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O VE R VIEW OF THE INS O L VENCY AND B ANKRUP T CY C ODE 2 016 [IBC 2016]

O VE R VIEW OF THE INS O L VENCY AND B ANKRUP T CY C ODE 2 016 [IBC 2016]. S S SONTHALIA M.Com . LLB. PGDCA, ACS, FCMA Practicing Cost Accountant,Registered Valuer and Insolvency Professional Former Chairman, Bhubaneswar Branch of ICAI and EIRC of ICAI

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O VE R VIEW OF THE INS O L VENCY AND B ANKRUP T CY C ODE 2 016 [IBC 2016]

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  1. OVERVIEWOFTHEINSOLVENCY AND BANKRUPTCYCODE2016[IBC2016] S S SONTHALIA M.Com. LLB. PGDCA, ACS, FCMA Practicing Cost Accountant,RegisteredValuer and Insolvency Professional Former Chairman, Bhubaneswar Branch of ICAI and EIRC of ICAI Former Chairman, Bhubaneswar Branch of ICSI and Council member EIRC of ICSI Mobile 0937081528 Email:sonthalia_ss@yahoo.co.in

  2. Insolvency and Bankruptcy Code, 2016 • What is Insolvency and Bankruptcy

  3. Insolvency and Bankruptcy Code, 2016 • Why it is called as Code ant as Act.

  4. LawsgoverningInsolvencybefore IBC 2016 • SickIndustrial Companies(SpecialProvisions)Act,1985 [SICA] • RecoveryofDebtsduetoBanksandFinancialInstitutionsAct, 1993 • SecuritisationandReconstructionofFinancialAssetsand • EnforcementofSecurityInterest Act(SARFAESI)Act,2002 • CompaniesAct,2013 (Winding up) • The PresidencytownsInsolvencyAct,1909 • TheProvincialInsolvency Act, 1920

  5. Insolvency and Bankruptcy Code, 2016 • Introduction The Insolvency and Bankruptcy Code, 2016, passed by the Parliament vide notification dated 28.05.2016, is a welcome overhaul of the existing legal framework for resolution of Insolvency of an Entity. The IBC 2016 (Code) is considered as the biggest economic reform next only to GST.

  6. Insolvency and Bankruptcy Code, 2016 • Introduction The Code deals with insolvency of Corporates, LLPs, Individuals and Partnerships firms. In a time bound manner for maximization of value of assets of such persons. It focus on creditor’s driven insolvency resolution where ever possible and orderly exit wherever require.

  7. Insolvency and Bankruptcy Code, 2016 • Ease of doing business Markets need freedom broadly at three stages of a business • to start a business (free entry), • To continue the business (free competition) and • To discontinue the business (free exit). This enables new firms to emerge continuously; and they do business when they remain efficient, and vacate the space when they are no more efficient. This ensures free flow of resources from inefficient uses to efficient uses

  8. Insolvency and Bankruptcy Code, 2016 • Ease of doing business A firm may fail to deliver as planned for a variety of reasons. It could be because of faulty conceptualisation of business, inefficient execution of business, change of business environment, or even malafide design in some cases. Regardless of the reason, the failure impacts macro economy in multitudes of ways and needs to be addressed expeditiously and scares resources need to released and used for more efficient manner.

  9. Need for the IBC 2016 IBC Code 2016 –Codification of all laws that existed in form of various statutes related to insolvency –under one umbrella •Problem of multiplicity of laws related to insolvency in India •No timeframe for resolution of Insolvency •Bad debts and defaulters crisis in Banks

  10. INSOLVENCYRESOLUTION:LONGTIME,POORSHOWININDIA Average recovery,bycountry.June2015(CentsonDollar) Averagetime,bycountry, June2015(Years) IndiaChina Brazil Russiajapan us UK 1 2 3 4 5 Source:WorldBank 20 40 60 80 100 0 0

  11. Roadmapto IBC2016 • CodeIntroducedin Parliamenton21st December, • 2015 • Referred toParliamentaryStandingCommittee on23rd December,2015 • CommitteeReporton28th April,2016 • TheCodepassedbyLok Sabhaon5thMay,2016 • TheCodepassedbyRajyaSabhaon11thMay,2016 • Received thePresident’sassentonMay28,2016 • Notified in theGazetteof Indiaas‘TheInsolvency andBankruptcyCode2016’(effective 01.12.2016)

