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Slide1

Insolvency and Bankruptcy Code, 2016

Corporate Insolvency & Its Resolution Process – a Future perspective

Underneath

Slide2

Presentation by A. K. KuchhalManaging PartnerIndiaCorp 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 2015

Insolvency & Bankruptcy Code Introduced in

Lok

Sabha

on 21 Dec 2015

Passed 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 Code

Slide6

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 instrumentsTime – 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 Code

Slide8

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 Code

Slide10

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 & Liquidation

Slide11

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 Code

Slide12

Regulatory Mechanism under the Code

Slide13

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 LLP

DRT – In case of Individuals and Partnership Firms

The 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 India

Slide16

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 governance

Insolvency 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 Professionals

Slide18

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

Slide19

Insolvency Adjudication process

Slide20

Slide21

Insolvency Resolution & Bankruptcy for Companies & LLP

Slide22

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; orA 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; orA Corporate Debtor in respect of whom a liquidation order has been made.

Persons not

entitled

to make Application

Slide24

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 Debtor

Date of Admission of the Application is called Insolvency Commencement Date

PROCESS

…..

CONTINUED

Slide26

The Insolvency Process shall be completed within

180 days (single extension of 90 days)

Declaration by NCLT

Declare a Moratorium

Public Announcement after Appointment of Interim Resolution Professional

Appointment of Interim Resolution Professional within 14 days of receipt of Application

PROCESS ... CONTINUED

Slide27

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 ... CONTINUED

Slide28

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

..... CONTINUED

Slide29

NCLT shall, by order

Approve the Resolution Plan

Pass Liquidation Order

Reject the Resolution Plan

Appeal to NCLAT

PROCESS ..... CONTINUED

Moratorium ends

Slide30

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 with

Slide33

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 with

Slide34

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 with

Slide35

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

MORATORIUM

Slide36

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 debtor

MORATORIUM

Slide37

LIQUIDATION

Slide38

Initiation

of Liquidation

Slide39

Effect of Liquidation Order

Slide40

Liquidation Process

Slide41

Liquidation ProcessContd………

Slide42

Insolvency Resolution and Liquidation CostWorkmen'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 Liquidation

Sec 59 of the Code

Slide46

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 DefraudDocuments to be accompanied with DeclarationAudited Financial Statement Valuation Report of Assets

Voluntary Liquidation

Contd

….

Slide47

Special Resolution within 4 weeks of the DeclarationTo Liquidate the CompanyTo appoint the Insolvency Professional as Liquidator2/3rd 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 Liquidation

Contd

….

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 Authority

Voluntary Liquidation

Contd

….

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 PENALTIES

Slide50

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 Insolvency

Slide51

Code to help Revival or Wind up of Sick businessesCross-border insolvencyProtect workers of a bankrupt companyFast Track Corporate Insolvency Resolution ProcessVoluntary Liquidation of Corporate Persons, Firms and IndividualsConcept of operational creditor.Consolidation of Insolvency and Recovery jurisdictions.

Benefits

Slide52

A. K.

KuchhalC -154, Sector 51 Noida, 201301Ph.: 0120 – 4214372, Mob.: 9810894275 email: csaloknoida@gmail.com

52

Thank You

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