Sei sulla pagina 1di 25
1 Objectives of the Code 1 Consolidate and amend Enable symmetry of information between creditors
1 Objectives of the Code 1 Consolidate and amend Enable symmetry of information between creditors

1

Objectives of the Code

1 Consolidate and amend

Enable symmetry of information between creditors and debtors

the laws relating reorganisation insolvency resolution

to

and

relating reorganisation insolvency resolution to and 2 Assessment of viability of the enterprise at a very

2 Assessment of viability of the enterprise at a very early stage

of viability of the enterprise at a very early stage 3 Promoter entrepreneur risk but balance

3 Promoter entrepreneur risk but balance the rights of debtors and creditors

risk but balance the rights of debtors and creditors 4 Ensure a time-bound process to preserve

4 Ensure a time-bound process to preserve the economic value of the asset

Ensure a collective process

Respect the rights of all creditors equally

Development of corporate bond market in India

5

5 6 7 8

6

5 6 7 8

7

5 6 7 8

8

Chap. 21 IBC story so far

Insolvency and Bankruptcy Code, 2016

181

Code was passed by the Parliament on 11 May 2016 and received President’s assent on 28 May 2016

Insolvency and Bankruptcy Board of India (IBBI) was constituted from 1 October 2016 and Chairman appointed.

The Code was Corporate insolvency was notified and became effective from 1 December 2016

Rules and regulations under the Code were notified by IBBI during December

2016

First case under the Code was filed in December 2016 and NCLT accepted the case in January 2017

Insolvency and Bankruptcy Board of India (Insolvency Professional ) Regulations, 2016 Insolvency Professional) Regulations, 2016

Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies ) Regulations, 2016 Insolvency Professional Agencies) Regulations, 2016

Insolvency and Bankruptcy Board of India (Model Bye laws and Governing Board of Insolvency Professional Agencies ) Regulations, 2016 Model Bye laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016

Insolvency and Bankruptcy of India (Insolvency Resolution Process for Corporate Persons ) Regulations, 2016 Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Insolvency and Bankruptcy of India (Liquidation of Insolvent Corporate Persons ) Regulations, 2016 Liquidation of Insolvent Corporate Persons) Regulations, 2016

Insolvency and Bankruptcy (Application to Adjudicating Authority ) Rules, 2016 Application to Adjudicating Authority) Rules, 2016

Report of working group on information utilitiesCorporate Persons ) Regulations, 2016 Insolvency and Bankruptcy ( Application to Adjudicating Authority ) Rules, 2016

182

Insolvency and Bankruptcy Code, 2016

Chap. 21

IBC ecosystem

Insolvency & Bankruptcy Board of India
Insolvency & Bankruptcy Board of India

Insolvency & Bankruptcy Board of India

Insolvency & Bankruptcy Board of India
Insolvency & Bankruptcy Board of India
Insolvency & Bankruptcy Board of India
Insolvency & Bankruptcy Board of India
Insolvency & Bankruptcy Board of India

Insolvency professional agency

Insolvency professional agency
Insolvency professional agency
Insolvency professional agency
Bankruptcy Board of India Insolvency professional agency Insolvency professionals Information utilities National

Insolvency professionals

Information utilities

National Company Law Tribunal and Appellate Tribunal

Debt recovery Tribunal and Appellate Tribunal

Insolvency and Bankruptcy Board of India (IBBI) was constituted under the Chairmanship of Mr. M. S. Sahoo The members of the board include representatives from MCA, MoF, Reserve Bank of India and would regulate the appointment of insolvency professionals, information utilities and promote transparency in governance.

Insolvency professional agency (IPA) is the body that would admit insolvency professionals as members and develop a code of conduct and promote transparency and best practices in governance. Existing professional bodies (ICAI, ICSI and ICAI (Cost)) set up IPAs and have received registration certificates

Insolvency professionals (IP) are licensed professionals appointed by insolvency professional agencies who would take on the roles of resolution professional or liquidator/bankruptcy trustee in an insolvency resolution process IBBI has 977 IPs registered under limited registration and 12 IPs after passing Limited insolvency exam

Information utilities (IU) are specialised licensed bodies which would collect, maintain and disseminate information relating to the indebtedness of companies. The working group has come up with a report on set up of Information utilities

Adjudicating Authority is a body that would have exclusive jurisdiction to deal with insolvency-related matters. The Code provides for application to be made to the appellate tribunal for an appeal against the order of an Adjudicating Authority. Setting up of 11 benches of National Company Law Tribunal (NCLT) was notified by the government in June 2016

What is ‘different’ in the Code?

 

Existing framework

   

The Code

Fragmented laws:

 

Unified

Fragmentedand multi layered laws IBC is a unified code which deals with all set of

and

multi

layered

laws

IBC is a unified code which deals with all set of creditors and debtors.Fragmented and multi layered laws

 

providing conflicting relief to debtors

and creditors.