  12. The IBC2016- Applicable to • AnycompanyincorporatedundertheCompaniesAct, 2013or 1956. • Anyothercompanygovernedby anyspecial Actfor the timebeingin force. • AnyLimitedLiabilityPartnership. • Suchotherbodyincorporatedunderanylawfor the timebeingin forceas specify by the Central Government. • Partnershipfirms andIndividuals

  13. The IBC2016 Applies for…. Insolvency Liquidation -----VoluntaryLiquidation Bankruptcy

  14. ToWhomisIBC2016Not Applicable? • PartIIIofthe Codepertainingtoinsolvency of Individualsandfirms–doesnotapplyto State ofJammuandKashmir • The Code isnotapplicabletofinancialservice providers. • For MFIs, NBFCsandfinancial serviceproviders separate provisions are in pipelineon whichsuggestionsare being invited from allstakeholders

  15. Acts Modifiedby IBC 2016 • Chapter XIX and XX ofCompaniesAct, 2013 • Chapter XIIIofthe LLP Act,2008 • IndianPartnershipAct1932 • Central ExciseAct1944 • IncomeTaxAct1961 • CustomsAct1962 • Finance Act 1994 • PaymentandSettlementSystemsAct2007

  16. Acts Modifiedby IBC 2016 • RecoveryofDebtsduetoBanks andFinancial • InstitutionsAct(RDDBFI),1993 • SecuritizationandReconstruction ofFinancial AssetsandEnforcement ofSecurity Interest Act,2002(SARFAESI)

  17. Acts Repealedby IBC 2016 • The Presidency-townsInsolvency Act, 1909 • TheProvincialInsolvency Act,1920 • Sick IndustrialCompanies(Special Provisions)Act,1985(“SICA”)repealed from1.12.2016. • BoardforIndustrialandFinancialReconstruction (“BIFR”) andtheAppellateAuthorityforIndustrial andFinancialReconstruction(“AAIFR”)dissolved

  18. Structureofthe Code • TheCodeisdividedinto5 Parts; 255 Sections;11 • Schedulesand21Chapters. • oPart I–Preliminary–Section1to 3 • oPart II-Insolvency resolutionandliquidationfor corporatepersons–Section4 to 77 • oPart III–Insolvencyresolutionandbankruptcyfor individualsandpartnershipfirms–section78 to 187 • oPart IV–RegulationofInsolvencyProfessionals, agenciesandinformation utilities–section188 to 223 • oPart V–Miscellaneous-Section224 to 255 • 11Schedulesamending 11 existingActs • Issued 2 Rules and 7 Regulations for operation of the Code.

  19. NotifiedRules • Insolvency andBankruptcyBoardofIndia (Salary, Allowances and otherTermsand ConditionsofServiceofChairpersonand members)Rules, 2016–Notified on 29.08.2016 • TheInsolvency and Bankruptcy BoardofIndia (Application to Adjudicating Authority)Rules, 2016. –Notified on 30.11.2016

  20. NotifiedRegulations • Insolvency and Bankruptcy BoardofIndia (Insolvency ProfessionalAgencies)Regulations, 2016.[21.11.2016] • InsolvencyandBankruptcy Boardof India • (Model Bye-laws and Governing Board of • InsolvencyProfessionalAgencies) • Regulations, 2016.[21.11.2016]

  21. NotifiedRegulations • InsolvencyandBankruptcy Boardof India (Insolvency Professionals)Regulations,2016 [Notifiedon23.11.2016.Has comeintoeffecton 29.11.2016]

  22. NotifiedRegulations • Insolvency andBankruptcy BoardofIndia (Insolvency ResolutionProcessfor Corporate Persons)Regulations,2016.[Notifiedon 30.11.2016.Has comeintoeffect on 1.12.2016] • Insolvency andBankruptcy BoardofIndia (LiquidationProcess)Regulations,2016. [15.12.2016]

