Guide to The Insolvency and Bankruptcy Code 2016

Guide to The Insolvency and Bankruptcy Code 2016

Guide to The Insolvency and Bankruptcy Code 2016

Insolvency and Bankruptcy Code, 2016 (Code) provides for a specialised forum to oversee all insolvency and liquidation proceedings for individuals, SMEs and corporates.

It empowers all classes of creditors (secured and unsecured lenders, employees, trade creditors, regulatory authorities) to trigger a resolution process in case of non payment of a valid claim.

Provides for immediate suspension of the Board of Directors and promoters’ powers.

Provides for an insolvency professional to take control of the Corporate debtor.

Enables a ‘stand-still period’ which provides stakeholders time to facilitate discussions and arrive at a common resolution rather than running independent processes.

Offers a finite time limit within which the debtor’s viability can be assessed and a resolution process agreed. The power of commercial decision to revive or liquidate the Company is on the creditors rather than the courts.

Provides for a balanced approach between rehabilitation and recovery and provides for compulsory liquidation of corporate debtors in the event the resolution has not been agreed within 180 days of the resolution process.

Aims to develop a detailed and accessible information system to reduce information asymmetry between the various participants of the insolvency process.

Provides for a clearly-defined waterfall mechanism for payment of debt in the event of a liquidation.


Who can file for corporate insolvency resolution?

Financial Creditor

 Person to whom ‘Financial debt’ is owed, and includes a person to whom such debt may have been legally assigned or transferred in accordance with law (including a person residing outside India). Default may be in respect of Financial debt owed to any Financial creditor of the corporate debtor and not only the applicant Financial creditor.

Operational Creditor

 Person to whom ‘Operational debt’ is owed and includes any person to whom such debt may have been legally assigned or transferred;

Corporate Debtor

 Shareholder of the entity, an individual who is in charge of managing the overall operations, a person who has the control, supervision or oversight of the financial affairs of the corporate debtor;

The Code prescribes penalties for false and frivolous petitions.


Who appoints the resolution professional (“RP”)?

Financial creditors filing the petition should propose the name of interim resolution professional in the petition.

The interim resolution professional’s appointment will be subsequently approved  by the creditors by value in the first creditors committee meeting. Fees of  RP to be decided by creditors committee.

The creditors committee may appoint a new RP subject to the approval of the IB Board. The replacement of existing RP cannot be without cause and needs to be approved by the IB Board.

It is optional for Operational creditors to propose the name of RP in the petition. If no RP is proposed, the AA may recommend the name of interim RP which needs to be approved by creditors in the creditors meeting.

Powers of RP

The management of the affairs of the corporate debtor shall be vested on the interim resolution professional.

The powers of the board of directors shall be suspended and be exercised by the interim resolution professional.

The officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be demanded by the interim resolution professional.

Management of the company needs to support the RP in performing his/her duties.

The interim resolution professional shall have immunity from criminal prosecution and any other liability for anything done or omitted to be done in good faith in the discharge of his/her duties as an insolvency resolution professional under the Code.


Duties of RP

To collect all information relating to the assets, finances and operations of the corporate debtor for determining its financial position

To receive and collate all the claims submitted by creditors to him/her

To constitute a committee of creditors

Take custody of assets and monitor the assets.

Share Us On Your Networks

Leave a Reply

Your email address will not be published. Required fields are marked *