Secured, unsecured, foreign, domestic all are covered under IBCand creditors.

Laws providing relief to set of creditors or debtors and didn’t cover the universeunsecured, foreign, domestic all are covered under IBC Control of Company:     •

Control of Company:

   

‘Debtors-in-possession’ approach leading to asset stripping and misappropriating of funds byexisting management post default

‘Creditor-in-possession’. Power of Board of Directors are suspended on start of the IRP.approach leading to asset stripping and misappropriating of funds byexisting management post default

Alldecision taken by IP and creditors

decision

taken by IP and creditors

 

committee

Chap. 21

Insolvency and Bankruptcy Code, 2016

183

 

Existing framework

 

The Code

Timeline:

 

No timelines specified

Time bound resolution process.• No timelines specified

 

180 days timeline for resolution of insolvency process 

Specialised courts:

 

Lack of specialised bankruptcy court

Setting up of specialised bankruptcy court i.e. NCLT and DRT

What is ‘different’ in the Code?

Existing framework

The Code

Role of experts

 

Lack of role of experts in the resolution processCourts guilty of making commercial judgment on viability of Company

Courts guilty of making commercial judgment on viability of CompanyLack of role of experts in the resolution process

Enhanced role of Insolvency professionalsLack of role of experts in the resolution process Courts guilty of making commercial judgment on

Courts to act and process managers. Decision on revival /liquidation left with creditorsof Company Enhanced role of Insolvency professionals Assessment of Insolvency   Net worth based approach

Assessment of Insolvency

 
Net worth based approach Cash flow based assessment leading to early detection of insolvency trends

Net worth based approach

Cash flow based assessment leading to early detection of insolvency trendsNet worth based approach

Approach to resolution

 
Socialistic approach which is pro – rehabilitation Balance approach between rehabilitation and liquidation.

Socialistic approach which is pro – rehabilitation

Balance approach between rehabilitation and liquidation.Socialistic approach which is pro – rehabilitation

Waterfall mechanism

 
Unclear waterfall mechanism of payment of debt in case of liquidation of Company Provides a

Unclear waterfall mechanism of payment of debt in case of liquidation of Company

Provides a well defined waterfall mechanism for payment of debt in case of liquation of CompanyUnclear waterfall mechanism of payment of debt in case of liquidation of Company

Information asymmetry

 
Lack of accurate and reliable information of indebtedness for decision making Information utilities to maintain

Lack of accurate and reliable information of indebtedness for decision making

Information utilities to maintain accurate and reliable data relating to indebtedness.Lack of accurate and reliable information of indebtedness for decision making

Super priority funding

 
Lack of provision of super priority funding Provide for super priority funding during IRP

Lack of provision of super priority funding

Provide for super priority funding during IRPLack of provision of super priority funding

184

Insolv vency and Bankruptcy Code, 2016

Chap. 21

Insolvency process overview

D efault

Code, 2016 Chap. 21 Insolvency process overview D efault Petition with the A djudication Authority Appoint

Petition with the A djudication Authority

overview D efault Petition with the A djudication Authority Appoint the interim resolution professional Formation of

Appoint the interim resolution professional

Authority Appoint the interim resolution professional Formation of co mmittee of creditors Appointment confirme d

Formation of co mmittee of creditors

resolution professional Formation of co mmittee of creditors Appointment confirme d by committee of creditors Resolution

Appointment confirme d by committee of creditors

creditors Appointment confirme d by committee of creditors Resolution Professional to p repare information memorandum

Resolution Professional to p repare information memorandum

Resolution Professional to p repare information memorandum Resolution plan proposed by creditors Next day / 10

Resolution plan proposed by creditors

Next day / 10 days notice

Approve o r reject petition within 14 d ays

Appointme nt to be confirmed within 30 d ays of appointment

Within 180 days or such extended p eriod not exceeding 90 days

Resolution plan approved by cred itors committee with 75per cent majority by value Resolution plan
Resolution plan approved by cred itors committee with 75per cent majority by
value
Resolution plan approved by
Adjudication authority
Liquidation
Compulso ry liquidation of
Corporate debtors in the event
the resolut ion has not been
agreed wit hin 180 days or
such exten ded period

Corp orate Insolvency resolution

1. Who will be the Adjudicating authority?

National Company Law T ribunal (NCLT) will deal with

Corporate insolvency

Limited liability partner ship and

Personal guarantees re elated to corporate debtors

Debt Recovery Tribunal ( DRT) will deal with

Individual and

Partnership insolvency

• Adjudication Authority to h ave exclusive jurisdiction to deal with insolvenc y related matters

• Civil courts will not have ju risdiction over matters on which NCLT has juris diction

• No injunction shall be gra nted by any court, tribunal or authority in res pect of any action taken by NCLT

Chap. 21

Insolv vency and Bankruptcy Code, 2016

185

2. Who is a ‘financial creditor’/’ operational creditor?

Financial creditor

Holder of financial de bt includes any debt given against conside ration for interest, liability in respect of gu arantee or indemnity.

