IBC (INSOLVENCY AND BANKRUPTCY CODE),2016 BY NIMESH ROHILLA @LEXCLIQ

WHAT IS INSOLVENCY AND BANKRUPTCY CODE (IBC) 2016?

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement.The IBC has 255 sections and 11 Schedules.

WHAT ARE THE AIMS OF IBC, 2016?

The code aims to protect the interests of small investors and make the process of doing business less cumbersome.
IBC applies to companies, partnerships and individuals. It provides for a time-bound process to resolve insolvency. When any default in repayment of debt occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency. Under IBC debtor or creditor both can start ‘recovery’ proceedings against each other.

TIMEFRAME FOR COMPLETION OF THE EXERCISE ?

The time frame of the insolvency process can be categorized.
Firstly,Companies have to complete the entire insolvency exercise within 180 days under IBC. The deadline may be extended if the creditors do not raise any objections on the extension of period.

Secondly, small companies including startups with an annual turnover of Rs 1 crore, the whole exercise of insolvency must be completed in 90 days and the deadline can be extended by 45 days.

WHO REGULATES THE IBC PROCEEDINGS?

The Insolvency and Bankruptcy Board of India has been appointed as a regulator in such matters and it can oversee these proceedings. IBBI (Insolvency and Bankruptcy Board of India) has 10 members; from the Finance Ministry and Law Ministry the Reserve Bank of India.

WHO ADJUDICATES OVER THE PROCEEDINGS?

NCLT [National Companies Law Tribunal] in case of companies.
And DRT [Debt Recovery Tribunal] in case of individuals.
The Insolvency and Bankruptcy Board regulates different insolvency professionals, and also there are many insolvency professional agencies and information utilities which are provided under the said Code.

PROCEDURE TO RESOLVE INSOLVENCY:-

Whenever a default occurs, the resolution process may be initiated by the debtor or creditor on the default of the other . The insolvency professional (Insolvency Professional are enrolled with an Insolvency Agency and they are involved in the dissolution process of an insolvent individual, companies, LLPs or partnerships. These professionals are authorised to act on behalf of such insolvent individuals, companies etc.)administers the process. The professional provides financial information of the debtor from the information utilities to the creditor and manages the debtor’s assets. This process lasts for 180 days and any legal action against the debtor cannot take place during this period.

LIQUIDATION PROCESS.

Liquidation is the process of converting a company’s assets into cash, and using those funds to repay, as much as possible, the company’s debts.
If any debtor goes into liquidation, an insolvency professional shall administer the liquidation process. Proceeds from the sale of the debtor’s assets are distributed in the following order of order:
Insolvency resolution costs, including the remuneration to the insolvency professional,
Secured creditors, whose loans are backed by collateral.
Dues to workers, other employees, fourth unsecured creditors.

Types of Liquidation

Creditors’ voluntary liquidation
Court liquidation
Members’ voluntary liquidation

HIGH VALUE CASES:-

Essar steel – Debt worth ₹490 billion (US$6.9 billion). Date of referral to NCLT is june 2017.Date of Resolution is Dec 2019.
Recovery amount ₹42,000 crore (US$5.9 billion)
[Notes:- SC delivered its final verdict and cleared the way for Arcelor Mittal India and Nippon Steel Japan to form a joint venture to complete the takeover by end of Dec 2019.]

Bhushan steel- Debt worth ₹440 billion (US$6.2 billion). Date of referral to NCLT 26 July 2017 Date of Resolution Dec, 2018. Recovery Amount ₹36,400 crore (equivalent to ₹390 billion or US$5.5 billion in 2019)
[Notes:-Tata Steel, through its wholly owned subsidiary Bamnipal Steel Ltd (BNPL), has acquired a 72.65 per cent controlling stake in Bhushan Steel Ltd (BSL) for around Rs 36,400 crore. The company was selected as the highest bidder in March 2018 to buy a controlling stake in Bhushan Steel, as part of bankruptcy proceedings.]

Written By
Nimesh Rohilla.

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