A to Z on “Insolvency and Bankruptcy Code,
2016” ( IBC2016 or Code)
IBC,
2016 was notified by the Government of India on 28th May 2016. The Act consolidates and amends the laws relating
to reorganisation and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound manner.
IBC 2016
also altered the order of priority various payment dues; and put the payments
of workmen’s dues in foremost priority over Government dues.
Meaning of Insolvency
“Insolvency” means the situation
where an entity (debtor) cannot raise enough cash to meet its obligations or to
pay debts as they become due for payment.
Under IBC 2016, a bankrupt entity is
a debtor who has been adjudged as bankrupt by an adjudicating authority that
has passed a bankruptcy order.
Sign of Insolvency
Sign of Insolvency may include:
·
poor
cash management,
·
increase in cash expenses, or
·
Decrease
in cash flow etc.
When Bankruptcy Happens
“Bankruptcy” occurs when a court has
determined insolvency, and has given legal orders for resolution. On declaring
the person as bankrupt, the court is responsible to liquidate the personal
property of the insolvent and distribute the property amongst the creditors of
the insolvent debtors.
WHO IS ADJUDICATING
AUTHORITY?
The adjudicating authority under the IBC is “National
Company Law Tribunal (NCLT)” for Corporate Debtors (Companies & LLPs)
and the “Debt Recovery Tribunal (DRT)” for individuals and partnership
firms.
HOW IBC CODE EASES THE
PROCESS OF INSOLVENCY?
The Code provides time bound insolvency resolution
process— 180 days after the process is initiated, plus a 90-day extension — for
resolving insolvency.
FAST TRACK INSOLVENCY RESOLUTION PROCESS
The Code also provides for FAST TRACK INSOLVENCY
RESOLUTION PROCESS— 90 days after the process is initiated, plus a 45-day
extension — for resolving insolvency in fast track mode.
AUTHORITIES UNDER IBC CODE TO IMPLEMENT
IBC PROCESS
The
following are authorities through which the Insolvency and Bankruptcy Process
would be implemented under the Code:
(i)
Insolvency and Bankruptcy
Board of India (IBBI)
(ii)
Insolvency Professional
Agencies (IPAs)
(iii)
Insolvency Professionals
(IPs)
(iv)
Information Utilities
(IUs)
(v)
Civil court not to have
jurisdiction:
No civil court or authority shall have jurisdiction to
entertain any suit or proceedings in respect of any matter on which NCLT& NCLAT.
Appellate Authorities
For Corporate Persons (Companies & LLPs) - National Company
Law Appellate Tribunal (NCLAT), any person aggrieved by order of NCLT may file
appeal to NCLAT within 30 days of such order.
For Individuals and Partnership Firms- Debt Recovery Appellate
Tribunal (DRAT), any person aggrieved by order of DRT may file appeal to DRAT
within 30 days of such order.
Appeal to Supreme Court:
Any
person aggrieved by an order of the National Company Law Appellate Tribunal or
Debt Recovery Appellate Tribunal as the case may be, may file an appeal to the
Supreme Court on a question of law arising out of such order under this Code
within forty-five days from the date of receipt of such order.
Types of Creditors under IBC Code
IBC
classifies the creditors as financial creditors and operational creditors. The
Code provides different process for recovery of debts by these creditors from
the debtors;
ISSUE OF MORATORIUM ORDER
When Insolvency
Resolution Process (IRP) starts, Adjudicating Authority (NCLT) declares “Moratorium”.
Then no suit or other legal proceeding shall be instituted by or against the corporate
debtor, restricts transferring the assets of corporate debtors and recovery of
any property by an owner or lessor where such property is occupied or in
possession of the corporate debtor. Similar process is given for Adjudicating
Authority (DRT).
ISSUE OF LIQUIDATION ORDER
Where
insolvency process fails, the Adjudicating Authority (NCLT) will pass an order
under section 33 of the Code. Subject to section 52 (Secured Creditors in
Liquidation Proceedings), when a liquidation order has been passed, no suit or
other legal proceeding shall be instituted by or against the corporate debtor;
SECURED CREDITORS IN LIQUIDATION PROCEEDINGS
Section 52 (Secured Creditors
in Liquidation Proceedings) is unique provision in the IBC 2016 that allows the
secured creditor to relinquish its security interest to the liquidation estate and
receive proceeds from the sale of assets by the liquidator in the manner
specified in section 53; or to realise its security interest in the manner specified
in this section.
EFFECT OF THE LIQUIDATION ORDER
The order for liquidation
under this section shall be deemed to be a notice of discharge to the officers,
employees and workmen of the corporate debtor, except when the business of the corporate
debtor is continued during the liquidation process by the liquidator.
WHO CAN BE INSOLVENCY PROFESSIONALS UNDER IBC 2016?
Vide
Regulation 5 of the Insolvency and Bankruptcy Board of India (Insolvency
Professionals) Regulations 2016issued vide Gazette Notification IBBI/2016-17/GN/REG003dated
23rd November 2016, to become “Insolvency professional” the following qualifications
and experience have been provided:
©Subject to the other provisions
of these Regulations, an individual shall be eligible for registration, if he-has
passed the National Insolvency Examination;
©has passed the Limited Insolvency
Examination, and has fifteen years of experience in management, after he received
a Bachelor’s degree from a university established or recognized by law; or
©has passed the Limited Insolvency Examination
and has ten years of experience as –
©a chartered accountant enrolled as a member
of the Institute of Chartered Accountants of India.
©a company secretary enrolled as a
member of the Institute of Company Secretaries of India.
©a cost accountant enrolled as a member of the Institute of Cost
Accountants of India, or
©an advocate enrolled with a Bar Council.
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