May itself or jointly initi ate insolvency resolution process on default

Independent financial c reditors have voting rights in decision making b y the CoC

Dissenting financial cre ditor to receive ‘minimum liquidation’ value

Operational creditor

Holder of operational

goods or services or du ues under any law. Example - vendors, employe ees etc.

debt. Incudes any debt incurred in exchange f or the provision of

Initiate insolvency reso lution on expiry of ten days from demand notice

Operational creditors d o not have voting rights in decision making by t he CoC

All operational creditor s to receive at least minimum liquidation value

Creditor holding both fin ancial and operational debt will be considere d financial creditor for portion of financial debt and operational creditor for part of operational debt

• A creditor can assign/tran sfer debt even after commencement of insolv ency proceedings.

resolution professional. This will lead to re-cons titution of creditors

No approval needed from committee.

3. What constitutes ‘Default’ an d ‘Proof of Default?

• Default means a state whe n debt exceeding INR one lakh is due and is no t repaid

‘Proof of default’

Financial creditors - d efault recorded with the information utility and like contract, bank stat ement etc. indicating default.

Operational creditors

demanding payment fr om corporate debtor which is not disputed.

other information

- Expiry

of

10 days from

the date

of

deliv ery of the notice

• Operational creditors can f ile CRIP only for ‘Undisputed liability’

Demand Notice

• Demand Notice means a

notice served by an operational creditor to th e corporate debtor

demanding repayment of t he operational debt in respect of which the defa ult has occurred

• As per Rule 5(2) of Insolve ncy and Bankruptcy (Application to Adjudicatin g Authority) Rules,

or a copy of invoice shall be sent to corporate debtor by post, by

information utility.

2016, the demand notice

hand or email and the c opy of demand notice shall be forwarded to Demand notice shall be giv ven in Form 3.

• Disputes if any needs to

be disputed by Corporate Debtor before the

cannot be at the time of de mand notice.

filing of CRIP and

4a. Who can file for corporate in solvency resolution?

Any of the following persons c an initiate corporate insolvency resolution on de fault:

Financial creditor

who’s loan is in default , or

who’s loan is ‘not’ in debt.

default but debtors has defaulted on repayme nt of any financial

186

Insolv vency and Bankruptcy Code, 2016

Chap. 21

Operational creditor

Trade creditor or work men/employees with outstanding dues who h as served demand notice and ten days ha ve elapsed

Corporate debtor

Shareholder

Individual in charge of managing operations and resources of the corp orate debtor

A person who has co ntrol and supervision over the financial affair s of the corporate debtor

• The Code also prescribes penalties for false and frivolous petitions.

4b. Who cannot file for corporat e insolvency resolution

A corporate debtor already undergoing an insolvency resolution process; o r

A corporate debtor having g completed corporate insolvency resolution process p 12(twelve) months preceding the date of making of the application;or

A corporate debtor or a fin ancial creditor who has violated any of the term s of resolution plan which was approved 12 (tw elve) months before the date of making ofan a pplication;

A corporate debtor in respe ct of whom a liquidation order has been made.

5. Is moratorium available?

• The code provides for M oratorium will be for a period of 180 days

from admission of

application by Adjudicating Authority extendable once for a period not exc eeding 90 days

• Moratorium would be for

institution of suits or c ontinuation of pending suits or proceedings ag ainst the corporate debtor including execu tion of any judgment, decree or order in any co urt of law, tribunal, arbitration panel or oth er authority

transferring, encumber ing, alienating or disposing of by the corporat e debtor any of its assets or any legal righ t or beneficial interest therein

any action to foreclose , recover or enforce any security interest create d by the corporate debtor in respect of its property including any action under SARFAESI

the recovery of any pr operty by an owner or lessor where such prop erty is occupied by or in the possession of the corporate debtor.

• Moratorium period to be ex cluded for calculation of limitation period

6. Who can become Insolvency Professional (IPs)?

Limited registration (till

31 Dec 2016) for exiting professionals to

availability of IPs in the inte erim period.

facilitate adequate

CA/CS/Cost accountan t/advocate who has been ‘in practice’ for 15 ye ars.

Valid only for a period

of six months.

Final registration after ap pearing and passing insolvency examination

Limited insolvency exa mination

IPs registered under lim

mited registration

An individual with a Ba chelors degree and 15 years of experience in m anagement

Chap. 21

Insolv vency and Bankruptcy Code, 2016

187

An

accountant/advocate

National insolvency ex amination for any other person

individual

who

has

10

years

of

experience

enrolled

a s

a

CA/CS/Cost

• Foreign professional also in the previous year.