  23. NotifiedRegulations • Insolvency andBankruptcy BoardofIndia (Voluntary Liquidation Process)Regulations,2017.[Notifiedon 31.03.2017.Has comeintoeffect on 01.04.2017] • Insolvency andBankruptcy BoardofIndia (Information Utilities)Regulations,2017. • [Notifiedon 31.03.2017.Has comeintoeffect • on 01.04.2017]

  24. Insolvency and Bankruptcy Code, 2016 It envisages an ecosystem comprising Insolvency and Bankruptcy Board of India (Board), Information Utilities (IUs), Insolvency Professional Agencies(IPAs), Insolvency Professionals (IPs) and Insolvency Professional Entities (IPEs) National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCLAT), Debt Recovery Tribunal (DRT), Debt Recovery Appellate Tribunal (DRAT), for implementation of the Code.

  25. TimeBound IRP/RP Insolvency and Bankruptcy Boardof India Creditor Based The Code Waterfall Mechanism CalmingPeriod

  26. IBC 2016-KeyHighlights • Createstime-boundprocessesforinsolvency • resolutionofcompaniesand individuals. • InsolvencyResolution-completedwithin180days otherwise assetsof borrowersmay be soldtorepay creditors. • Resolution processestobeconductedbylicensed insolvencyprofessionals(IPs)registeredwith insolvencyprofessionalagencies (IPAs). • Establishment of InformationUtilities(IUs).

  27. IBC 2016-KeyHighlights • The Insolvency andBankruptcy BoardofIndia willbe set uptoregulate functioningofIPs, IPAsand IUs. • The National CompanyLaw Tribunal(NCLT) willadjudicateinsolvency resolutionfor companies and LLP • The Debt RecoveryTribunal(DRT)will adjudicate insolvencyresolutionfor Iindividuals and Partnership firm.

  28. InsolvencyProfessional Agencies Sections 199-205 ChapterIIIofpart IV Insolvency Professionals Sections 206-208 ChapterIVof partIV The Insolvency andBankruptcyBoardof India(S 188) Sections188-195 ChapterI of partIV Information Utilities Sections 209-216 ChapterV ofpartIV

  29. InformationUtilities • Registered Bodies to collect, collate, authenticate and disseminate financialinformationofdebtorsincentralisedelectronicdatabases. • The Code requires creditors to provide financial information of debtors to multiple utilities on an ongoing basis. • Suchinformationwouldbeavailabletocreditors,resolution professionals, liquidators and other stakeholders in insolvency andbankruptcyproceedings. • The purpose of this is to remove information asymmetry and dependency on the debtor's management for critical information that isneeded,to swiftlyresolveinsolvency.

  30. InsolvencyProfessionalAgencies (IPA) • IPA-front lineregulator for theinsolvency • professionals. • IPAs-registeredbodytoadmit Insolvency Professionalasmembersandto developcodeof conductandpromote best practicesin governanceduringinsolvency proceedings • Italsoredressesthe grievancesofconsumers againstits members • Noperson shall render his servicesasinsolvency professionalunder this Codewithoutbeing enrolledasa memberofanIPA

  31. InsolvencyProfessionalAgencies (IPA) • IBBIhasgrantedregistrationtofollowing 3companies toactas IPAsundertheIBBI (Insolvency ProfessionalAgencies)Regulations, 2016: • IndianInstituteofInsolvency Professionalsof • ICAI[www.iiipicai.org] • ICSIInsolvency ProfessionalsAgency [www.icsiipa.com] • Insolvency ProfessionalAgency ofInstituteof • Cost AccountantsofIndia[www.ipaicmai.in]

  32. Insolvency Professional(IP) • IP toenrolledwith an IPA as its member andregisteredwith theIBBI. • Insolvency and Bankruptcy /Liquidation processwillbemanaged bytheselicensed professionals. • The IPs willcontrol the assetsofthe debtor and manage the affairs of business duringthe insolvency process. • The IPs willact as Liquidator/Bankruptcy trusty duringthe liquidation/Bankruptcy process.

