- Objects of the Code
- Relevant Entities
- Earlier Legal Position and Impact of Code
- Insolvency Resolution Process
- Insolvency Professional
- Key Takeaways
*Recent changes are in red
OBJECTS OF THE CODE
The Insolvency and Bankruptcy Code was passed by the Lok Sabha on May 5, 2016 and Rajya Sabha on May 11, 2016. The Code :
- Consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals;
- In a time bound manner;
- For maximization of value of assets of such persons;
- To promote entrepreneurship and availability of credit;
- Balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues; and
- Establishes an Insolvency and Bankruptcy Board of India.
The Code applies to companies, LLPs, partnership firms, corporate persons and individuals and any other body specified by the Government.
According to the code, the insolvency resolution processes will be conducted by insolvency professionals who will be licensed professionals and members of insolvency professional agencies.
NCLT is the Adjudicated Authority for corporate persons (companies, LLP etc.) and DRT is the Adjudicating Authority for individuals and partnership firms.
- The Code establishes the following
new entities to be setup under the Code:
- Insolvency and Bankruptcy Board of India;
- Insolvency Professionals;
- Insolvency Professional Agencies; and
- Information Utilities.
NATIONAL COMPANY LAW TRIBUNAL
TRANSFER OF PROCEEDINGS
- As of 1st November, 2016, any appeal, reference made or inquiry pending to or before BIFR or any proceeding of whatever nature pending before BIFR stand abated. A company has 180 days from the commencement of the Code to make a reference to NCLT.
- Voluntary winding up proceedings pending before a High Court shall continue to be dealt with by the High Court.
- Winding up on account of inability to pay debts under the Companies Act, 2013, where the petition has not been served on the respondent, shall be transferred to NCLT.
- Where opinion has been forwarded to BIFR, for winding up of a company, to a High Court and where no appeal is pending, the proceeding shall continue to be dealt with by the High Court.
EARLIER LEGAL POSITION
Before the Code, Creditors could proceed under the following:
- Joint Lenders Forum / Corporate Debt Restructuring
- Strategic Debt Restructuring, Scheme for Sustainable Structuring of Stressed Assets (S4A)
- SARFAESI Act, 2002;
- RDDBFI Act, 1993;
- Companies Act, 2013;
- Negotiable Instruments Act, 1881;
- Criminal Procedure Code,1973.
IMPACT OF THE CODE
- The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 passed in Lok Sabha on August 1st, 2016 and Rajya Sabha on August 9th, 2016. The Bill was notified on August 16th, 2016.
- SICA Repeal Act, 2003 has been enforced.
- The Companies Act, 2013 has been amended, including omitting voluntary winding up from the Act and only providing for winding up by the Tribunal.
- RDDBFI Act, 1993 has been amended to become the Recovery of Debts and Bankruptcy Act, 1993.
INSOLVENCY RESOLUTION PROCESS
CORPORATE INSOLVENCY RESOLUTION – TIMELINES
|Activity Under the Code||Number of Days|
|Filing of Application with NCLT||-14 days|
|Admission of Application / Declaration of Moratorium||0 days|
|NCLT to appoint Interim Resolution Professional||14 days|
|Public Announcement||16 days|
|Appoint registered valuer to calculate liquidation value||21 days|
|Creditors to submit claims||37 days|
|IRP to constitute Committee of Creditors and submit report||44 days|
|1st Committee of Creditors meeting||51 days|
|Preparation of Information Memorandum||65 days|
|Submission of Plan||150 days|
|Committee of Creditors approval of resolution plan||-|
|Application to NCLT for approval||170 days|
|Initiation of liquidation||180 days|
Application can be made to NCLT for an extension of 90 days
INSOLVENCY RESOLUTION – PROCESS
COMMITTEE OF CREDITORS
- The Committee of Creditors shall comprise all financial creditors of the corporate debtor. A 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.
- Each creditor shall vote in accordance with the voting share assigned to him by the resolution professional.
- The voting share means the share of the voting rights of a single financial creditor which is based on the proportion of the financial debt owed to him in relation to the financial debt owed by the corporate debtor.
- A resolution plan shall identify specific sources of funds that will be used to pay the liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.