• Licensed IPs can form partners/directors are IP

• A registered IP can undert ake corporate as well as personal insolvency ex xam

eligible to register as an IP if he/she has spend

Insolvency

Professional

Entities

(IPEs)

182 days in India

provided

majority

7. Eligibility to be appointed as a resolution professional/liquidator?

Independence

An IP and every partn ner or director of the IPE he is a partner or independent as per pro visions of law.

director should be

(a)

he is eligible to b e appointed as an independent Director on company under sec ction 149 of the Companies Act, 2013;

the Board of the

(b)

is not a related part y of corporate debtor;

(c)

He is not an empl oyee or proprietor or a partner of a firm of au ditors or company secretaries in prac tice or cost auditors of the corporate debto r in the last three financial years.

(d)

has not been an

employee or proprietor or a partner of firm o f auditors or legal

consultants of the

corporate debtor (transaction of 10 per cent

or more of gross

turnover of such fir m) in any of the three financial years immedia tely preceding the

financial year.

Disclosure of conflict of i interest

IP shall disclose any intere st/relationship with the corporate debtor or stak eholders

8. Who appoints the Resolution Professional?

Appointment

Financial creditor

Operational creditor (o ptional)

Corporate debtor

IBBI in case no IP is ap pointed

• IRP appointment has to be ratified by the CoC in its first meeting

• RP’s appointment needs to o be approved by majority of creditors at credito rs committee

• RP can be replaced with m ajority of creditors with the permission of the IB BI

• RP fees will be decided by the creditors committee

9. What are powers of Resolutio n Professional?

• All powers of the Board of Directors rest with the RP

• Manage affairs of the corp orate debtor as ‘going concern’

• Access to documents and records including bank accounts

• Appoint accountants, legal or other professionals as maybe necessary

• Enter into fresh contracts o r amend existing contracts

188

Insolvency and Bankruptcy Code, 2016

Chap. 21

• Raise interim funding with the consent of the CoC

• Issue instructions to personnel

• Obtain support of management

10. What are the duties of Resolution Professional?

Take custody, protect and monitor the assets

Collect all information relating to the assets, finances andoperations

Call for ‘Proof of Claim’ against the corporate debtor and verify the same.

Receive and collate all the claims submitted by creditors

Constitute a committee of creditors

Prepare Information Memorandum and submit it to the CoC

11. What documents constitute a proof of claim?

Existence of debt may be proved on the basis of
Existence of debt may be proved on the basis of
Existence of debt may be proved on the basis of

Existence of debt may be proved on the basis of

Existence of debt may be proved on the basis of
Existence of debt may be proved on the basis of
Existence of debt may be proved on the basis of
Existence of debt may be proved on the basis of
of claim? Existence of debt may be proved on the basis of Records available in any
of claim? Existence of debt may be proved on the basis of Records available in any

Records available in any information utility

Other documents

Records available in any information utility Other documents Financial creditor Operational creditor Workmen/employees a
Records available in any information utility Other documents Financial creditor Operational creditor Workmen/employees a
Records available in any information utility Other documents Financial creditor Operational creditor Workmen/employees a

Financial creditor

Operational creditor

Workmen/employees

a

contract

supported

by

financial statements as evidence of debt a record evidencing amount committed by financial creditor has been withdrawn, financial statement showing unpaid debt a court order that has adjudicated upon non- payment of debt.

certified copy of assignment of debt where the debt has been assigned

a contract for the

supply of goods and services

invoice

demanding payment for the provision of the goods and services supplied, or

an

a court order that has adjudicated upon non- payment of debt.

a

proof

of

such

of

employment

as

employment

a

contract

notice

a

demanding payment of unpaid amount

a court order that has adjudicated

The cost of proving the claim of debt is to be borne by the specific creditor.

Chap. 21

Insolv vency and Bankruptcy Code, 2016

189

12. Verification of proof of claim

ms

• RP to issue public notice

within three days of his appointment asking

‘Proof of claim’ within 14 d ays.

creditors to submit

• The RP to verify documen ts submitted by the creditors as proof of claims within seven days from receipt of last claim

above documents

• The RP may call for ad ditional evidence or clarifications over and submitted by the creditor

• RP to use estimates in cas e the claim value is not precise due to any cont ingency

• Foreign debt to be conver ted base on the exchange rate at the date of commencement of CIRP

• RP to prepare final list of c reditors based on claims accepted and respecti ve security

• The list to be filed with the Adjudicating Authority

• In case of rejections of any claim, creditors of appeal to NCLT

13. What will be the compositio n of Committee of Creditors?

• CoC shall comprise of onl y financial creditors.

• Members of suspended Bo ard of Directors have right of representation

• Operational creditors whic h debt in excess of 10 per cent of the debt shall have right of representation only.

• Voting rights of CoC memb bers:

Financial creditors - wit h voting rights

Operational creditor –

without voting right

Related party creditors – non voting members

Corporate debtor – wit hout voting right

• In absence of independent (no related) financial creditors, CoC shall com prise of operational creditors.

