Insolvency and Bankruptcy Code, 2016 - PowerPoint Presentation

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Insolvency and Bankruptcy Code, 2016

Corporate Insolvency & Its Resolution Process – a Future perspective

UnderneathSlide2

Presentation by

A. K. Kuchhal

Managing Partner

IndiaCorp LawCorporate Consultants and AdvocatesIn association with M/s A. K. Kuchhal & Co., Company Secretaries Slide3

Background

At present the individual and corporate bankruptcy is governed by a host of legislations making the procedure quite complex and cumbersome. The Insolvency and Bankruptcy Code, 2016, however is a consolidated single code that will govern insolvency and bankruptcy proceedings in the future.The Insolvency and Bankruptcy Code is a new generation law that provides efficient revival mechanism and also throws challenges in the form of capacity building, harmonization of various laws, creation of insolvency professionals, development of regulatory platform and so on. Slide4

Journey So Far

Vishwanathan Committee constituted on 22 August 2014 which provided its final Report on 04 November 2015.MOF invited Comments in Nov 2015Insolvency & Bankruptcy Code Introduced in

Lok

Sabha on 21 Dec 2015Passed by Lok Sabha on 05 May 2016.Passed by Rajya Sabha on 11 May 2016.Finally, the Code received the Presidents Assent on 28 May 2016.Slide5

Code has 255 sections divided into 5 parts as below-

Part I - Preliminary (section 1-3)Part II - Insolvency resolution and liquidation for corporate bodies

(Section 4-77)

Part III - Insolvency resolution and bankruptcy for individuals and partnership firms (Section 78-187)Structure of the CodeSlide6

Part IV -

Regulation of Insolvency Professionals, Agencies and Information Utilities (Section 188-223) Part V

-

Miscellaneous (Section 224-225)Schedule - Eleven Schedules(Schedules provide for amendments to be carried out in other statues such as Companies Act, 2013 etc )Slide7

To Resolve Insolvency

with Lesser Time Involved, Lesser Loss in recovery and higher level of Debt financing across instruments

Time – bound resolution of insolvency and bankruptcy

processSingle consolidated legal framework for insolvency and bankruptcy resolution dealing with Body Corporate, Partnership Firms and Individuals;Objective of the CodeSlide8

Empowers all class of Creditors (Secured

& Unsecured Lenders, employees, Trade Creditors, Regulatory authorities) to trigger a Resolution process in case of non payment of a valid claim.

The Code also ensures that, when the negotiations fail to establish viability, the outcome of bankruptcy must be binding

.Objectives…............... Contd.Slide9

“Code” is usually known as a collection or compendium of Laws.

It refers to a systematic and comprehensive compilation of laws, rules or regulation that are consolidated and classified according to a particular subject matter.Why it’s CodeSlide10

Insolvency is the inability of a person or corporation to pay their Debts as and when they become due and payable.

Bankruptcy is when a person is declared incapable of paying their due and Payable bills.Liquidation is the process of winding up a corporation or incorporated entity.

Insolvency, Bankruptcy & LiquidationSlide11

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

Any other company governed by any special Act for the time being in force.

Limited Liability Partnership incorporated under the Limited Liability Partnership Act, 2008.

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

Partnership firms and individuals.

Applicability of CodeSlide12

Regulatory Mechanism under the CodeSlide13

Regulatory Mechanism…Slide14

Adjudication Authorities

Adjudication Authority is a Body that would have exclusive jurisdiction to deal with Insolvency matters, Which is NCLT – In case of Companies and LLPDRT – In case of Individuals and Partnership FirmsThe Code also provide for appeal to Appellate tribunal against the Order of Adjudication Authority, which is NCLAT & DRAT respectively.Slide15

IB Board

as established u/s 188 (1) 0f the Code. It would consist of Members including representatives from MCA, MOF, RBI and would regulate the appointment of Insolvency Professional Agencies, Insolvency Professionals and Information Utilities.Insolvency & Bankruptcy Board of IndiaSlide16

