IBC (Insolvency and Bankruptcy Code) -IOD.pptx

IBC (Insolvency and Bankruptcy Code) -IOD

1. 1 RRR CHAMBERS Email ID- [email protected] RRR Chambers - [email protected]

2. Coverage of the Act ? 2 RRR Chambers - [email protected]

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4. Journey of the Code 4 RRR Chambers - [email protected]

5. Any Company incorporated under the Companies Act, 2013 or under any provisions Any other Company governed by any Special Act Any LLP incorporated under the LLP Act, 2008 Any other body, as notified by the Central Government Partnership Firms Individuals AP P LICABI L ITY 5

6. Objectives ? 6 RRR Chambers - [email protected]

7. OB J ECTIVES The objective of the new law is to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner IBC proposes a paradigm shift from the existing ‘Debtor in possession’ to a ‘Creditor in control’ regime IBC aims at consolidating all existing insolvency related laws as well as amending multiple legislation including the Companies Act. 7 RRR Chambers - [email protected]

8. The code would have an Overriding Effect on all other laws relating to Insolvency & Bankruptcy. The code aims to Resolve Insolvencies In A Strict Time-bound Manner - the evaluation and viability determination must be completed within 180 days. Moratorium period of 180 days (extendable upto 270 days) for the Company. Insolvency professional to take over the management of the Company. OB J ECTIVES 8 RRR Chambers - [email protected]

9. What is Insolvency and Bankruptcy code ? 9 RRR Chambers - [email protected]

10. INTRO D UCTION The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to CONSOLIDATE the existing framework by creating a single law for insolvency and bankruptcy. An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto 10 RRR Chambers - [email protected]

11. Inception of Insolvency and Bankruptcy Laws in India ? 11 RRR Chambers - [email protected]

12. Inception of Insolvency Laws in India P r e s i dency Towns In s o l vency Act, 1909 Provincial In s o l vency Act, 1920 SICA, 1985 RDDBI, 1993 S A R F A E S I , 2002 C O M P A N I ES ACT, 2013 IBC, 2016 12 RRR Chambers - [email protected]

13. 2 Basic Terminologies 13 RRR Chambers - [email protected]

14. What is a CODE ? “Code” is usually known as a collection or compendium of laws. It refers to a systematic and comprehensive compilation of laws, rules or regulations that are consolidated and classified according to a particular subject matter. 14 RRR Chambers - [email protected]

15. Why Code was needed? 15 RRR Chambers - [email protected]

16. 16 RRR Chambers - [email protected]

17. What lead to enactment of the Code? 17 RRR Chambers - [email protected]

18. Regime of Insolvency in India For individuals As old as a century The Presidency Towns Insolvency Act, 1909 The Provincial Insolvency Act, 1920 this included insolvency as proprietors too For corporates The provisions of the 1956 Act were as old as 6 decades LLP Act, 2008 for closure of LLPs MSME Development Act, 2006 also registers a MSME but has no framework for closure of MSMEs. 18 RRR Chambers - [email protected]

19. 7 SARFAESI Act, 2002 Enforcement of security interest without intervention of any authority. The stake of stakeholders other than the concerned creditor gets diluted. Recovery of debts due to Banks and Financial Institutions Act, 1993 Grants special rights to unsecured creditors for recovery of defaulted debts. Sick Industries Companies (Special Provisions) Act, 1985 Revival of sick companies Applicable to industrial companies only The moratorium provision under SICA was used by defaulters to keep the creditors at bay. Other informal frameworks by RBI Regime of Insolvency in India 19 RRR Chambers - [email protected]

20. Some statistics 8 Ease of doing business Rank 2017 5 10 15 20 25 Recovery Rate (in %) 1 00 90 80 70 60 50 40 30 20 10 Cost of liquidation (in %) 1 .5 1 .5 .8 1 .8 4 2 4 .3 1 .7 2 .1 4 . 5 4 3 . 5 3 2 . 5 2 1 . 5 1 . 5 5 Time taken for liquidation (in years) 7 8 2 15 22 123 40 130 78 74 1 40 1 20 1 00 80 60 40 20 12 10 4 8 7 12 9 22.7 18 13 88.6 78.6 88.7 82.8 87.4 38.6 26 36.9 35.1 15.8 20

