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IBC: Insolvency And Bankruptcy Code

Insolvency and bankruptcy Code (IBC) 2016 was implemented via an act of Parliament. It got Presidential assent in May 2016.

Centre brought the IBC in 2016 to resolve claims concerning insolvent companies.
The bankruptcy code is a one stop answer for resolving insolvencies, which formerly was an extended procedure that did not provide an economically possible arrangement. The code objectives to defend the interests of small investors and make the procedure of doing business much less cumbersome. The IBC has 255 sections and 11 Schedules.

IBC is meant to address the bad loan troubles that have been affecting the banking system.
The IBC procedure has modified the debtor-creditor relationship. some of primary cases were resolved in years, whilst a few others are in advanced levels of resolution.

It offers for a time-sure system to resolve insolvency. when a default in repayment occurs, creditors gain control over debtor's property and have to take decisions to resolve insolvency. under IBC, debtor and creditor both can start 'recovery' proceedings in opposition to each other.

Companies have to complete the entire insolvency exercise within 180 days under IBC. The deadline may be extended if the creditors do no longer raise objections at the extension. For smaller companies, which includes start-ups with an annual turnover of Rs. 1 crore, the complete exercise of insolvency should be completed in 90 days and the closing date may be extended by 45 days, if debt resolution does not manifest the company goes for liquidation.

Who regulates and monitors the resolution proceedings?
The Insolvency and bankruptcy Board of India regulate the IBC proceedings. The IBBI contains of ten members, hosting representatives from the finance ministry, law ministry, and the RBI. The diverse board can take comprehensive and informed choices for an efficient resolution.

IBBI appoints Insolvency professionals (IPs), who as licensed individuals facilitate the proceedings by way of dealing with the assets of the debtor and make sure the flow of data between the creditors and debtors for better decision-making.

The code, for adjudication of proceedings of the resolution, establishes quasi-judicial authorities or tribunals for imposing orders as in step with the interpretation of the regulation. national company law Tribunal (NCLT) oversees the proceedings for companies and LLPs. Debt recovery Tribunal (DRTs) reap the same for partnerships and people.

How does the Code works?

The code applies to corporations, partnerships, and individuals. underneath IBC, both the creditors and the debtors can appeal for resolution. as soon as the application is accepted, the creditors take over the assets of the debtor. The stated committee of creditors (CoC), which constitutes the lenders to the defaulter, is formed by the officers overseeing the resolution. CoC decides the future of the outstanding debt on the debtor's balance sheet.

The committee may additionally choose to restructure the terms of the debt or recover a portion via selling the assets of the debtor. Following the initiation of the corporation Insolvency resolution process, the Board of directors and the promoters lose control of the management and stand suspended.

The time-frame for completion of resolution for corporations is 180 days (extendable by 90 days as per mutual agreement). In exceptional cases, the time-frame may be prolonged at the discretion of the tribunal to the outer restriction of 330 days. The time limit for start-upsor micro-enterprises with revenue of less than Rs. 1 crore is 90 days (extendable by 45 days). Failure to achieve resolution or recovery in the stipulated time limit pushes the defaulter into liquidation.

High Profile cases associated with IBC.
  1. Dewan Housing:
    First financial service provider company referred to IBC by the central bank. The creditor's claim stands at Rs 88,000 crore.
  2. Jet airways:
    overall amount owed to creditors is Rs 30,000 crores. The IBC proceedings have exceeded the time frame of 270 days. however, the NCLT had given an extension of another 90 days in March. CoC of Jet airways is hesitant to enter liquidation because the coronavirus pandemic will not yield better prices for an asset sale.
  3. Bhushan steel:
    Tata steel was selected as the highest bidder and purchased 73 percent of Bhushan steel through its subsidiary Bamnipal steel (BNPL). the amount owed was Rs 57,160 crore. Tata steel acquired the stressed company for Rs 35,200 crore, and the the rest of the debt was converted to equity.
  4. Reliance Communications:
    For the final verdict, Reliance Jio will undertake control of tower and fibre assets of Reliance Infratel. UV Asset Reconstruction Co Ltd (UVARC) will get a share of assets in RCom and Reliance Telecom (Spectrum). the entire outstanding amount was Rs 33,000 crore, and the settled amount under IBC turned out to be Rs 23,000 crore.
  5. Essar steel:
    The final verdict paved the way for Arcelor Mittal and Nippon steel Japan to form a joint venture and complete takeover of Essar steel. The outstanding debt was Rs 49,000 crores to financial creditors. The recovery amount stood at a whopping Rs 40,000 crore.

Eligibility for resolution applicants:

The IBC, as originally enacted, allows any person to be a resolution applicant i.e. any person can submit a resolution plan for a corporate debtor against whom a corporate insolvency resolution process has been initiated. Under section 25(2)(h) of the IBC, a resolution professional ("RP") is required to invite prospective lenders, investors, and any other persons to put forward resolution plans. These provisions are sought to be amended by the IBC amendment.

The IBC amendment requires an RP to invite only those applicants to put up a resolution plan who fulfil the criteria as laid down by using him with the approval of the committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions which may be specified by means of the Insolvency and bankruptcy Board ("IBBI"). Section 29A within the IBC sets out certain disqualification parameters.

Notably, a person is disqualified to submit a resolution plan if the person or any other individual acting together or in concert with such individual, has an account which is classified as a non-appearing asset (NPA) or if such person is a promoter or in management or control of a corporate debtor whose account has been classified as an NPA and 1 (one) year has lapsed from the date of classification until the date of commencement of the corporate insolvency resolution procedure of the corporate debtor. as a result, existing promoters might find it very difficult to bid for his or her very own companies.

But, such folks can submit a resolution plan in the event that they make payment within such duration decided by means of committee of creditors (not exceeding 30 (thirty) days) of all overdue amounts with interest thereon and charges relating to NPA accounts before submission of resolution plan.

A person shall additionally no longer be eligible as a resolution applicant, if such individual, or any other person acting together or in concert:
  1. is an undischarged bankrupt;
  2. is a wilful defaulter in accordance with the guidelines of Reserve bank of India under the Banking regulation Act, 1949;
  3. has been convicted for any offence punishable with imprisonment for 2 (two) years or more;
  4. is disqualified to act as a director underneath the companies Act, 2013;
  5. has been subject to any disability, corresponding to the above, under any law in a jurisdiction outside India;
  6.  has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor towards which an application for insolvency resolution made by such creditor has been admitted;
  7. has been a promoter or in the management or control of a corporate debtor wherein a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by NCLT under the IBC;
  8. is prohibited by Securities and exchange Board of India ("SEBI") from trading in securities or accessing the securities markets

Penalties for unspecified offences under IBC:

The IBC amendment inserted a new section 235A for enforcing a fine for contravention of the IBC or the rules and regulations made thereunder, and for which no penalty or punishment is furnished. For such contraventions, the fine shall not be less than Rs. 1,00,000 (Rupees one lac) and extending to Rs. 2,00,00,000 (Rupees two crore) may be imposed.

Award Winning Article Is Written By: Mr.Tushar Chauhan
Awarded certificate of Excellence
Authentication No: MR344622918927-21-0323

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