Insolvency & Bankruptcy

Code, 2016 (IBC, 2016)

A brief look

M Vikram Bharadhwaj_

Meaning of Insolvency, Bankruptcy & Liquidation & linkage among them1

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3

4

5

6

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Meaning of Insolvency, Bankruptcy &

Liquidation & the linkage among them

INSOLVENCYA person is not able to pay off it’s debts whenever it becomes due,

as the assets are not sufficient. This situation is called as insolvency.

BANKRUPTCYFiling of petition with the authority declaring the insolvency and

seeking the court to declare the entity as “Bankrupt”.

LIQUIDATIONClosing down the business of the entity (Converting the assets

of the entity in to liquid form and paying back the liabilities)

What’s the linkage among them?

1. If a person becomes insolvent (liabilities couldn’t be paid), and

2. if a petition is filed with the authority declaring such insolvency, and

3. if the Petition is approved by the authority, the entity will be declared

Bankrupt and

4. If the bankruptcy persists and could not be cured for a stipulated

period,

5. the authority orders for Liquidation of the entity.

Note:

A person can declare himself as “Insolvent”, if he is in situation not to pay off it’s debts.

But a person cannot declare himself as “Bankrupt”.

Only the authority can declare him as bankrupt, if a petition is filed on such matter.

Distinguishing features

of IBC, 2016

S

I

N

G

L

E

Law

Window clearance

Chain of authority

for individuals, partnership firms, LLPs, companies & notified entities.

for the applicants to get relief under this code

NCLT for companies & DRT for individuals & firms

1

2

3

4 Low processing time

Process time for insolvency resolution is 180 days, extendable up to

another 90 days. Fast track resolution for corporates is within 90 days.

(If the insolvency resolution process couldn’t succeed in this period,

the authority may order for liquidation

5 Protects Workmen & Employees

Workmen and employees have equal status in the order of receiving

the dues, along with the secured creditors.

Establishment of

6 7

New Board Information Utilities (IUs’)

Insolvency & Bankruptcy

Board of India (to regulate

the process)

IU is a data bank to collect, collate and

disseminate financial information (debs

of all entities) to facilitate the insolvency

Resolution process

Applicability & Non-Applicability

of IBC, 2016

1. Individuals

2. Firms

3. LLPs

4. Companies under

Companies acts or

any special acts

5. Any other body

notified by CG

Applicable area

Financial Institutions

Banks

Insurance companies

Not applicable area

EXTENT OF APPLICABILITY

Parts I, II, IV and V applies to whole of India

Part III applies to whole of India (excl. J&K)

(means part III alone doesn’t apply to J&K)

There are 5 parts

in the structure

of the IBC Code,

which is discussed

in the next page

Structure (5 parts) & the 5 pillars of

IBC, 2016

P

A

R

T

S

Preliminary provisions

Corporates

Non-Corporates

Insolvency resolution and Liquidation of corporates

Insolvency resolution and Liquidation of Individuals and firms

I

II

III

IP, IPA & IU

Regulation of Insolvency Professionals (IPs’), Insolvency

Professional Agencies (IPAs’) and the Information Utilities (IUs’)

IV

Miscellaneous provisionsV

5 pillars of IBC, 2016

I

B

B

I

A

A

NCLT

or

DRT

I

P

I

P

A

I

U

AA – Adjudicating Authority ; NCLT – National Company Law Tribunal ; DRT – Debt Recovery Tribunal

Functions of the 5 pillars

of IBC, 2016

IPMy key role is to work in the bankruptcy process.

I will verify the claims of the creditors and will constitute the

creditor’s committee.

I will run the corporate debtor’s business during

the moratorium period and will help the creditors

in the revival plan.

IPA We are created to enrol the IPs’ with us.

We regulate their activities and business

IUI am the Data Bank. I store the financial data regarding

the debts and claims of business houses.

Not just storing ! I collate the data and convert it in to

useful information and render such information to

respective persons as and when needed.

I B B I We are created by the Government of India to regulate

the above 3 pillars of IBC, 2016

Heavy task ! Isn’t it?

So, we are a team of 10 !

✓ 1 chairperson,

✓ 3 members from MCA, Finance ministry & Law ministry,

✓ 5 members nominated by CG and

✓ 1 member from RBI

We hear the applications and appeals from the aggrieved

persons, and give orders after detailed examination, by

applying the IBC 2016.

For Corporates, NCLT ----> NCLAT ----> Supreme Court

For Non-Corporates, DRT ----> DRAT ----> Supreme Court

A A

Insolvency Process

as per IBC, 2016

I am insolvent

An application was filed

with the AAI am admitting

this application

AA

I am appointed

as the IRP

(Insolvency

Resolution

Professional)

IRP

As an IRP, am running

the business of the debtor

during the moratorium period

to check if this business is

viable to repay the debts

As an IRP, I also make a

public announcement,

stating that I took up this

work as an IRP with

respect to this case.

As an IRP, I establish the

Committee of Creditors

(COCs’)

Am elected by the COCs

as the RP (Resolution

Professional). Am no more

called as an IRP now.

I submit the resolution

Plan drafted by the COCs

to the Adjudicating

Authority

If the resolution plan is not submitted within the stipulated period (or)

if it is not accepted by the adjudicating authority, Order of Liquidation will be

passed by the authority. (Aggrieved ?? Appeals ?? NCLAT ----> Supreme Court)

Liquidation Process

as per IBC, 2016

Resolution plan

rejected by NCLT

or COC decided

to liquidate

I am ordering for

LiquidationI am appointed as the

Liquidator. Don’t call me

as RP from now on

AA

I start selling off

the assets of the

corporate debtor

I distribute the liquidation

estate as per the order of

Priority of claims (below)

I have liquidated the company

I am filing an application to AA

to pass the order of dissolution

Order of Priority of claims (Dues shall be paid in this order)

1. Cost of Insolvency & Liquidation

2. Workmen (last 24 months dues) + Secured Creditors

3. Employees (last 12 months dues)

4. Government dues (both CG & CG)

5. Unsecured creditors

6. Other dues

A A

Not able to pay the dues (Insolvent)

Application is filedwith AA (Bankrupt)

IRP appointed

Moratorium

COC

RP appointed

Resolution plan submitted to AA

Resolution plan acceptedResolution

plan rejected

Resolution plan not submitted

Liquidation

Execution of theResolution plan

IBC Process Flow Chart

WHO CAN BELL THE CAT (CORPORATE DEBTOR) ?

Did you get a doubt that who can initiate the legal proceedings

(i.e., filing of application of bankruptcy) against the corporate

debtor, which is insolvent ?

That’s great !

The below persons can initiate the bankruptcy process !

1. Creditor (Financial as well as Operational)

2. Shareholder

3. Director of the corporate debtor

4. Any regulatory body like registrar of companies, registrar of

of firms, MCA, etc

With Best wishes and prayers,

M Vikram Bharadhwaj,

CA-Final & CS-Professional,

cavikram94@gmail.com