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Insolvency
&
Bankruptcy
Code, 2016
Corporate Insolvency In India
1956 – Companies Act, 1956
1985 – Sick Industrial Companies (Special Provisions) Act
– SICA
1993 – Recovery of Debts Due to Bank and Financial
Institutions Act – RDDB
2002 – Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act –
SARFAESI
2013 – Companies Act – Chapter XIX & XX
2016 –The Insolvency and Bankruptcy Code – IBC
Individual Insolvency In India
1909 – Presidency Towns Insolvency Act
1920 – Provincial Insolvency Act
1932 – Partnership Act
Preamble of IBC
To consolidate and amend the laws relating
to reorganisation and insolvency resolution
of corporate persons, partnership firms and
individuals in a time bound manner for
maximisation of value of assets of such
persons
To promote entrepreneurship
Preamble of IBC
To ensure availability of credit
To balance the interests of all the
stakeholders including alteration in the order
of priority of payment of Government dues
To establish an Insolvency and Bankruptcy
Board of India, and for matters connected
therewith or incidental thereto
Consolidation
Why it is called as Code?
Separate Laws exist for Insolvency of
Corporate Persons, Partnership Firms and
Individuals
IBC consolidates all laws relating to
insolvency and bankruptcy into one law
Single Law for Insolvency and
Bankruptcy
CA 1956
Provincial
Insolvency SICA, 1985
Act, 1920
IBC
2016
Presidency
Towns
CA 2013
Insolvency
Act, 1909
Time Bound Manner
Insolvency and Bankruptcy took years to conclude
Ease of Doing Business in India – India’s Rank
stood at 136 amongst all nations
It took on an average 4.3 years to dissolve a
company
After IBC, India’s rank has jumped to 77
Maximisation of value of assets of such persons
Understanding
Insolvency and
Bankruptcy
Code, 2016
Understanding Layout
Divided in to V Parts containing 261 Sections and 12 Schedules
Part – I - Preliminary – Sections 1 to 3
Part – II - Insolvency Resolution and Liquidation for Corporate
Persons
Chapter I – Preliminary – Sections 4 & 5
Chapter II – Corporate Insolvency Resolution Process – Sections
6 to 32
Chapter III – Liquidation Process – Sections 33 to 54
Chapter IV – Fast Track Corporate Insolvency Resolution Process
– Sections 55 to 58
Understanding Layout
Chapter V – Voluntary Liquidation of Corporate Persons –
Section 59
Chapter VI – Adjudicating Authority for Corporate Persons –
Sections 60 to 67
Chapter VII – Offences and Penalties – Sections 68 to 77
Understanding Layout
Part III - Insolvency Resolution and Bankruptcy for Individuals and
Partnership Firm
Chapter I – Preliminary – Sections 78 & 79
Chapter II – Fresh Start Process – Sections 80 to 93
Chapter III – Insolvency Resolution Process – Sections 94 to 120
Chapter IV – Bankruptcy Order for Individuals and Partnership
Firms – Sections 121 to 148
Chapter V – Administration and Distribution of the Estate of the
Bankrupt – Sections 149 to 178
Chapter VI– Adjudicating Authority for Individuals and Partnership
Firms – Sections 179 to 183
Chapter VII – Offences and Penalties – Sections 184 to 187
Understanding Layout
Part IV - Regulation of Insolvency Professionals, Agencies and
Information Utilities
Chapter I – The Insolvency and Bankruptcy Board of India –
Sections 188 to 195
Chapter II – Powers and Functions of the Board – Sections 196
to 198
Chapter III – Insolvency Professional Agencies – Sections 199 to
205
Chapter IV – Insolvency Professionals – Sections 206 to 208
Chapter V – Information Utilities – Sections 209 to 216
Understanding Layout
Chapter VI – Inspection and Investigation – Sections 217 to 220
Chapter VII– Finance, Accounts and Audit – Sections 221 to
223
Part V – Miscellaneous – Sections 224 to 255
Understanding IBC
Individuals & Partnership
Corporate Person (Sole Proprietorship Authorities
included)
• Insolvency Resolution • Fresh Start • Adjudicating
• Liquidation • Insolvency Resolution Authorities – NCLT and
• Bankruptcy DRT
• IBBI
• Insolvency Agencies
• Insolvency
Professionals
• Information Utilities
Corporate Person
Corporate Person
Any person
Company LLP incorporated with
Limited Liability
Institutional Infrastructure
Adjudicating Insolvency and
Authorities [Part II, Bankruptcy Board
Appellate Authorities
Chp VI & Part III, Chp
VI] [Part IV, Chp I & II]
Insolvency
Debt Recovery Debt Recovery Professional
Tribunal Appellate Tribunal Agency
[Part IV, Chp III]
Insolvency
Professionals
Part IV, Chp IV]
Adjudicating Authorities
NCLT/
