On IBC
On IBC
On IBC
Code, 2016
A presentation by:
Saurabh Dugar
Company Secretary
Disclaimer: This presentation is based on my internal research. It is notified that the presenter and any
1 other person related to him shall be not responsible for any damage or loss of any action taken based on
this presentation. It is suggested to seek professional advice before initiating any action.
Basic Terminologies
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Insolvency, Bankruptcy and Liquidation
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Insolvency precedes
Insolvency: bankruptcy and liquidation
a state in which financial
difficulties of a company follows bankruptcy.
are such it is unable to run
its business at its current Insolvency warnings:
pace.
drop in sales
delay in payments
Bankruptcy: Increasing reliance on credit
When a person is Liquidation:
legally declared as
incapable of paying
The process of
winding up a
Cash flow test:
when cash flow in is less
their dues and company
obligations
than cash flow out .
Insolvency v/s Bankruptcy
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For individuals
As old as a century
The Presidency Towns Insolvency Act, 1909
The Provincial Insolvency Act, 1920
this included insolvency as proprietors too
For corporates
The provisions of the 1956 Act were as old as 6 decades
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4.5
4.3
100 4
88.6 88.7 87.4 4
90 78.6 82.8
80 3.5
70 3
60 2.5 2 2.1
50 38.6 36.9 2 1.7
35.1 1.5 1.5
40 1.5
26 1
30 0.8 0.8
15.8 1
20
10 0.5
0 0
Why Code was needed?
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Journey of the Code
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Bankruptcy Law Reform Committee
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Mandate of BLRC
Setup by the Department of Economic Affairs, MoF, through office order dated August
22, 2014
Chairman: Mr. T.K. Vishwanathan
Objective of BLRC
To study the framework of Corporate bankruptcy in India
To submit a report to the government for reforming the system
Reports
Interim Report (February 2015)
Served as an approach paper for the proposed new Code
Reforms suggested for improving the insolvency regime in India
Final Report (November 2015)
Two parts:
Volume I: Rationale and Design model of the Code
Volume II: Draft Insolvency and Bankruptcy Code
Key changes under the Code
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Options to
creditors
secured unsecured
creditors creditors
Individual Collective
remedies remedies
Enforcement of
Resolution
security right
Monetary Liquidation
claim
Why collective remedies are better suited?
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SCH AMENDMENT TO
I The Indian Partnership Act, 1932
II The Central Excise Act, 1944
III The Income – Tax Act, 1961
IV The Customs Act, 1962
V The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
VI The Finance Act, 1964
VII The Securitisation & Reconstruction of Financial Assets & Enforcement Of Security Interest Act, 2002
VIII The Sick Industrial Companies (Special Provisions) Repeal Act, 2003
IX The Payment and Settlement Systems Act, 2007
X The Limited Liability Partnership Act, 2008
XI The Companies Act, 2013
Applicability of the Code
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SC / NCLAT / NCLT
Certificate of Registration
IBBI
Registration
IPA - 1 IPA - 2
Enroll individual IP as a member
SC: Supreme Court, NCLAT: National Company Law Appellate Tribunal, NCLT: National Company Law Tribunal, IBBI: Insolvency and Bankruptcy
Board of India, IPA: Insolvency Professional Agency, IP: Insolvency Professional, IU: Information Utilities
How does one become Insolvency Professional?
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The IBBI had notified Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 . Salient
features of the regulations are:
Insolvency The Board shall conduct a National Insolvency Examination and Limited Insolvency Examination .
Professionals The syllabus, format and frequency of the Limited Insolvency Examination , including qualifying
Examination marks, shall be published on the website of the Board at least one month before the examination.
Eligibility and Any person resident of India who:
Qualification for has passed National insolvency examination; or
registration of has passed the Limited Insolvency Examination, and has 15 years of experience in management,
insolvency after graduation; or
professionals has passed the Limited Insolvency Examination and has ten 10 years of experience as a member
(Reg 5) of ICAI; ICSI; ICAI (Cost) and Bar council
Application for An individual enrolled with an insolvency professional agency may make application to IPA with
registration application fee of Rs 10,000
Registration for a an individual who has been in practice for 15 years as a CA, CS, CA (Cost), and advocate
limited period Valid for a period of 6 months
(Reg 9) This is notwithstanding Regulation 5 (i.e without exams)
Recognition of IP LLP, partnership firm, or a company if:
Entities (Reg 12) a majority of the partners of the LLP or partnership firm or a majority of whole time directors of
the company are registered as insolvency professionals.