18 largest operational

creditor by value

1 representative of all

workmen

1 representative of all e employees

14. What are provisions for con duct and voting in of creditor meetings?

Meetings

Notice - IRP to serve n otice (not less than seven days) with date, tim e and venue of the meeting

Attendance - May be i n person or proxy. The regulations allow partic cipation by a video

conferencing or audio

Quorum – 33 per cent of the voting members present in person or ele ctronic means

means

Voting

Voting rights -In propor tion of the debt due to a creditor out of the total debt

Conduct of voting – W hen all members are present - Vote casted absence of all member s - Voting by electronic means

in the meeting. In

Option for voting - Mem bers may vote for, against or abstain

• A resolution plan will be ap pproved by the CoC where 75 per cent of the m embers (by value) have voted ‘in favor’ of the plan

190

Insolv vency and Bankruptcy Code, 2016

Chap. 21

15. What are functions of the Co mmittee of creditors?

• Ratification of interim RP a ppointment and interim resolution costs

• Decide on remuneration of the resolution professional

• Decide on insolvency resol lution process costs

• Consider submitted resolut tion plans

• Approve of the resolution p lan

16. What is minimum liquidatio n value?

Objective

Protect rights and interest of the unsecured creditors and dissenting finan cial creditors

Independent valuer to be appointed Resolution professional to appoint two ‘Registered valuers’

• Independent valuer to be appointed Resolution professional to appoint two ‘Registered valuers’

Valuation by internationally

accepted valuation standards

Average of two estimates t o be considered Two significantly different v valuations – RP

Average of two estimates t o be considered Two significantly different v valuations – RP can appoint a third valuer

Manner of payment of liq uidation value

Payment of liquidation n value to operational creditors within 30 da ys of approval of resolution plan Payment to dissenting g financial creditors before any recoveries a re made to other financial creditors

17. What is the priority of distrib ution of fees

• The proceeds from the s ale of the liquidation assets shall be distribut ed in the following order of priority:

Process and liquidation

costs, including interim funding

Claims of secured cre ditors (who has relinquish his security rights) a nd workmen dues (capped at 24 months) will be pari passu Employees’ salaries, ot ther than workmen dues (capped at 12 months) Financial debt owed to unsecured creditors Government dues (cap ped at two years) and unpaid secured creditor s (if security rights not relinquish) Any remaining debts a nd dues. Preference shareholde rs Equity shareholders or partners as the case maybe.

18. What will be contents of an i nformation Memorandum (IM)?

A resolution professional shall submit IM to the CoC which shall contain follow ing information:

• List of the corporate debto r’s assets and liabilities

• Latest financial statements

or estimated financial statements (where ann ual financials were

file 90 days before comme ncement)

• List of creditors with amou nts claimed, admitted and security interest

• Any debts owed by or to th e corporate debtor to or by related parties

• Guarantees given by other persons, specifying which of the guarantors is a related party

• Details of capital contributo ries of the corporate debtor

• List of material litigation an d any ongoing investigation

• Number of employees/wor kmen and dues towards them

• Liquidation value

Chap. 21

Insolv vency and Bankruptcy Code, 2016

191

19. What will be contents of a re solution plan?

A resolution applicant can sub mit a resolution plan anytime 30 days before period:

Mandatory contents

expiry of maximum

Specific sources of funds t o pay insolvency resolution process costs and l iquidation value

Term of the plan and imple mentation schedule

Manner of management of the business and adequate means for supervis ing

Other contents

Transfer or sale of all o r any part of the assets (secured or unsecured)

Acquisition of shares o r merger or consolidation of corporate debtor

Satisfaction or modifica tion of any security interest

Curing or waiving of an y breach of the terms of any debt owed

Extension of a maturit y date or a change in an interest rate or other term for any debt owed

Amendment of the con stitutional documents

Issuance of securities

of the corporate debtor

– Necessary approvals fr rom the central/state governments or any regula tory authorities

20. What are insolvency resolut ion costs?

Interim resolution proces s

Fixed by the applicant and subsequently ratified by the CoC in its first meeting

Where the applicant do oes not fix expenses, the adjudicating authority shall do so.

Insolvency resolution co st

Expenses fixed by the CoC

to be incurred on or by the resolution professi onal and includes:

(a)

Amounts due to suppli ers for essential goods and services

(b)

Amounts due to person whose rights are prejudicially affected during

moratorium

(c)

Costs directly attributa ble to insolvency resolution

(d)

Resolution professiona l costs

21. What triggers liquidation pro ocess?

Resolution plan does not m eet the minimum guidelines

Non-agreement by Credito rs’ committee within stipulatedperiod

Decision of Creditors’ com mittee for liquidation

Corporate debtor fails to ad here to the terms of the approved resolution pla n

The RP will act as the liquidator and all assets of the corporate debtor w ill be transferred to the Liquidation Trust

Distribution to the creditors would be as per the priority of payment set out in the Code.

