Prior to the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC), India had no singular law dealing with a company in financial distress. The legal framework was fragmented due to the existence of multiple acts (SICA, SARFAESI, RDDBFI). This led to unnecessary delays, confusion and conflicts. Its detrimental effects could be gauged from India’s low rank on the Ease of Doing Business Index in 2015. Therefore, the introduction of a code such as IBC, which codified laws relating to insolvency and bankruptcy was essential.
The IBC promotes entrepreneurship, protects the interests of all stakeholders and provides time bound resolution to insolvency proceedings. The provisions are applicable to Individuals, Unlimited Partnership Firms, Limited Liability Partnerships and Companies.
CORPORATE INSOLVENCY RESOLUTION PROCEDURE:
An application for the initiation of Corporate Insolvency Resolution Procedure (CIRP) can be initiated by:
- Financial Creditors
- Operational Creditors
- Corporate Applicant
CIRP has to be concluded within 180 days. It can be extended by 90 days, but has to be compulsorily concluded within 330 days. This ensures timely resolution of disputes. Recognizing the challenges of completing IBC processes as a result of the COVID-19 outbreak, by way of a notification dated April 20, 2020, the IBBI amended the CIRP Regulations to insert regulation 40C, which states that subject to provisions of the IBC, the period of lockdown imposed by the Central Government in the wake of the COVID-19 outbreak shall not be counted in the timeline of any CIRP activity that could not be completed due to the lockdown.
After approval of the application by the Adjudicating Authority (Here-NCLT), a moratorium is declared, followed by the appointment of the Interim Resolution Professional (IRP) and a public announcement. The Committee of Creditors, on the first meeting after their formation, appoint a Resolution Professional. The entire management of the Corporate debtor’s concern is first in the hands of the IRP, and then the RP. The Resolution Professional receives the resolution plan, and coordinates with the Committee of Creditors. On approval of this plan by the COC and the NCLT, the plan is implemented. However, if the plan is rejected by the COC, it leads to liquidation. In case of liquidation, a liquidator is appointed to carry out the liquidation process. It ends in dissolution of the Corporate Debtor.
The Corporate Debtors are also eligible for the Pre-Packaged Insolvency Resolution Procedure, in case of MSMEs. This is a type of restructuring in which the creditors and debtors enter into an informal agreement before submitting it for approval. This ensures faster resolution, which is one of the aims of the IBC.
Moreover, a corporate person may also apply for voluntary liquidation, subject to the fulfillment of the conditions laid out in Section 59(3) of the Code.
All appeals can be filed with the NCLAT. Further appeal can be made to the Supreme Court.
INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS:
The major difference between the insolvency proceedings of corporate persons and individuals & partnership firm is that the application by corporate persons is filed with NCLT whereas application by individuals & partnership firms is filed with DRT.
The application for insolvency resolution may be filed by the creditor or the concerned debtor himself. Once an application is filed with DRT for initiating insolvency proceedings, an interim moratorium is declared and a Resolution professional shall be appointed to carry forward and supervise the entire process. The RP will verify claims, and submit the report along with suggestions for admission or rejection to the DRT.
On admission, a moratorium is declared and a public notice is issued. The RP along with the debtor comes up with a repayment plan, which is subject to the approval of the creditors and the DRT. Approval of the same results in its implementation.
On time-bound and successful implementation of the approved repayment plan the resolution professional shall approach the concerned adjudicating authority for seeking a discharge order for debts as are mentioned in the repayment plan.
All appeals can be made to the DRAT.
Despite recent debates regarding the inefficiencies, the Code has improved insolvency resolution proceedings, and has streamlined and clearly defined the laws relating to insolvency and bankruptcy.
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