Background
Prior to the IBC, the legislative framework for insolvency and restructuring was fragmented across multiple legislations, such as theHistory
On 22 August 2014, the Ministry of Finance created the Bankruptcy Legislative Reforms Committee (BLRC). The committee was headed byEarly cases
The first insolvency resolution order under this code was passed by National Company Law Tribunal (NCLT) in the case of ''Synergies-Dooray Automotive Ltd'' on 14 August 2017. The plea for insolvency was submitted by company on 23 January 2017. The resolution plan was submitted to NCLT within a period of 180 days as required by the code, and the approval for the same was received on 2 August 2017 from the tribunal. The final order was uploaded on 14 August 2017 on the NCLT website.Key Provisions
Insolvency Resolution : The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree. For start ups (other than partnership firms), small companies and other companies (with asset less than Rs. 1 crore), resolution process would be completed within 90 days of initiation of request which may be extended by 45 days. The Insolvency and Bankruptcy Code (Amendment) Act, 2019 has increased the mandatory upper Time limit of 330 days including time spent in legal process to complete resolution process. Insolvency regulator: The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it. The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the Reserve Bank of India. Insolvency professionals: The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process. Bankruptcy and Insolvency Adjudicator: The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies: (i) the National Company Law Tribunal for Companies and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.Procedure
Time Limit
The IBC envisions that the entire CIRP process must take place within 180 days of the admission of the application. A CIRP must be mandatorily completed within 330 days, including any extension or litigation period.Initiating the CIRP
In the case of a corporate debtor, an application for insolvency proceedings must be submitted to the Adjudicating Authority (AA), which is the NCLT. The application may be filed by a financial creditor (Section 7), an operational creditor (Section 9), or the corporate debtor (Section 10) itself. Section 11 enumerates the persons ''not entitled'' to make an application, such as corporate debtor who was in a CIRP at the time of the application, or had been in one recently. The maximum time allowed to consider the application is 14 days. If the application is allowed, the AA: (i) declares a moratorium; (ii) causes a public announcement of the CIRP process and calls for the submission of claims; and (iii) appoints an Interim Resolution Professional (IRP).Moratorium
On the date on which the insolvency commences, a ''moratorium'' is declared, and it remains in force until the end of the CIRP. The CIRP ends, either when the AA approves a resolution plan under Section 31(1), or when it passes a liquidation order under Section 33. The moratorium ensures that the CIRP has a free-rein and is the only mechanism through which claims are settled. It bars the institution of litigation against the corporate debtor, while at the same time suspending the corporate debtor's ability to move, sell, or transfer any of its assets. It bars actions both ''by'' and ''against'' the coporate debtor. However, the moratorium has certain exceptions, such as Section 14(2A), which allows the IRP to continue to supply of such goods and services as it considers necessary to preserve the value of the corporate debtor. For the said period, the board of directors of the company stands suspended, and the promoters do not have a say in the management of the company. The IRP, if required, can seek the support of the company's management for day-to-day operations. If the CIRP fails in reviving the company, the liquidation process is initiated.Amendments
* 2017 Amendment prohibits certain persons from submitting a resolution plan in case of defaults. These include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing debt for over a year, and (iii) disqualified directors, among others. Further, it bars the sale of property of a defaulter to such persons during liquidation.High-value cases
References
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