  33. Insolvency Professional(IP) • As on31.8.2018,Insolvency Professionals • registeredunder Regulation7 read withRegulation5ofIBBI (Insolvency Professionals)Regulations,2016,withIBBI= 1987 • Information Professional Entities- 80 • Information Utilities – 1 • (National E-governance services Ltd, Mumbai)

  34. IBBI (InsolvencyProfessionals) Regulations,2016 • VideNotificationDated23.11.16butapplicablefrom • 29.11.16 • 5 Chapters and 14Regulations • FirstSchedule–CodeofConductforInsolvency Professionals • SecondSchedule–FormA–Applicationfor Registration • asInsolvencyProfessional. • SecondSchedule–Form B–CertificateofRegistration • SecondSchedule–FormC –Applicationfor Recognition • asInsolvencyProfessionalEntity • SecondSchedule–Form D –CertificateofRecognition

  35. IBBI (InsolvencyProfessionals) Regulations,2016 • Chapter – I – General • Chapter – II – Insolvency Examination • Chapter – III – Registration of Insolvency Professionals • Chapter – IV – Temporary Surrender and Disciplinary • proceedings • Chapter – V - Recognition of Insolvency Professional • Entities.

  36. Registration; Qualificationsand Experience–Regulation5 • Anindividualshallbe eligible for registration, • ifhe- • (a)haspassedthe NationalInsolvency • Examination; • (b)haspassed the NationalInsolvency Examination,andhasfifteen years of experienceinmanagement, after he received a Bachelor’sdegreefrom auniversity establishedorrecognizedby law;or

  37. Qualificationsand Experience– Regulation 5 • (c)haspassedthe LimitedInsolvency Examinationandhas • tenyearsofexperienceas – • (i)a charteredaccountantenrolled asa memberofthe • InstituteofCharteredAccountantsofIndia, • (ii)a companysecretaryenrolled asa memberofthe • InstituteofCompanySecretariesofIndia, • (iii)a cost accountantenrolled asa memberofthe • InstituteofCost AccountantsofIndia, or • (iv)anadvocate enrolled witha BarCouncil.

  38. ProfessionalOpportunities in IBC2016 • An Insolvency Professional (IP) may hold any of the following roles under this code to resolve the • Insolvency of • Companies, • Limited Liability Partnership (LLP), • Partnership firm and • Individuals • Bankruptcy Trusty for Partnership firm and Individuals • Liquidator for Companies and LLP

  39. RecognitionofInsolvencyProfessional Entities–Regulation12 • Alimitedliabilitypartnership,aregistered partnershipfirm ora company may be recognised asaninsolvency professionalentity if- • (a)a majority ofthe partnersofthe limited liability partnershipor registeredpartnershipfirm areregisteredasinsolvency professionals; or • (b)a majority ofthewhole-timedirectorsof thecompanyare registeredasinsolvency professionals, asthecasemay be

  40. Adjudicating Authorities ForIndividuals andFirms ForCorporate NationalCompany LawTribunal (NCLT) Debt Recovery Tribunal(DRT) NationalCompany LawAppellate Tribunal(NCLAT) Debt Recovery AppellateTribunal (DRAT)

  41. Corporate Insolvency Process (including LLP) No Default Default Voluntary Liquidationu/s59 InsolvencyResolution Processu/s6 Fast Tracku/s 55 Operational Creditors Financial Creditors Defaulting Debtor Liquidation

  42. Fast Track CorporateInsolvency • TheInsolvency Codefurtherprescribesa fast trackcorporate insolvency process for theentities withlesscomplexstructuringor businesses where the whole insolvency process willberequiredto becompletedwithinaperiodof90 days or anextendedperiodoffurther45days at most. • TheCentralGovernmentwill prescribe theclassesofentitiesbasedon theassetsand liabilities, amount ofdebt andother criteria, whichwillbesubjecttothefast trackprocess.

  43. Fast Track CIRP – U/s 55 • An application for fast track CIRP may be made in respect of the following corporate debtors - • - A corporate debtor with a • Share capital of less than 50 Lakhs or Turnover of less than 200.00 Lakhs • Start-ups • Unlisted companies with total assets of less than 100.00 lakhs

  44. ProcessFlow ofSuccessfulIRP ResolutionPlan Defaultof over Rs ProposalApproved proposedby 1,00,000 by66%Creditors creditors Petitionwith ProposalAccepted ConfirmationofIP Adjudicating byAdjudicating Authority Authority[NCLT] Appointinterim Creditors Insolvency Professional Committee Formation

  45. Application of IBC 2016 • Whocan apply:FinancialCreditors, Operational Creditorsorthe defaulting debtorhimself. • Natureofdefaultthat triggers corporateinsolvency:Anyfinancialor operationalcreditor can applyforinsolvency ondefaultofdebtor interest paymentexceedingINR1,00,000.However,operational creditor mustgive 10daysnotice to defaultingdebtors. • Whomtoapply:AdjudicatingAuthority(AA)- NCLT • Documents to befiled:Alongwithapplicationfurnish– • Recordofthedefaultrecordedwiththe informationutilityor evidenceof • default. • Thenameoftheresolutionprofessional proposedtoactas an interimresolutionprofessional and • Incase ofoperationalcreditors proofof givingnoticetodebtorand affidavit thatthereis nodisputerelatingtoclaimand certificatefrombank of creditor thatamount hasnotbeenreceived. • anyotherinformationas may bespecifiedbythe Board

  46. Timelimits • Normal InsolvencyResolutionProcess shallbecompletedwithina periodof180 days from date ofadmissionofadmission ofapplication. • Theperiodcanbeextendedifresolutionpassed ata meeting of the committeeofcreditors by a voteof66%ofthe votingshares. Itcanbeextendedfor aperiodnotexceeding90 days. • Suchextensioncannot begrantedmore than once • In caseoffasttrackthemaximum periodis90 • daysextendabletofurther45days.

  47. Moratorium • The NCLTorders a moratoriumonthe debtor's operationsfor the periodofthe IRP during whichnoaction canbe taken againstthe company or the assetsofthe company.This operatesas a 'calmperiod' duringwhich no judicial proceedingsfor recovery,enforcement ofsecurity interest, sale ortransfer ofassets, orterminationofessential contractscan take placeagainstthe debtor.

  48. Appointmentandtenure ofinterim resolutionprofessional(IRP) • AA shall appointanIRP within14 days frominsolvencycommencementdate. • No disciplinaryproceedingsshall bependingagainst • interim resolutionprofessional. • Boardshallwithin10daysof receiptofreferencefromAA, recommendthenameofaninsolvencyprofessionaltoAA againstwhomnodisciplinaryproceedingsare pending. • Managementoftheaffairs ofthecorporate debtorshall vestinIRP. • IRPhave powersimilartoBODofcompanyandshouldtakestepstomaintainvalueof assetsandconstitute Committee ofCreditors • The term of the IRP is for 30 days from the date of his appointment. • The IRP on receipt of all claims and other information, shall constitute the COC and prepare a Information memorandum. • The first meeting of COC shall be within 7 days of its constitution and will be conducted by IRP.

  49. PublicannouncementofIRP • The IRP within 3 days of his appoint shall issue the Public announcement. • Publicannouncementshallcontain following information • nameandaddressofthe corporatedebtor underthecorporateinsolvency resolutionprocess • nameoftheauthoritywithwhich thecorporatedebtor is incorporatedor registered • thelastdateforsubmissionofclaims • detailsofthe interimresolutionprofessional whoshall bevestedwith the managementofthecorporatedebtor and beresponsiblefor receivingclaims • penaltiesfor false or misleadingclaims • thedateonwhichthe corporateinsolvencyresolution • processshall close

  50. Actions Requiring Approval of Committee ofCreditors • Raiseany interimfinance beyondlimitdecidedbythe committee • Createany securityinterestover the assetsofthecorporatedebtor • Changethe capitalstructureofthecorporatedebtor • Recordany changeintheownershipinterest ofthe corporatedebtor • Spendamount beyondlimitsanctionedby creditorscommittee • Undertakeany relatedparty transaction • Amendanyconstitutionaldocumentsofthe corporatedebtor • Delegate its authoritytoany otherperson • Disposeoforpermitthe disposal ofshares • Makeany changeinthe management ofthecorporatedebtoror itssubsidiary • Transferrights orfinancialdebtsoroperationaldebtsundermaterialcontracts otherwisethan intheordinary courseofbusiness • Makechangesinthe appointmentortermsofcontract ofsuchpersonnelas specified bythe committeeofcreditors • Make changes inthe appointmentor terms ofcontractofstatutoryauditorsorinternal auditorsofthecorporatedebtor

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