Insolvencyand bankruptcy code2016
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The document discusses issues with existing insolvency mechanisms in India and proposes the Insolvency and Bankruptcy Code (IBC) as a solution. It notes that currently there is no single law dealing with insolvency and the process is very slow. The IBC aims to create a single law for insolvency and bankruptcy that establishes a time-bound process and maximizes value for creditors. The key features of the IBC discussed are establishing the National Company Law Tribunal to oversee proceedings, creating a resolution professional role to manage the process, and prioritizing repayment of debts. The IBC passed through parliament in 2016 and was intended to help reduce bad loans in the banking system and improve India's ease of doing
![• Order of Moratorium made by Adjudicating
Authority;
- Start from Date of Admission of
Application;
• Cease to effect
– Date of Approval of Resolution Plan or
Liquidation Order .
MORATORIUM
PERIOD
[sec 14(1)]
• Objective
Maximizing value of the Entity to Continue Operation
No additional stress on Business
- Supply of essential goods or services to the Corporate Debtor as
may be specified shall not be terminated or suspended or
interrupted
- Central Government in consultation with any financial regulator may
specify such transactions.](https://image.slidesharecdn.com/insolvencyandbankruptcycode2016-171219191325/85/Insolvencyand-bankruptcy-code2016-11-320.jpg)
Insolvencyand bankruptcy code2016
- 2. • Existing Mechanism – Inadequate & Ineffective : No single Law dealing with IB in India; overlapping jurisdiction • Painfully Slow Pace 136 1 5 13 27 55 0 20 40 60 80 100 120 140 160 Insolvency Resolution World Bank Ranking
- 3. 4.5 1.5 1 1 0.8 0.6 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 India United States United Kingdom Malaysia Singapore Japan RESOLUTION TIME - Takes 4.5 years to Wind Up an Existing Co. In years 92.90% 90.10% 83.70% 81.50% 36.20% 25.70% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% JAPAN FINLAND GERMANY USA CHINA INDIA RECOVERY RATE RECOVERY RATE
- 4. • Indian Bank – Neck Deep in Bad Gross NPA – 4 Lakh Crores & Huge amount of Restructured Loans Total Stressed Assets – 11% of Total Lending Bad Loans has grown from 3.49% (2013) to 8.3% (2015) Corporate Bad Loans – 56% - Bad Loans of India Bank. • Process Cost of Insolvency in India vis-a-vis- Other Countries • Ease of Doing Business – Easy Exit-- Where India Stands EASE OF DOING BUSINESS
- 5. 21.12.2015- IBC Bill of 2015 -introduced in LS 23.12.2015 - IBC Bill of 2015 - Referred to Joint Committee of both Houses of Parliament 28.04.2016- IBC Bill of 2015 -Joint Committee placed its Report to both Houses of Parliament 05.05.2016- IBC Bill of 2015 -passed by LS 11.05.2016- IBC Bill of 2015 -passed by RS 28.05.2016- IBC, 2016 -Assented by President of India & Notified
- 6. WHO CAN INVOKE Corporate Debtor (Sec.10) - A corporate person who owes a debt to any person Operational Creditor (Sec.9) - A person to whom an operational debt is owed & - Includes any person to whom such debt legally assigned or transferred Financial Creditor (Sec.7) - Any person to whom a financial debt is owed & - Includes a person to whom such debt legally assigned or transferred
- 7. • NCLT - Deal with insolvency matters of Co. & LLP - Appeal to NCLAT • Debt Recovery Tribunal - Deal with insolvency matters of individual & Partnership firm - Appeal as to DRAT Adjudicating Authority within 14 days of receipt of application, by an order - Admit the application Reject the application If it is complete If it is incomplete Adjudicating Authority shall before rejecting application, give notice to applicant to rectify defects in application within 7 days from the date of receipt of such notice Default occurred Default not occurred
- 8. DEFAULT In case of Co. & LLP In case of Partnership & Individual Minimum amount of ` 1 lakh Minimum amount of ` 1 thousand Minimum amount of ` 1 lakh & ` 1 thousand can be increased upto ` 1 Cr & ` 1 lakh respectively by CG Where any Company or LLP commits- A default in paying its Financial debt Operational debt Then a financial creditor/ operational creditor/ Company & LLP itself May file an application, for initiating corporate insolvency resolution process with the Adjudicating Authority.
- 9. 180 days 45 days (One time) 270 days Adjudicating Authority after admission of application shall, by an order Declare a Moratorium Cause a Public Announcement Appoint Interim Resolution Professional FAST TRACK : 90 days 90 days (Maximum) 135 days
- 10. • Adjudicating Authority shall by order prohibit the following: Institution/continuation/proceedings of suits including execution of any judgment, decree or order in any Court Transferring, encumbering, alienating or disposing of assets/legal right/beneficial interest Any action to Foreclosure, Recover or enforce any security interest created including any action under SARFAESI Act, 2002 Recovery of any property by owner or lessor where such property is occupied
- 11. • Order of Moratorium made by Adjudicating Authority; - Start from Date of Admission of Application; • Cease to effect – Date of Approval of Resolution Plan or Liquidation Order . MORATORIUM PERIOD [sec 14(1)] • Objective Maximizing value of the Entity to Continue Operation No additional stress on Business - Supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted - Central Government in consultation with any financial regulator may specify such transactions.