21. What are the crux points of IBC? 21 RRR Chambers - [email protected]

22. 22 RRR Chambers - [email protected]

23. Why IBC for India ? 23 RRR Chambers - [email protected]

24. IBC FOR INDIA India currently ranks 136 out of 189 countries in the World Bank's index on the ease of Resolving Insolvencies. Ease of Doing Business The Code promises to bring about far-reaching reforms with a thrust on Creditor Driven Insolvency Resolution. It aims at early identification of financial failure and Maximizing The Asset Value Of Insolvent Firms. 24 RRR Chambers - [email protected]

25. Manifold laws & forums BIFR SICA 1985 INDUSTRIAL SICKNESS SARFAESI Act, 2002 RECONSTRUCTION OF FINANCIAL ASSETS REGULATE SEC U RITIS A TION S.3(1) Recovery of Debts Due to Banks and Financial Institutions Act, 1993 To attain obje c t i ves Of SARFAESI Act. 25 RRR Chambers - [email protected]

26. Structure of the Act ? 26 RRR Chambers - [email protected]

27. Applicability Applicable To All Kinds Of: Corporate Enterprises; Limited Liability Partnerships; Partnership Firms; and Individuals. STRUCTURE OF ACT Scope Relates to: Insolvency; Liquidation; Voluntary Liquidation (solvent insolvency); and Bankruptcy 27 RRR Chambers - [email protected]

28. STRUCTURE OF ACT In entirety, the Code has 255 sections which are divided into 5 Parts as given below Part V Miscellaneous (enables amendments in other statues such as Companies Act 2013) Part IV Regulation of Insolvency Professionals, Agencies and Information Utilities Part II Insolvency Resolution and Liquidation for Corporate Persons Part I Preliminary (Defin i t i on s ) Part III Insolvency Resolution and Bankruptcy for individuals and Partnership Firms 28 RRR Chambers - [email protected]

29. Key points of IBC ? 29 RRR Chambers - [email protected]

30. Corporate Debtor (Sec.10) - A corporate person who owes a debt to any person Financial Creditor (Sec.7) - Any person to whom a financial debt is owed & - Includes a person to whom such debt legally assigned or transferred Operational Creditor (Sec.9) - A person to whom an operational debt is owed & - Includes any person to whom such debt legally assigned or transferred WHO CAN INVOKE? 30 RRR Chambers - [email protected]

31. KEY POINTS 1. Corporate Debtors: Two-Stage Process The Insolvency Resolution Process (IRP) Liquidation 22. Insolvency Resolution Process for Individuals/Unlimited Partnerships 3. Institutional Infrastructure The Insolvency Regulator Insolvency Resolution Professionals Information Utilities Adjudicatory authorities 31 RRR Chambers - [email protected]

32. Who are the role players ? 32 RRR Chambers - [email protected]

33. Regulator Insolvency and Bankruptcy Board of India (IBBI) Insolvency Professional Agencies; Insolvency Professionals; and Information Utilities ROLE PL A YERS 33 RRR Chambers - [email protected]

34. Adjudicator ROLE PL A YERS National Company Law Tribunal Debt Recovery Tribunal Corpo r ate Entities Companies /LLPs Non-Corporate Entities Individuals and Partnership Firms 34 RRR Chambers - [email protected]

35. Impact on other laws after the IBC? 35 RRR Chambers - [email protected]

36. Post IBC - Inter-play between SICA, RDDBI, SARFAESI and IBC After IBC being notified and SICA Repeal Act in force, BIFR has been dissoluted and the new cases are being handled by NCLT . All pending matters before BIFR are abated as the sickness/ insolvency criterion in IBC is very different from what is in SICA SARFAESI & RDDBI will hold the same force. But now secured creditors can approach under both SARFAESI and IBC as they found suitable. Now Adjudicating Authority for the individuals will be DRT while the NCLT will be governing issues for corporate person. B y vir t ue o f IBC the V o l u ntary W i n di n g U p P r ocedu r e h a s be e n shifted from Companies Act to IBC. 36 RRR Chambers - [email protected]

