Insolvency and bankruptcy code 2016

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INSOLVENCY & BANKRUPTCY CODE, 2016

By SUCHITRA BAI

PATENT DEPARTMENT



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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MEANING OF INSOLVENCY

Insolvency is a situation where individuals or companies are unable to repay their outstanding debt. It may be resolved by changing the repayment plan of the loans, or writing off part of the debt. If insolvency cannot be resolved, assets of the debtor may be sold to raise money, and repay the outstanding debt.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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NEED FOR NEW CODE

• The new code i.e. Insolvency & Bankruptcy Code, 2016 will replace the existing bankruptcy laws and cover individuals, companies, limited liability partnerships and partnership firms.

• It will amend laws, including The Companies Act, to become the overarching legislation to deal with corporate insolvency. And, it will also help creditors recover debt faster.



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Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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TO WHOM APPLICABLE

A) Any company incorporated under the Companies Act, 2013 or under any previous company law.

B) Any other company governed by any special Act for the time being in force.

C) Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008.

D) Any other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf.

E) Partnership firms and individuals.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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OBJECTIVE OF THE CODE

• India currently has multiple laws to deal with insolvency, which leads to significant delays in winding up a company. The Insolvency & Bankruptcy Code will consolidate the existing framework and create a new institutional structure.

• The objective of the new law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and for maximization of value of assets of such persons and matters connected therewith or incidental thereto.

• The Code proposes the setting up of a new entity, the Insolvency and Bankruptcy Board of India, which will regulate insolvency professionals and information companies — those which will store all the credit information of corporates.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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• The National Company Law Tribunal will adjudicate cases for companies and limited liability partnerships

• The Debt Recovery Tribunal will do the same for individual and partnership firms.

• Both will have Appellate Tribunals.

AUTHORITIES DEALING WITH THE INSOLVENCY



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Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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SIGNIFICANCE OF THE CODE

1. The Insolvency Professionals: Play a key role in the efficient working of the bankruptcy process. They would be regulated by Insolvency Professional Agencies.

• The term Insolvency Professionals has been defined in the Code under Section 3 (19) as: A person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207.

• Section 207: Every insolvency professional shall, after obtaining the membership of any insolvency professional agency, register himself with the Board within such time, in such manner and on payment of such fee, as may be specified by regulations. (2) The Board may specify the categories of professionals or persons possessing such qualifications and experience in the field of finance, law, management, insolvency or such other field, as it deems fit.

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Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

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CONTD…

2. Information Utilities: These would store facts about lenders and terms of lending in electronic databases. This would eliminate delays and disputes about facts when default does take place.

3. Adjudication: The NCLT will be the forum where firm insolvency will be heard and DRTs will be the forum where individual insolvencies will be heard. These institutions, along with their Appellate bodies, viz., NCLAT and DRATs will expedite the bankruptcy process.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


CONTD…• 4. Regulator: The Insolvency and Bankruptcy Board of

India. This body will have regulatory over-sight over the Insolvency Professional, Insolvency Professional agencies and information utilities.

• The Board shall be a body corporate having perpetual succession and a common seal, with power, subject to the provisions of this Code, to acquire, hold and dispose of property, both movable and immovable, and to contract, and shall, by the said name, sue or be sued.

• The head office of the Board shall be at such place in the National Capital Region with offices at other places in India.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


CONTD…

• Constitution of the Board: A: Chairperson, B: three members from amongst the officers of the Central Government not below the rank of Joint Secretary or equivalent, one each to represent the Ministry of Finance, the Ministry of Corporate Affairs and Ministry of Law, ex-officio; C: one member to be nominated by the Reserve Bank of India, ex officio D) five other members to be nominated by the Central Government, of whom at least three shall be the whole-time members.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


FUNCTIONS OF THE BOARD

• Register insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registrations.

• Specify by regulations standards for the functioning of insolvency professional agencies, insolvency professionals and information utilities.

• Carry out inspections and investigations on insolvency professional agencies, insolvency professionals and information utilities and pass such orders as may be required for compliance of the provisions of this Code and the regulations issued hereunder



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


BENEFITS OF THE CODE

1. Code to help wind up sick businesses• On the parameter of resolving insolvency, India is

ranked 136 among 189 countries. At present, it takes more than four years to resolve a case of bankruptcy in India, according to the World Bank. The code seeks to reduce this time to less than a year.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


CONTD…

• 2. Cross-border insolvency The bankruptcy code has provisions to

address cross-border insolvency through bilateral agreements with other countries. It also proposes shorter, aggressive time frames for every step in the insolvency process—right from filing a bankruptcy application to the time available for filing claims and appeals in the debt recovery tribunals, National Company Law Tribunals and courts.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


CONTD…

• 3. Protect workers of a bankrupt company To protect workers’ interests, the code has

provisions to ensure that the money due to workers and employees from the provident fund, the pension fund and gratuity fund shouldn’t be included in the estate of the bankrupt company or individual. Further, workers’ salaries for up to 24 months will get first priority in case of liquidation of assets of a company, ahead of secured creditors.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


CONTD…• 4. Fast Track Corporate Insolvency Resolution Process The Code has provisions for fast track corporate insolvency

resolution process shall be completed within a period of ninety days from the insolvency commencement date.

• 5. Voluntary Liquidation of Corporate Persons, Firms and Individuals

The Code also provides ways for a corporate person, Firms & Individuals who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings.

• 6. Concept of operational creditor Another unique feature of the Code is that it gives right to

operational creditor to initiate procedure and the right is not limited to big creditors only who want their money back. Thus making it easier for creditors to get their dues cleared with a corporate.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

[email protected]


CONCLUSION• The Insolvency and Bankruptcy Code is thus a

comprehensive and systemic reform, which will give a quantum leap to the functioning of the credit market. It would take India from among relatively weak insolvency regimes to becoming one of the world’s best insolvency regimes. It lays the foundations for the development of the corporate bond market, which would finance the infrastructure projects of the future. The passing of this Code and implementation of the same will give a big boost to ease of doing business in India.