- 12. APPOINTMENT: Appointment by Adjudicating Authority within 14 days from Admission of Application Shall not exceed 30 days from date of Appointment Once IRP is appointed : Management of affairs of Corp. Debtor shall vest with IRP Powers of BOD/ Partners (LLP) shall stand suspended & will be exercised by IRP Officers & Managers of Corp. Debtor shall report to IRP FI maintaining accounts of Corp. Debtor shall follow instructions of IRP TENURE:
- 13. The Interim Resolution Professional shall - CS. ANIL MURARKA PRACTISING COMPANY SECRETARY Collate all claims Determine of financial position Constitute a Committee of Creditors– comprising of all Financial Creditors AND All decisions of Committee taken by vote of not less than 75% • Related Party: • If no Financial Creditor, CoC shall exercise with functions. • Shall not have any Right of Representation, Participation or voting • Position of Financial Creditor- Consortium Agreement : - Each Financial Creditor shall be the part of Committee. - Voting shares shall be on the basis of Financial Debts.
- 14. • Position of Financial Creditor when he is an Operational Creditor: shall be considered Financial Creditor to the extent of Financial Debts; Voting Shares to the extent of Financial Debts; Operational Creditor to the extent of Operational Debt; • Assignment of Operational Debt If an Operational Creditor has assigned or legally transferred any Operational Debt to a Financial Creditor, the Assignee of Transferee shall be considered as an Operational Creditor to the extent of such assignment or legal transfer. • Determination of Voting Share by Financial Creditor IBC Board may specify the manner of determining of voting share.
- 15. • Preparation of Information Memorandum for formulating a Resolution Plan • Providing to Resolution Applicant access to all relevant information • Resolution Applicant will submit a Resolution Plan to the Resolution Professional prepared as per Information Memorandum • Examination of Resolution Plan • Presentation of RP to CoC for Approval • Submitting Resolution Plan to Adjudicating Authority • Adjudicating Authority may by order approve the Resolution Plan; • Moratorium Period ends • R P will be binding on the Corp. Debtor, its Employees, Members, Creditors, Guarantors & other Stakeholders • If Resolution Plan not approved or - Not ready within 180 days or - Adjudicating Authority rejects the Resolution Plan • It will pass a Liquidation Order. • R P will act as a Liquidator and all the powers of the Board of Directors will vest with the Liquidator
- 16. INSOLVENCY & BANKRUPTCY BOARD OF INDIA INSOLVENCY PROFESSIONAL AGENCY INFORMATION UTILITY
- 17. The following debts will be paid in PRIORITY given below: Insolvency Resolution Cost & Liquidation Cost; Debts to Secured Creditor (who have relinquished their security interest) & Workmens’ dues (for 24 months before commencement); Wages & Unpaid Dues to employees (other than workmen) (for 12 months before commencement); Financial Debts to Unsecured Creditors; Workmen’s Dues for earlier period; Crown Debts and Debts to Secured Creditor following Enforcement of Security Interest; Remaining Debts; Preference Shareholders; Equity Shareholders or partners.
- 18. Time bound settlement of Insolvency. Banks & Asset reconstruction companies immediate gainers Comprehensive coverage- Companies, LLP, Individuals & more can be added Database of Serial Defaulters Protect workers
- 19. Not a Magic wand – Benefits will follow after 3-5 years from now. To create Large pool of Insolvency Professionals. Draft Procedural Rules for • Insolvency Professionals • Information Utilities Establishment of several new institutional mechanisms. High value of Performance Bond Order of priority to Distribute Assets • Secured Creditors – why not upto Collateral Value? • Unsecured creditors have priority over Trade Creditors? • Government Dues – after unsecured creditors ? Formation of Multiple Information Utilities – Information about a Company may not be available through a Single IUs • Insolvency & Bankruptcy Fund- manner of usage of the Fund ?
- 20. • Interim Resolution Professional • Resolution Professional • To prepare Resolution plan • To Represent - Financial Creditor; - Operational Creditor; - Corporate Debtor before NCLT- DRT & NCLAT- DRAT • To represent the Winding Up cases before the Tribunal • To prepare scheme & seek approval from Tribunal for Revival & Rehabilitation of Sick Cos.
- 21. Compete with Best BRAIN Learn Art of DRAFTING; ADVOCACY; PLEADING Prove our COMPETENCIES Expectation of CLIENTS
- 23. Thank You … 23 WE CAN’T SAY - WE DON’T HAVE ENOUGH TIME . WE HAVE EXACTLY THE SAME NUMBER OF HOURS PER DAY THAT WERE GIVEN TO LATE DHIRUBHAI AMBANI, LATE JAMSHEDJI TATA, SHRI NARAYANA MURTHY, SHRI AZIM PREMJI, SHRI SUNIL BHARTI MITTAL & NARENDRA MODI - A CHARISMATIC LEADER