As per Section 3(20) any person registered with the Board as an 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 governanceInsolvency Professional Agencies(Chapter III and Chapter IV of Part IV)Slide17

As per Section 3(19) any person

enrolled u/s 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional u/s 207.IP are professionals who are member of insolvency agency who would take the role of Resolution professional or Liquidator / Bankruptcy trustee in an insolvency resolution process.Insolvency ProfessionalsSlide18

Section 3(21) means a person registered with Board as Information Utility u/s 210

IU are specialised licensed bodies which would collect, maintain and disseminate Information relating to the Indebtedness of Companies.Any Person (financial creditor /operational creditor ) can submit/ access the financial information from the Information Utilities.

Information UtilitiesSlide19

Insolvency Adjudication processSlide20
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Insolvency Resolution & Bankruptcy for Companies & LLPSlide22

Financial Creditor

As per Section 5(7) of IBC “financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; Operational Creditor As per Section 5(20) “operational creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred Corporate Debtor itself As per section 3(8) of the IBC “corporate debtor” means a corporate person who owes a debt to any person;

*

Person includes a person resident outside India Persons who may Initiate...Slide23

A Corporate Debtor undergoing a corporate insolvency resolution process; or

A Corporate Debtor having completed corporate insolvency resolution process twelve months preceding the date of making of the application;

A Corporate Debtor or a financial creditor who has violated any of the terms of resolution plan which was approved twelve months before the date of making of an application under this Chapter; or

A Corporate Debtor in respect of whom a liquidation order has been made. Persons not entitled to make ApplicationSlide24

Initiation of Corporate Insolvency Process

Application to National Company Law Tribunal (NCLT)

NCLT shall within 14 days of receipt

PROCESS IN GENERAL Slide25

Admit the Application if it is complete

Rejects the Application if it is incomplete

NCLT shall

With in 7 days of acceptance or rejection give notice to Applicant & to Corporate DebtorDate of Admission of the Application is called Insolvency Commencement Date

PROCESS

…..

CONTINUEDSlide26

The Insolvency Process shall be completed within

180 days (single extension of 90 days)

Declaration by NCLT

Declare a MoratoriumPublic Announcement after Appointment of Interim Resolution ProfessionalAppointment of Interim Resolution Professional within 14 days of receipt of Application

PROCESS

...

CONTINUEDSlide27

Constitution of committee of creditors, comprising of all financial creditors

In their 1

st

meeting within 7 days of the constitution(section 22(1)) PROCESS ... CONTINUEDSlide28

Resolve to appoint Interim Resolution Professional as Resolution Professional

Replace the Interim Resolution Professional by another Resolution Professional

or

All decision of the committee shall be taken by a vote of not less than 75 % of voting share of financial creditor

Preparation of information memorandum by resolution professional for formation of resolution plan

Submission of resolution plan to NCLT

PROCESS

..... CONTINUEDSlide29

NCLT shall, by order

Approve the Resolution Plan

Pass Liquidation

OrderReject the Resolution PlanAppeal to NCLAT

PROCESS

.....

CONTINUED

Moratorium endsSlide30

SPECIFIC ISSUES…..Slide31

Minimum Amount of the default required Rs 1,00,000.

Which can be extended to Rs. 1,00,00,000

by Central Government. ELIGIBILITY for Financial Creditor Slide32

Financial

Creditor Record of the Default recorded with the Information Utility

The name of the resolution professional proposed to act as an interim resolution professional

An Application shall be made to Adjudicating Authority , Along withSlide33

Operational Creditor

A Copy of Demand Notice delivered to Corporate Debtor

An Affidavit that no notice given by Corporate

Debtor a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor.An Application shall be made to Adjudicating Authority , Along withSlide34

Corporate Debtor

Books of Account The resolution professional proposed to be appointed as an interim resolution professional.

