OF THE CODE • Promotion of entrepreneurship• Availability of credit• Balance of interest of all stakeholders• Alteration in the order of priority of payment

of Government dues• Establishment of the Insolvency and

Bankruptcy Board of India

SUMMARY OF THE NEW LEGAL CONCEPTS INTRODUCED UNDER THE CODE

INSOLVENCY PROFESSIONALS

• Insolvency Professionals are those licensed professionals enrolled with Insolvency Professional Agencies and take on the roles of Interim Resolution Professional/Liquidator/Bankruptcy Trustee in the insolvency resolution of different entities.

INSOLVENCY PROFESSIONAL AGENCIES

• Insolvency Professional Agencies are those specialized bodies/agencies that are entrusted with the task of registration and regulation of insolvency professionals.

INFORMATION UTILITIES

• An information utility is an agency that is in charge of collecting, collating and disseminating financial information. The business of the information utility is primarily concerning storage and processing of financial information.

INSOLVENCY AND BANKRUPTCY BOARD OF INDIA

• The Insolvency and Bankruptcy Code, 2016 (“Code”) under Section 188 establishes a regulator called the Insolvency and Bankruptcy Board of India (“Board”). The Board is primarily entrusted with the monitoring and regulation of the insolvency sector in the Indian economy and regulation the entities as have been established under the Code.

CORPORATE INSOLVENCY RESOLUTION PROCESS

WHO CAN INITIATE THE CORPORATE INSOLVENCY RESOLUTION PROCESS?

• Financial Creditor• Operational Creditor• Corporate Applicant (i.e. Corporate Debtor

itself)

CORPORATE INSOLVENCY RESOLUTION PROCESS BY FINANCIAL CREDITOR

• Step 1- Financial Creditor itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before Adjudicating Authority on occurrence of Event of Default and propose the name of a Resolution Professional. [Section 7(1)]

CORPORATE INSOLVENCY RESOLUTION PROCESS BY FINANCIAL CREDITOR (CONTD)

• Step 2- Adjudicating Authority to ascertain existence of default from the records of information utility or other evidence furnished within 14 days of application and may either admit or reject the application. [Section 7(4)]

• Step 3- Corporate Insolvency Resolution Process to start from date of admission of the application. [Section 7(6)]


• Step 4- Declaration of Moratorium and Public Announcement [Section 13]

• Step 5- Public announcement of Corporate Insolvency Resolution process. [Section 14]

• Step 6- Appointment of Interim Resolution Professional [Section 16]

• Step 7- Constitution of Committee of Creditors [Section 21]


• Step 8- Appointment of Resolution Professional by Committee of Creditors [Section 22]

• Step 9- Meeting of Committee of Creditors [Section 24]

• Step 10- Preparation of Information Memorandum [Section 29]

• Step 11- Submission of Resolution Plan by Resolution Professional [Section 30]

• Step 12- Approval of Resolution Plan [Section 31]

CORPORATE INSOLVENCY RESOLUTION PROCESS BY OPERATIONAL CREDITOR

• Step 1- Operational Creditor on occurrence of event of default to deliver a demand notice of unpaid operational debt or invoice demanding payment of the amount involved in default to Corporate Debtor. [Section 8(1)]

• Step 2- Corporate Debtor within 10 days of receipt of abovementioned Notice or Invoice to raise dispute or repay the operational debt. [Section 8(2)]

CORPORATE INSOLVENCY RESOLUTION PROCESS BY OPERATIONAL CREDITOR (CONTD)

• Step 3- If operational creditor does not receive payment from corporate debtor or notice of dispute, operational creditor may file an application before Adjudicating Authority for initiation of corporate insolvency resolution process. [Section 9(1)]

• Step 4- The Adjudicating Authority may either admit or reject the application. [Section 9 (5)]

CORPORATE INSOLVENCY RESOLUTION PROCESS BY OPERATIONAL CREDITOR (CONTD)

• Step 5- Corporate Insolvency Resolution Process to start from the date of the admission of the application. [Section 9(6)]

• Other steps such as declaration of moratorium, appointment of interim resolution professional, constitution of committee of creditors same as corporate insolvency resolution process by a financial creditor.

CORPORATE INSOLVENCY RESOLUTION PROCESS BY CORPORATE APPLICANT

• Step 1- After Corporate Debtor commits default, Corporate Applicant can file an application for initiating corporate insolvency resolution process with the Adjudicating Authority. [Section 10(1)]

• Step 2- The Adjudicating Authority may admit the application if complete and may reject the application if it is incomplete. Before rejecting the application, the Adjudicating Authority may give notice of 7 days to rectify the application. [Section 10(4)]

CORPORATE INSOLVENCY RESOLUTION PROCESS BY CORPORATE APPLICANT

• Step 3- Corporate Insolvency Resolution Process to commence from date of admission of the application. [Section 10(5)]

• Other steps such as declaration of moratorium, appointment of interim resolution professional, constitution of committee of creditors same as corporate insolvency resolution process by a financial creditor.

LIQUIDATION PROCESS

• Step 1- Circumstances when a liquidation order can be passed [Section 33]:-

Resolution plan is not received before the completion of the insolvency resolution period

OR If the resolution plan so proposed is rejected for non-

compliance with requirements as mandated under Section 31. If Committee of Creditors through the Resolution Professional

informs the Adjudicating Authority its decision to liquidate the Corporate Debtor.

If the Resolution plan that is approved by the Adjudicating Authority is contravened by the Corporate Debtor.

LIQUIDATION PROCESS (CONTD)

• Step 2- Once liquidation order is passed, no suit or other legal proceedings shall be instituted against the corporate debtor. Suit or legal proceeding can be initiated against the Corporate Debtor with the permission of Adjudicating Authority. [Section 33]

• Step 3- Once Adjudicating Authority passes an order of liquidation, the Resolution Professional so appointed for the Insolvency Resolution Process shall be appointed as a liquidator. [Section 34]

LIQUIDATION PROCESS (CONTD)

• Step 4- Formation of liquidation estate by Liquidator [Section 36]

• Step 5- Consolidation and verification of Claims [Sections 38 and 39]

• Step 6- Admission or rejection of claims by Liquidator. (Section 40)

• Step 7- Determination of the value of claims. [Section 41]

• Step 8- Distribution of Assets [Section 53]• Step 9- Dissolution of Corporate Debtor [Section 54]

MAJOR LEGAL AND COMMERCIAL IMPLICATIONS OF THE CODE

• Sick Industrial Companies Act, 1985 (SICA)- All proceedings before the BIFR and the appellate authority stand abated. Fresh proceedings have to be instituted before the National Company Law Tribunal within 180 days.

• Companies Act, 2013- Company being unable to pay its debts as a ground for initiating winding up proceedings has been omitted.

QUESTIONS?

THANK YOU !

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