37. Creditors willingness Options to creditors secured c r edito r s unsec u r ed creditors I n dividu al remedies Co l lective remedies Enforcement of security right Monet a ry claim Resolution Liquidation 37

38. What is the process of Resolution? 38 RRR Chambers - [email protected]

39. Resolution Process includes…. 39 RRR Chambers - [email protected]

40.  NCLT Deal with insolvency matters of Co. & LLP Appeal to NCLAT  Debt Recovery Tribunal Deal with insolvency matters of individual & Partnership firm Appeal as to DRAT Adjudicating Authority within 14 days of receipt of application, by an order - Admit the application Reject the application If it is complete If it is incomplete Adjudicating Authority shall before rejecting application, give notice to applicant to rectify defects in application within 7 days from the date of receipt of such notice Default occurred Default not occurred ADJUDICATING AUTHORITY 40

41. Management of affairs of Corp. Debtor shall vest with IRP Powers of BOD/ Partners (LLP) shall stand suspended & will be exercised by IRP Officers & Managers of Corp. Debtor shall report to IRP FI maintaining accounts of Corp. Debtor shall follow instructions of IRP APPOINTMENT: Appoint m e n t by A d j u dic a t i n g Authorit y withi n 14 d a ys from Admission of Application TENURE: Shall not exceed 30 days from date of Appointment Once IRP is appointed : INTERIM RESOLUTION PROFESSIONAL 41 RRR Chambers - [email protected]

42. 180 days 45 days (One time) 270 days Adjudicating Authority after admission of application shall, by an order Declare a Mora t ori u m Cause a Public Announcement Appoint Interim Resolution Professional FAST TRACK : 90 days 90 days (M a x i mu m ) 135 days 23 42 RRR Chambers - [email protected]

43. CIRP: In brief Filing of application to NCLT Admission of application 3 Public a n n ou n c e m e n t 14 –ve 14 Appointment of IRP and declaration of moratorium Appoint 2 r e g i s t e r ed valuers Creditors to submit their claims 7 21 23 Submission of records to NCLT 30 First C om m i t t ee IRP to verify of Creditors claims meeting 44 Circulation of Information m e m o r a n du m 150 Submission of Resolution Plan to RP Approval of plan by Committee of creditors Submission of plan to NCLT 180 Acceptance / Rejection of plan by NCLT 43 RRR Chambers - [email protected]

44. CIRP: Phase I 31 Financial Creditor Operational Creditor Corporate Applicant Filing of application on occurrence of default; Based on the information from IU, other financial creditor may file an application as well - Deliver a default notice to the corporate debtor on occurrence of default - Filing of occurrence of default Alongwith the application, to furnish record of default and propose name of interim resolution professional. Adequate reply Not adequate reply Settlement of dues Filing of application Along with the application, to furnish record of default and nam e of in t e r im to propose r e s o lut i o n professional Re-apply Prior to rejection Suggest rectification Accept Proceed with Phase II R e j e c t Dispute Within 14 days To ascertain the existence of default, if satisfied, it shall accept, or otherwise reject Within 7 days 44

45. CIRP: Phase II The entire process shall be completed within Resolution Period (180 days; extendable by 90 days) O r de r o f a dm i ss i o n of application by NCLT; Declaration of moratorium; Public announcement as per the order of NCLT; App o i n tme n t of I n t er i m Resolution Process r esol u ti o n t o ap p o i nt - Interim P r o f essi o nal committee of c r ed i t o r s (financial creditors); First meeting of creditors; CoC may accept the IRP appointed by NCLT or may appoint a new RP; For any option, the NCLT is r eq u i r ed t o be communicated. RP to conduct the corporate insolvency resolution process; As many number of CoC meetings can be convened as necessary; RP shall prepare Information memorandum. - RP to appoint Resolution p l a n Applicant; - RA to submit Resolution basis the IM; - RP to examine and approve the Resolution Plan and submit to CoC for approval. CoC to approve plan (75%) and submit to NCLT; NCLT may accept / reject plan; Implementation of plan; Moratorium ceases here; RP to submit records to IU / IBBI L i qu i d a t i on If contravention on implementation of resolution plan If plan rejected 45