Liquidation order is non rev ersible

192

Insolvency and Bankruptcy Code, 2016

Chap. 21

22. Insolvency resolution timelines

Application to initiate insolvency AA to accept/reject the application Appoint two 7 days 30 days
Application to initiate
insolvency
AA to accept/reject the
application
Appoint two
7 days
30 days
registered
Yes
No
valuers
Form CoC and
report its
constitution to
AA
7 days
Commencement of
Insolvency
Conduct first
No action under
IBC
CoC meeting
3 days
14 days
Public announcement by IRP
and invite claims
Last day for submission of proof
of claims
7 days
Verification of claims
received of IRP

23. Insolvency and Bankruptcy Code (Amendment) Act, 2018

S. No.

Topic

 

Provisions

1.

Application of

The provisions of this Code shall apply to—

IBC, 2016

(a)

any company incorporated under the Companies Act, 2013 or under any previous company law;

[Section 2]

(b)

any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act;

(c)

any Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008;

(d)

such other body incorporated under any law for the time being in force, as the Central Government may, by notification, specify in this behalf;

(e) personal guarantors to corporate debtors;

(f)

partnership firms and proprietorship firms; and

(g)

individuals, other than persons referred to in clause (e),

in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the case may be.

Chap. 21

Insolvency and Bankruptcy Code, 2016

193

S. No.

Topic

 

Provisions

2.

Resolution

"Resolution applicant" means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub- section (2) of section 25

applicant

[Section 5(25)]

3.

Resolution

"resolution plan" means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II

Plan [Section

5(26)]

4.

Duties of

the resolution professional shall invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans

resolution

professional

[Section

25(2)(h)]

5.

Persons not eligible to be resolution applicant [Section 29A]

A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person—

(a)

is an undischarged insolvent;

(b)

is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act,

 

1949;

(c)

has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan;

(d)

has been convicted for any offence punishable with imprisonment for two years or more;

(e)

is disqualified to act as a director under the Companies Act, 2013;

(f)

is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;

(g)

has been a promoter or in the management or control of a corporate debtor in which 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 the Adjudicating Authority under this Code;

(h)

has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code;

(i)

has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or

(j)

has a connected person not eligible under clauses (a) to (i).

194

Insolvency and Bankruptcy Code, 2016

Chap. 21

S. No.

Topic

 

Provisions

 
   

Explanation.— For

the

purposes

of

this

clause,

the

expression

"connected person" means—

 

(i)

any person who is the promoter or in the management or control of the resolution applicant; or

(ii)

any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or

(iii)

the holding company, subsidiary company, associate company or

related party of a person referred to in clauses (i) and (ii):

Provided that nothing in clause (iii) of this Explanation shall apply to

(A)

a scheduled bank; or

(B)

an asset reconstruction company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; or

(C)

an Alternate Investment Fund registered with the Securities and Exchange Board of India.

6.

Examination of

The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan—

Resolution

Plan [Section

(a)

provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor;

30(2)]

(b)

provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53;

(c)

provides for the management of the affairs of the Corporate debtor after approval of the resolution plan;

(d)

the implementation and supervision of the resolution plan;

(e)

does not contravene any of the provisions of the law for the time being in force.

(f)

conforms to such other requirements as may be specified by the

Board. The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the above conditions.

7.

Submission of

The committee of creditors may approve a resolution plan by a vote of not less than seventy-five per cent of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board:

resolution plan

and approval

by Committee

of Creditors

Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:

[Section 30(4)]

Chap. 21

Insolv vency and Bankruptcy Code, 2016

195

S. No.

Topic

 

Provisions

   

Provi ded further that where the resolution applicant referred to in the first p roviso is ineligible under clause (c) of section 2 9A, the resolution applic ant shall be allowed by the committee of cred itors such period, not e xceeding thirty days, to make payment of ov erdue amounts in

accor dance with the proviso to clause (c) of section

29A:

Provi ded also that nothing in the second proviso sha ll be construed as exten sion of period for the purposes of the proviso to sub-section (3) of se ction 12, and the corporate insolvency resolut tion process shall be co mpleted within the period specified in that sub- section.

8.

Sale of Property to a person who is ineligible to be a Resolution Applicant [Proviso to Section

The li iquidator shall not sell the immovable and mo vable property or action able claims of the corporate debtor in liquidati on to any person who i s not eligible to be a resolution applicant

35(1)(f)]

9.

Punishment

If any

person contravenes any of the provisions of this Code or the

where no

rules

or regulations made thereunder for which

no penalty or

specific

punis hment is provided in this Code, such person sh all be punishable with f ine which shall not be less than one lakh rupee s but which may exten d to two crore rupees.

penalty or

punishment is

provided

 

[Section 235A]

10.

Power to make Regulations [Section

The B oard may, by notification, make regulations co nsistent with this

Code

and the rules made thereunder, to carry out the provisions of

this C Code and without prejudice to the generality

of the foregoing

240(2)]

powe r, such regulations may provide for:

o ther conditions under clause (h) of sub-section (2) of section 25;

o ther requirements under sub-section (4) of sect ion 30

11.