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Applicability –
Minimum amount of default – Rs.1 lac
Operational creditor
Sec 3(20), 3(21) - Operational Creditor includes employees, Central and State
Governments -Needs to give a 10-day notice to the debtor for repayment before taking
action
Corporate Debtor - Defaulting company, its shareholder or management personnel can
start proceedings by making a application to the NCLT upon occurrence of any default
Creditors in possession approach as against Debtors in possession approach
Potentially creates risk the minority creditors being mooted out
Threat of automatic liquidation can create strange results –May push the recoverable
companies into liquidation, thereby disrupting markets
Suspended BoD or partners eligible to attend meetings of Committee of creditors, but
not eligible to vote
CIRP: In brief
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First
Appoint 2 Committee Submission of
Admission of registered Resolution Submission of
IRP to verify of Creditors
application valuers Plan to RP plan to NCLT
claims meeting
–ve 14 0 7 21 30 150
3 14 23 44 180
Public
announcement
Filing of Circulation of Approval of plan Acceptance /
Appointment Creditors to submit Submission of
application to of IRP and records to NCLT Information by Committee of Rejection of plan
their claims
NCLT declaration of memorandum creditors by NCLT
moratorium
CIRP: Phase I
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- Filing of application on occurrence - Deliver a default notice to the - Filing of occurrence of default
of default; corporate debtor on occurrence of
- Based on the information from IU, default
other financial creditor may file an Along with the application, to furnish
application as well record of default and to propose
name of interim resolution
Adequate reply Not adequate reply professional
Alongwith the application, to furnish
Settlement of
record of default and propose name of
dues
interim resolution professional. Filing of application
Dispute
Within 14 days
To ascertain the existence of default, if satisfied, it shall accept, or otherwise reject
The entire process shall be completed within Resolution Period (180 days; extendable by 90 days)
DURING MORATORIUM
Public announcement is done for the creditors to give the claim
Creditors appoint Resolution Professional
Resolution Professional to prepare Information Memorandum -- based on this the
Resolution Applicant will make the plan
CIRP initiation: Operational Creditor and Corporate
Debtor
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Liquidator to either
Liquidator to verify such Secured creditors to Liquidator to verify
admit or reject claims and
claims within such time identify assets offered to claims of secured
communicate within 3
as may be specified by them as security against creditors and discharge
days of such admission or
the Board (IBBI) the sums owed to them the secured payments
rejection
Excess money realized by Any short recovery of If all the assets of the
secured creditors from secured debts by a After paying off secured corporate debtor are
the liquidation of secured secured creditor to be creditors, the unsecured completely liquidated, the
assets to be accounted treated as unsecured debts are to be paid off in liquidator shall apply for
and remitted to debt and repaid in the specified order of priority dissolution of corporate
debtor before NCLT
Liquidator) specified order of priority
Copy of order to be filed w RoC within NCLT to pass an order dissolving the
DISSOLVED
7 days from the date of such order C.Dr. from the date of such order
Liquidation Estate (Section 36)
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The Insolvency and bankruptcy (Liquidation) regulations 2016 specifies that remuneration of liquidator shall be
determined by the Committee of creditors. However where the committee does not determine the
remuneration, the Adjudicating Authority shall determine the remuneration of the Liquidator, which shall at
the maximum of the below table:
Voluntary Winding Up
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Transactions covered:
transfer of property for benefit of a particular creditor;
granting of a security interest to secure existing unsecured debts;
Defence available:
transaction as consistent with normal commercial practice
ordinary course of business
new credit & new value
counterparty proves that it was unaware of a preference
no knowledge of the debtor s insolvency
Reach-back period
Two years in case of related party transactions;
One year in any other case.
Undervalued transactions
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Miscellaneous
Does Cross Border Insolvency gets addressed?
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Code has not adopted the UNCITRAL Model of cross border insolvency
Currently 23 countries (including USA, UK, South Africa, Japan, Australia) have
substantially implemented the UNCITRAL Model Law into their domestic legislation
Code for the first time attempts to addresses the issue of cross border insolvency
given the multi-jurisdictional spread of assets of large corporate houses
Section 235 - Adjudicating Authority has the ability to issue letter of requests to
the courts / authorities of other countries for seeking information/ requesting
action in relation to assets of the debtor situated outside India
What overrides what?
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The Code shall have an over riding effect where other laws,
for the time being in force are inconsistent to this Code.
It is specifically provided that civil courts or authority not
MCA vide Notification no. G.S.R. 1119(E) issued the Companies (Transfer
of Pending Proceedings) Rules, 2016 TPP Rules, 2016 , in exercise of
the powers conferred under section 431 (1) and (2) of the Companies Act,
2013 read with section 239 (1) of the Insolvency and Bankruptcy Code,
2016.
The MCA has appointed two different dates on which the provisions of
the TPP Rules, 2016 shall come into force.
December 15, 2016 – Entire TPP Rules, 2016 except Rule 4 shall come into force;
and
April 1, 2017 – Rule 4 (which provides for pending proceedings relating to
voluntary winding up) shall come into force.
Winding up on inability to pay
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While the proceedings of winding up on the ground of inability to pay debts, if transferred to
NCLT, shall be dealt with in accordance with the provisions of the Code;
On the other hand, winding up on grounds other than inability to pay debts, if transferred to
NCLT, shall be dealt with in accordance with the provisions of the Act, 2013.
No Yes
Yes
Pending as on April 1, Remains with High Court
Voluntary Winding up
2017 before High Court under 1956 Act
No
Stages of proceedings
under SICA
Debtors management
Adequacy of information
Extent to which information can be seeked
Financial creditor
Will financial creditors really want to move?
Connection between financial creditors and corporate debtor
Turbulent times ahead
Needs attention (Continued)
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Process
favour to creditors
Boost to MSMEs?
will
it really happen as operational creditors have greater skin as
compared to erstwhile law?
Are 180 / 270 days sufficient?
May lead to disharmony for stakeholders in the longer run?
Resolution applicant:
Financial creditor being resolution applicant;
Number of resolution plans;
Content of resolution plan
Infrastructural environment
Capacity Building
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Insolvency and
Bankruptcy Code,
2016
A presentation by:
Saurabh Dugar
Email: [email protected]
Mobile: +91-9867110199