REGULATORY             2018-05-18

Insolvency and Bankruptcy Code (IBC), 2016

The IBC provides a balanced approach between resolution & recovery and compulsory liquidation. The whole process or proceedings get resolved within a stipulated time frame

Insolvency and Bankruptcy Code (IBC), 2016 - The New Insolvency Code             

The Insolvency and Bankruptcy Code (IBC) aims at promoting entrepreneurship, increasing availability of credit, maximization of value of assets through an effective resolution of debts through negotiations while ensuring that the Company carries on business as a going concern. The focus is also on time bound resolution so that the value of the assets is not lost and interest of all stakeholders are preserved.

The IBC has been enacted to merge the existing laws related to insolvency and bankruptcy. We had numerous Acts to govern Insolvency and bankruptcy issues such as the Sick Industrial Companies (special provision) Act, 1985 (“SICA”), SARFAESI Act, 2002, the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (“RDDBFI Act”), Companies Act, 1956/2013.  There was no common regulatory authority to regulate the rights of the secured or unsecured creditors, employees etc. or to determine the priority of their claims.   Results of these regulations were far from satisfactory due to multiple judicial forums dealing with the issue under different acts resulting in lack of clarity and certainty of jurisdiction.

The IBC provides a balanced approach between resolution& recovery and compulsory liquidation. The whole process or proceedings get resolved within a stipulated time frame. It also provides a well defined waterfall mechanism for payment of debt in the event of liquidation.

The IBC will also regulate Insolvency Professionals and Insolvency Professional Agencies. These agencies will develop professional standards, codes of ethics and exercise a disciplinary role.The IBC code clearly specifies functions and obligations of the Insolvency Professionals which makes them ‘polestars’ of any insolvency system. The complexity of insolvency system requires that that there are sufficient number of insolvency professionals who are duly qualified and possess skills to strike an equilibrium between commercial reality with legal obligations to safeguard the entitlements of stakeholders.

 Under the IBC Information Utilities will be set upwhich would collect, collate, authenticate and disseminate financial information from listed companies as well as financial and operational creditors.Timely collation and dissemination of information would facilitate the resolution process. 

The IBC is going to improve the situation in the following manner:

  • Reducing the time taken in resolving insolvency cases
  • Very clear unambiguous process to be followed under the CIRP by all stake holders
  • Collective rehabilitation and recovery process by the joint efforts of all the Creditors
  • Granting moratorium to the corporate debtor to ensure smooth resolution process
  • Taking over the management of Corporate Debtor by the Insolvency Professional will ensure that it is run professionally during CIRP period
  • Open bid of Resolution plans improves maximization of the recovery
  • Clear cut waterfall mechanism of priority of distribution will ensure transparent distribution of realizations
  • Address NPAs issue and unlocks enormous wealth

The IBC is a welcome overhaul which has directly addressed in resolving the insolvency and bankruptcy issues of corporate debtors and simultaneously serving creditors and public financial institutions by helping them in recovery of bad and distress loans and ultimately tackling Non Performing Assets.

Key Participants in Insolvency Process

National Company Law Tribunal (NCLT): The National Company Law Tribunal is a quasi-judicial body in India that adjudicates issues relating to Indian companies, which inter-alia include Insolvency cases also.

National Company Law Appellate Tribunal (NCLAT): NCLAT is the appellate authority constituted under Section 410 of the Companies Act, 2013 inter-alia for hearing appeals against the orders of NCLT.

Insolvency & Bankruptcy Board of India(IBBI): is the regulator for overseeing   insolvency proceedings and entities like Insolvency Professional Agencies (IPA), Insolvency Professionals (IP) and Information Utilities (IU) in India

Information Utility(IU):An Information Utility is a professional organization registered with IBBI that will collect financial information, get the same authenticated by other parties connected to the debt & store the same and provide access to the Resolution Professionals, Creditors and other stake holders.

Insolvency Professional Agency (IPA): IPA is an agency registered with Insolvency and Bankruptcy Board of India to enroll and regulate the members practicing as Insolvency Professionals (IPs) in accordance with the provisions of the Insolvency and Bankruptcy Code.

Insolvency Professional (IP): IP is someone who is licensed and authorized to act as Insolvency Professional in relation to insolvency ofindividual, partnership or company.

Insolvency Professional Entity (IPE): IPE is an entity registered under IBC for providing support services in relation to Insolvency of individual, partnership or company

Financial Creditor (FC): FC is a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred.

Operational Creditor (OC): OC is a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred