Insolvency and Bankruptcy Code (IBC) 2016

Insolvency and Bankruptcy Code (IBC) 2016

• The Insolvency and Bankruptcy Code, 2016(IBC) is an Indian law which creates a consolidated framework that governs insolvency and bankruptcy proceedings for companies, partnership firms, and individuals.

Key provisions under the act:

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:

1. The National Company Law Tribunal for Companies and Limited Liability Partnership firms; and
2. (ii) the Debt Recovery Tribunal for individuals and partnerships.

Procedure and Time Limit:

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).
• 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.

Syllabus: Prelims + Mains; GS III – Economy