An Application shall be made to Adjudicating Authority ,

Along withSlide35

The Code Provides for an automatic moratorium of 180 days against any debt recovery actions by the Creditors. The Moratorium can only be extended by a further period of 90 days in exceptional circumstances.

The period of moratorium would be excluded for computation of period of limitation

MORATORIUMSlide36

It Includes –

Institution/Continuation of suit or proceedings against the corporate debtor

Transferring or disposing off any asset by the corporate debtor

Recovery of any property by an owner where property is occupied/ is in possession of corporate debtorMORATORIUMSlide37

LIQUIDATIONSlide38

Initiation

of LiquidationSlide39

Effect of Liquidation OrderSlide40

Liquidation ProcessSlide41

Liquidation Process

Contd………Slide42

Insolvency Resolution and Liquidation Cost

Workmen's dues ( for the period of 24 months preceding the liquidation commencement date) and Secured CreditorWages and any unpaid dues owed to employees, other than workmen (for the period of twelve months preceding the bankruptcy commencement date)

Central and state government dues.

Unsecured Creditors Priority of payment of Debts.Slide43

FAST TRACK CORPORATE INSOLVENCY RESOLUTION

PROCESS(Chapter IV of Part II)Slide44

FAST TRACK CORPORATE INSOLVENCY RESOLUTION

PROCESSContd….Slide45

Section 59 of the Code provides for the initiation of voluntary liquidation proceedings by the corporate debtor which has not defaulted on any debt due to any person A corporate debtor, being a company may choose to be wound up voluntarily.

Voluntary LiquidationSec 59 of the CodeSlide46

Declaration of Solvency

by majority Directors via Affidavit statingThe Company has no debts an is able to pay existing Debt.Purpose of Liquidation is not to Defraud

Documents

to be accompanied with DeclarationAudited Financial Statement Valuation Report of AssetsVoluntary LiquidationContd….Slide47

Special

Resolution within 4 weeks of the DeclarationTo Liquidate the CompanyTo appoint the Insolvency Professional as

Liquidator

2/3rd majority of Creditors shall approve Special Resolution within 7 DaysInitiation of Liquidation from the date of passing SR.Approval of creditors must be obtained within 7 days of resolution if the company owes any debt.Voluntary LiquidationContd….Slide48

Inform

ROC and the Board within 7 days of approval by Shareholders or Creditors as the case may be.Liquidation Process – Liquidation estate, Claims, Admission, Assets, Payments of debts etc.Liquidator to make Application

the

AA to pass dissolution order on completion of the LiquidationAA to pass an order of Dissolution and the order shall be forwarded (within 14 days) to the Authority where Corporate person is registered.*AA = Adjudication AuthorityVoluntary LiquidationContd….Slide49

PENALTIES

prescribed for: Concealment of Property Undertaking Transactions defrauding Creditors Misconduct in course of Corporate Resolution Insolvency process

Falsification of Books of Corporate Debtor

False representation to Creditors Contravention of Moratorium or Resolution Plan Non-disclosure of dispute or repayment of debt by operational creditorIMPRISONMENT for a term of 3-5 years or Monetary penalty in the range of INR 1,00,000 – 1,00,00,000 or both. OFFENCES AND PENALTIESSlide50

The

Central Government may enter into an agreement with the Government of any country outside India to enforce the provisions of the Code in relation to the assets or property of corporate debtor or debtor, including personal guarantor of a corporate debtor, situated in a country outside India. Cross Border InsolvencySlide51

Code to help Revival or Wind up of Sick businesses

Cross-border insolvencyProtect workers of a bankrupt companyFast Track Corporate Insolvency Resolution Process

Voluntary Liquidation of Corporate Persons, Firms and Individuals

Concept of operational creditor.Consolidation of Insolvency and Recovery jurisdictions. BenefitsSlide52

A. K.

Kuchhal

C

-154, Sector 51 Noida, 201301

Ph.: 0120 – 4214372,

Mob.:

9810894275

email

: csaloknoida@gmail.com

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Thank You