An introduction to Insolvency and Bankruptcy Code,2016

INSOLVENCY AND BANKRUPTCY CODE

ABSTRACT

This paper is aimed at explaining the provisions of Insolvency and Bankruptcy Code, 2016. The bankruptcy is a measure which is taken to analyze the problem of insolvencies which is now regarded as a lengthy process whereas insolvency is a state under which the company or individual can pay their bills for that period of time in any respective manner.

INTRODUCTION

Insolvency is a situation when someone is not able to pay its debt at present or near future and their assets is less than Liability. It came in Lok Sabha in December, 2015 and passed on 5 May, 2016. Then, it received the consent of President of India on 28^th May, 2016. Generally the term “insolvency” is used for both Individual and corporate. In respect of individual it is known as “bankruptcy” and in respect of corporate it is known as “Corporate Insolvency”. While it remains untreated it will lead to Bankruptcy for non-corporate and Liquidation for corporate.

EXTENT AND COMMENCEMENT OF THE CODE

 This Code is extent to the whole of India except Jammu and Kashmir. It came into existence on 28^th may 2016.

APPLICABILITY

Insolvency and bankruptcy code applies to the following entities:-

1. All companies incorporated under the Companies Act, 2013 or any prior Act.
2. All companies regulated by any special act or law for the time being in force.
3. Limited Liability Partnership under LLP Act 2008.
4. All other body corporate under any law.
5. All individuals and partnership firms.

NON – APPLICABILITY

This code does not apply to financial service providers Like Banks, financial Institution and Insurance Co. 

FEATURES

v Comprehensive Law: - It is a comprehensive law which regulates the process of Insolvency and bankruptcy for all persons including Corporate, partnership, individual and LLPs.

v Single platform: - It provides singular platform for all the reliefs relating to recovery of debts and insolvency.

v Low Time resolution: - The process has to be complete within 180 days with extension of Max 90 Days. Further there is provision for Fast-track resolution also in which corporate insolvency should be concluded within 90 days. Otherwise assets of the borrower may be sold to repay Debts.

v  One window clearance:-It provides one window clearance where applicant gets appropriate relief at the same authority. Unlike the earlier provision of law where procedure for insolvency and liquidation has to be initiated under separate laws governed by separate authorities.

v  One chain of Authority:-There is one single Authority under the code. It does not even allow civil court to interfere with the application pending. The only authority which deals is The National Company law tribunal (NCLT) for companies and The Debt Recovery Tribunal (DRT) for individuals.

OBJECTIVES

 The purpose of Enactment of Insolvency and Bankruptcy Code, 2016 is as follows:-

v To consolidate and amend various laws relating to insolvency of corporate persons partnership firms and individuals.

v To fix time for completion of whole process.

v To increase availability of credit.

v To balance the interest of all the stakeholders.

v To establish a new Insolvency and bankruptcy Board as a regulatory body for insolvency and bankruptcy law.

AMENDMENTS

The bill prevents some person to submit a plan of resolution in the cases of defaults. These includes:-

1.          The intentional defaulters.
2.          If any debt is pending for above one year by the promoters of the company.
3.         The directors who are disqualified from their post.

REGULATORY AUTHORITY

There are Five pillars under the insolvency and bankruptcy code 2016 who governed the whole Insolvency resolution process, which are as follows:-

v Insolvency and Bankruptcy Board of India: - This Board performs legislative, executive and Quasi-judicial functions. This board is a body corporate having common seal and perpetual succession. Composition of board Includes chairperson, Three members from officers of central government, One person nominated by RBI, Five members nominated by CG. Three of them must be Whole time Members.

v Insolvency Professional Agencies (IPA):-Functions of IPA includes Regulatory functions, Executive Functions, and Quasi-judicial function.

v Insolvency professional: - They play a vital role in working of Insolvency process. Role includes wide range of functions which consist of Adhering procedures of law, accounting and financial functions.

v Information Utilities (IU):- IU is created to collect collate and store information on centralized Electronic database, which can be accessible everywhere.

v Adjudicating Authority: - Adjudicating Authority for IBC 2016 is National company law tribunal (NCLT) for corporate appeal against NCLT can be filled before National company law appellate tribunal (NCLAT) and further to Supreme Court. For Individuals Adjudicating Authority is Debt recovery tribunal (DRT). Appeal against DRT is filed before Debt recovery Appellate tribunal (DRAT) and further to Supreme Court.

WHO INITIATE THE INSOLVENCY PROCESS

v Financial creditors- These are the person who gives the financial loan. Financial creditor can file application either itself or with other financial creditors. They have to provide evidence also for justifying the defaults and should also give a name of Interim resolution professional.

v Operational Creditor- These are the people who gives goods and services. They can’t file the application directly to the adjudicating authority. They have to first give a Demand notice along with copy of Invoice to the corporate debtor, corporate debtor has to reply within 10 days about the existence of the dispute or repayment schedule if any payment made related to demand by operational creditors. If after 10 day’s operational creditors do not receive any information from corporation debtor then he can file the application to the adjudication authority.

v Corporate Debtor- In this case the company itself who borrows money from any person or corporate can file application for insolvency to the appellate authority. Company has to furnish books of accounts also along with application and name of Insolvency professional.

WHO CAN NOT INITIATE THE PROCESS

v A corporate debtor already under the insolvency process.

v A corporate debtor who completed the insolvency resolution 12 months before.

v A corporate debtor or financial creditor who violated any term of resolution plan.

ACCEPTANCE OR REJECTION OF APPLICATION

The Application may accept or reject by the authority within 14 days of receipt of application, if application is rejected because of some defects, applicant may rectify the defect in 7 days from the date of receiving notice of rejection.

MORATORIUM PERIOD

After acceptance of the application authority may announce the moratorium period of 180 days during which all the proceedings and suits against the corporate debtor are held in abeyance to give time to the corporate debtor to resolve its status. Moratorium period have effect from the date of order of moratorium to the date of completion of insolvency process.

ORDER OF LIQUIDATION

In case resolution process fails Adjudicating Authority may order for Liquidation of the corporate debtor. If the liquidation order has been passed then a Moratorium is imposed on the pending litigation's of corporate debtor and assets of corporate debtor vest for the sale out and to pay off creditors.  

PRIORITY OF CLAIM IN CASE OF LIQUIDATION

Insolvency resolution process cost and Cost of liquidation which are:-

·       Workmen’s due for the period of last 24  months and secured creditors

·       Unpaid Dues of Employees other than workmen for 12 months

·       Unsecured creditors

·       Any remaining debts

·       Preference shareholders

·       Equity shareholders or Owners or partners.

CONCLUSION

Through this article, I would like to conclude that Insolvency and Bankruptcy are not the same. It is a reformist law that needs to improve the expeditiously of proceedings of both of them in India. Presently, the new statute provides for the earlier exposure of any financial agony and it also facilitates a time bound solution for this. However, there are many details which are given on the IBC implementation needs to be progressed in a well-mannered way.