Resolution Professional does not require nod of shareholders/ members for insolvency resolution

Minis try vide its circular no. IBC/01/2017 dated 25 .10.2017 clarified

that S ection 30 and 31 of the Code provide a detaile d procedure from the ti me of receipt of resolution plan by the resolutio n professional to its ap proval by the Adjudicating Authority and there i s no requirement

for o btaining approval of shareholders/members

of the corporate

debto r during this process - PIB Press Release, Date d 13-3-2018.

Liquidation Process 1

24. What are powers and functio ons of a liquidator

• Powers of board of direct ors, key management personnel and partners shall vest with the appointed liquidator.

• Liquidator to make public a nnouncement of liquidation and invite proof of claims

196

Insolv vency and Bankruptcy Code, 2016

Chap. 21

• Liquidator may appoint p professionals (auditors, valuers, agents etc.) discharging duties

• Liquidator may consult with h stakeholders for discharge of his functions

• Liquidator may require any person to provide necessary information and e xtend cooperation

• Liquidator may disclaim p roperty/assets burdened with onerous covena nts or unprofitable contracts by making an ap plication to AA

assist him in

to

• Liquidator shall open a ba nk account specifically for liquidation and proce eds and payments shall flow from such accou nt

24.1. What are the reporting req uirements for a liquidator?

Preliminary report

To be submitted to AA within 75 days of liquidation commencement da te

Details of estimated as sets and liabilities and proposed plan of action

Asset sale report for as sets sold during a period to form part of progre ss report

Progress report

To be submitted to AA on quarterly basis

Details of material in formation for relevant period including appo intment of exiting professional, statemen t of receipts and payments, stage of liquida tion, remuneration charged, status of mat erial litigation and liquidation costs Progress report of fourt th quarter shall be enclosed with audited accou nts

Final report

To be submitted to AA post liquidation process

Details of account of liq uidation, conduct and manner of disposal of pr operties

25. How to determine quantum

of claim?

Amount of debt - as on d ate when order of liquidation was passed

No fixed value claim – w here claim is based on occurrence of an contin gency, the value to be determined on the basi s of financial statements

Foreign currency debt

- Converted into Indian Rupees at the offic ial exchange rate

prevailing on date liquidati on order

Periodic payments - Clai m only for any amounts due and unpaid up to the date when the corporate debtor went into liquidation

Debt payable in future – To be adjusted as if payable on day of distributi on

Mutual credits – Mutual c redits/debts/dealings prior to insolvency comm encement to be set off

26. What will be manner of cond uct of liquidation property?

Asset Memorandum – Li quidator to prepare and submit to AA an asse et memorandum in

price, choice and

respect of the liquidators

estate with details of valuation, estimated

manner of sale, terms of s ale etc.

Manner of sale (individual ly or in combination)

Going concern

Slump sale

Parcel sale

Chap. 21

Insolv vency and Bankruptcy Code, 2016

197

Mode of sale

Public auction Private sale by making an application to AA for perishable assets

Valuation

By two registered value ers for arms length valuation

Average of the two esti mates shall form lowest price at which the asse t may be sold

Asset sale report – On sa le of asset

Distribution of unsold

asset – Obtain permission of AA to distrib ute unsold assets

amongst stakeholders

27. Secured creditors right in ca se of liquidation?

• A secured creditor may

relinquish his security liquidation estate or

realise the security inte rest and inform the liquidator of his intention to do so.

interest and receive payments from procee ds of sale of the

• Liquidator on intimation f rom creditor on intention to realise the asse t, shall inform the creditor about any person willing to buy the secured asset at a higher pric e.

• Creditor who has relinquis hed security interest shall rank equally with wor kmen’s dues

28. What is the prescribed time- limit for completion of liquidation?

• Two years from liquidation commencement.

Extension - Any delay is to

be reported to AA with explanations causing su ch delay and

taking permission for conti nuing the liquidation.

Fast- tracking provisions – Liquidator may apply to AA for early resolutio n where he is of the opinion that:

realisable properties ar e insufficient to cover liquidationcosts.

affairs of the corporate debtor do not require furtherinvestigation

29. How to determine remunera tion of a liquidator?

The remuneration shall be fixed by CoC when:

Liquidation order pursu ant to non submission of resolutionplan

CoC decides to enter i nto liquidation

In other cases, remunerati on based on per centage of value of assets reali sed and amount distributed

INR

In first

Next six

In next

 

In first

Next six

In

next

 

six

months

one year

thereafter

six

months

on e year

thereafter

months

months

   

Realisatio on of assets

 

Distribution o f assets

 

On first 1 crore

5%

3.75%

2.50%

1.88%

2.5%

1.88%

1

.25%

0.94%

On the next 9 crore

3.75%

2.8%

1.88%

1.41%

1.88%

1.40%

0

.94%

0.71%

198

Insolvency and Bankruptcy Code, 2016

Chap. 21

 