DRT/DRAT
NCLAT
Individuals other
Corporate Person than Personal
Guarantors
Personal
Guarantors of Partnership Firm
Corporate Person
Proprietorship
Firms
Objectives Desired
Low time to resolution
Low loss in recovery
Higher levels of debt financing
Home Buyers
Steps in Insolvency Resolution
Filing of Application by Financial Creditor or
Operational Creditor or Corporate Debtor
Preparation of Information
Memorandum
Submission of Resolution Plan to
Committee of Creditors by Corporate
Applicant
Steps in Insolvency Resolution
Approval of Resolution Plan by
Committee of Creditors (75%)
NCLT approves
plan
Liquidation
Process
Liquidation Provisions
Part – II - Insolvency Resolution and Liquidation for Corporate
Persons
Chapter III – Liquidation Process – Sections 33 to 54
Chapter IV – Fast Track Corporate Insolvency Resolution Process
– Sections 55 to 58
Chapter V – Voluntary Liquidation of Corporate Persons –
Section 59
Chapter VI – Adjudicating Authority for Corporate Persons –
Sections 60 to 67
Chapter VII – Offences and Penalties – Sections 68 to 77
Initiation of Liquidation (S. 33)
Liquidation
Order is
Passed
Initiation of Liquidation (S.33)
Committee of
Creditors takes Contravention of
decision to Liquidate Plan by Debtor
Liquidation
Order is
Passed
Liquidator’s Fee (Regulation 4)
On Realisation
Amount First 6 6 months -1 1 Year – 2 Beyond 2
Realised Months year (75%) Years (50%) years (40%)
First 1 Crore 5.00 3.75 2.50 1.88
Corporate Debtor on default can apply to AA with books & special resolution (75%).
Who cannot apply:
(a) a corporate debtor undergoing a CIRP
(b) a corporate debtor having completed CIRP in past 12 months
(c) CD or FC who has violated any of the terms of resolution plan
(d) CD in respect of whom a liquidation order has been made
Committee of creditors - IRP to make COC by including all FC. Related party FC have no
right to vote/particpate/represent in COC meetings. Generally all decisions to be
approved by 51% minimum. COC can ask any information from RP & he has to submit in 7
days.
Where no FC then COC will be formed by top 18 OC.
Any person will submit Resolution plan. RP will review the plan submitted. RP will send to
COC for approval not less then 66%. Once COC approves the plan AA will decide on it.
If AA approves then plan go ahead else liquidation.
Fast track corporation insolvency resolution – Period 90 days +45 days ext. (75%)
An application for fast track process may be made in respect of the following CD: -
(a) CD with assets and income below a level as may be notified by the Central Govt. or
(b) CD with such class of creditors or such amount of debt as notified by the CG; or
(c) such other category of corporate persons as may be notified by the CG.
Caution
Judicial Pronouncements
JAYPEE Infra. – Flat owners considered as
Financial creditors now
Cases
On
Valuation
(1.4.2019)
Judicial Pronouncements
Hindustan Leve Employee’s Union (1995)
Supp (1) SCC 499
Issue
What method should be adopted for arriving at a
proper exchange ratio, and also discussed the
problem of valuation in the case of amalgamation
of two companies?
Judicial Pronouncements
Following factors will have to be taken into account in
determining the final share exchange ratio :
The Stock Exchange prices of the shares of the two
companies before the commencement of
negotiations or the announcement of the bid.
The dividends presently paid on the shares of the
two companies. It is often difficult to induce a
shareholder, particularly an institution, to agree to a
merger or a share-for-share bid if it involves a
reduction in his dividend income.
Judicial Pronouncements
The relative growth prospects of the two
companies.
The cover (ratio of after-tax earnings to dividends
paid during the year) for the present dividends of
the two companies. The fact that the dividend of
one company is better covered than that of the other
is a factor which will have to be compensated for at
least to some extent.
Judicial Pronouncements
In the case of equity shares, the relative gearing of
the shares of the two companies. The 'gearing' of an
ordinary share is the ratio of borrowings to the equity
capital.
The values of the net assets of the two companies.
Where the transaction is a thorough-going merger, this
may be mere of a talking-point-than a matter of
substance, since what is relevant is the relative values
of the two undertakings as going concerns.
Judicial Pronouncements
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