INR

In first

Next six

In next

 

In first

Next six

In next

 
 

six

months

one year

thereafter

six

months

one year

thereafter

months

months

On the next

2.50%

1.88%

1.25%

0.94%

1.25%

0.94%

0.63%

0.47%

40

crore

On the next

1.25%

0.94%

0.68%

0.51%

0.63%

0.48%

0.34%

0.25%

50

crore

On further

0.25%

0.19%

0.13%

0.10%

0.13%

0.10%

0.06%

0.05%

sums

realised

30. Liquidation resolution timelines

sums realised 30. Liquidation resolution timelines Personal insolvency 31. What are provisions for personal

Personal insolvency

31. What are provisions for personal insolvency?

The code envisages two processes in case of individual/partnership insolvency:

• Automatic fresh start process Gross income doesn’t exceed INR 60,000 Assets don’t exceed INR 20,000 and don’t own a dwelling unit Qualifying debt of INR 35,000

• Insolvency resolution process Resolution plan Bankruptcy proceeding

Chap. 21

Insolv vency and Bankruptcy Code, 2016

199

Forms and filing fees

Annexure: F Forms under the regulations (Application)

Insolvency and Bankruptcy of I ndia (Application to Adjudicating Authority) Rules, 2016

• Form 1 : Format of applica tion to be filed by Financial Creditor

• Form 2 : Written consent b y proposed IP

• Form 3 : Demand Notice b y operational creditors

• Form 4 : Demand Notice fo r payment of invoice

• Form 5 : Format of applica tion to be filed by Operational Creditors

• Form 6 : Format of applica tion by Corporate Debtors

Annexure: Form s under the regulations (Resolution Proces s)

Insolvency and Bankruptcy of I ndia (Insolvency Resolution Process for Co rporate Persons) Regulations, 2016

• Schedule Form A

• Schedule Form B

• Schedule Form C

• Schedule Form D

• Schedule Form E

: For rmat for public announcement

: For rm for proof of claim by operational creditors ex cept workmen and emp loyees

: For rm for proof of claim by financial creditors

: For rm for proof of claim by workmen or employee

: Fo rm for proof of claim by authorised representat tive of workmen or emp loyees

Annexure: F Forms under the regulations (Liquidation)

Insolvency

Regulations, 2016

and

Bankruptcy

of India (Liquidation of Insolvent Cor porate Persons)

• Schedule II Form A : Perfo rma to report consultations with stakeholders

• Schedule II Form B : Form at for public announcement

• Schedule II Form C : Form employees

• Schedule II Form D : Form for proof of claim by financial creditors

• Schedule II Form E : Form for proof of claim by workmen or employee

• Schedule II Form F : For m for proof of claim by authorised representat ive of workmen or employees

• Schedule II Form G : Form for proof of claim by any other stakeholder

• Indicative formats for ledge ers and book keeping

m for proof of claim by operational creditors ex cept workmen and

Annexure: Filing Fees

Insolvency and Bankruptcy o f India (Application to Adjudicating Authorit ty) Rules, 2016

Type

Amount

Application by financial creditor (w hether solely or jointly)

INR 25,000

Application by operational credito r

INR 2,000

Application by corporate debtor

INR 25,000

Basic Provisions • “Nidhi” means a company which has been incorporated as a Nidhi with
Basic Provisions • “Nidhi” means a company which has been incorporated as a Nidhi with

Basic Provisions

• “Nidhi” means a company which has been incorporated as a Nidhi with the object of:

 

(a)

cultivating the habit of thrift and savings amongst its members,

 

(b)

receiving deposits from, and lending to, its members only, for their mutual benefit, and

(c)

which complies with such rules as are prescribed by the CG for regulation of such class of companies.

No “nidhi” shall acquire another company by purchase of securities or control the composition of the BOD of any other company in any manner whatsoever, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the RD;

• It cannot issue any advertisement in any form for soliciting deposit other than for Private Circulation amongst its members;

A minor shall not be admitted as a member of Nidhi [However, deposits may be accepted in the name of a minor, if they are made by the natural or legal guardian who is a member of Nidhi

 

Subject

Nidhi Rules, 2014

 

• Provisions of

• CG may exempt/ modify through notification

Act

• Incorporation

• Always a public co.

>

Rs. 5 lakhs equity

capital;

• Pref. shares not permitted;

 

• Locker facilities on rent can be provided to members but rental income < 20% gross income;

• Use “nidhi limited” as the last words in name

• Membership

• Number of members > 200

 

• Directors

• Must also be a member;

 

• Term <10 consecutive yrs [2 yrs cooling off period]

Term < 10 consecutive yrs [2 yrs cooling off period] CA Kamal Garg. Any photocopy, reproduction

CA Kamal Garg. Any photocopy, reproduction or misuse strictly prohibited, violators, perpetrators and users will be prosecuted.

 