46. The Ecosystem of the Code SC / NCLAT / NCLT IBBI IU IU IPA - 1 IPA - 2 Certificate of Registration Certificate of Registration to conduct business & enroll IPs IP1 IP2 IP3 IP4 IP5 K Ltd. A LLP X Y Z Ltd. Q Ltd. M LLP Enroll individual IP as a member Registration Committee of Creditors SC: Supreme Court, NCLAT: National Company Law Appellate Tribunal, NCLT: National Company Law Tribunal, IBBI: Insolvency and Bankruptcy Board of India, IPA: Insolvency Professional Agency, IP: Insolvency Professional, IU: Information Utilities 46

47. What if the resolution process fails? 47 RRR Chambers - [email protected]

48. When a entity g oes into red zone !!! 48 RRR Chambers - [email protected]

49. Risky points of IBC ? 49 RRR Chambers - [email protected]

50. RISKY POINTS The NCLT will face the biggest challenge in the process of transitioning existing cases to the IBC As of March 2015, there were around 4,200 pending CLB cases. All of these will now be transferred to the NCLT. CRIMINAL LIABILITY UNDISPUTED DEBT RRR Chambers - [email protected]

51. Difference between Insolvency Bankruptcy and Liquidation? 51 RRR Chambers - [email protected]

52. INSOLVENCY is the inability of a person or corporation to pay their bills as and when they become due and payable. LIQUIDATION is the process of winding up a corporation or incorporated entity. BANKRUPTCY is when a person is declared incapable of paying their due and payable bills. 52 RRR Chambers - [email protected]

53. What all gets amended? 18 SCH AMENDMENT TO I The Indian Partnership Act, 1932 II The Central Excise Act, 1944 III The Income – Tax Act, 1961 IV The Customs Act, 1962 V The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 VI The Finance Act, 1964 VII The Securitisation & Reconstruction of Financial Assets & Enforcement Of Security Interest Act, 2002 VIII The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 IX The Payment and Settlement Systems Act, 2007 X The Limited Liability Partnership Act, 2008 XI The Companies Act, 2013 RRR Chambers - [email protected]

54. What are the recent amendments of the Act? 54 RRR Chambers - [email protected]

55. 29A . A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person_____ is an undischarged insolvent ; is a willful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949; (c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan; (d) has been convicted for any offence punishable with imprisonment for two years or more; (e) is disqualified to act as a director under the Companies Act, 2013; (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code; (h) has executed an enforceable guarantee in favor of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code; ( i ) has been subject to any disability , corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to ( i ). 55 RRR Chambers - [email protected]

56. 56 RRR Chambers - [email protected]

57. What is the role of Directors? 57 RRR Chambers - [email protected]

58. Powers of the Board of Directors are suspended immediately after the commencement of insolvency proceedings but Duties of the Director remain the same Powers : Financial Powers Administration Powers Duties : Legal Operational Duties assigned by NCLT Duties assigned by a Resolution Professional. 58 RRR Chambers - [email protected]

59. What are the threats and opportunities for directors? 59 RRR Chambers - [email protected]

60. 60 RRR Chambers - [email protected]

61. What are the rights of the Director? 61 RRR Chambers - [email protected]

62. 62 RRR Chambers - [email protected]

63. What is the role of Promoter? 63 RRR Chambers - [email protected]

64. 64 RRR Chambers - [email protected]

65. IBBI Online Portal 65 RRR Chambers - [email protected]

66. The Code was enacted to consolidate & amend various laws relating to insolvency, bankruptcy, liquidation & further delete some infructuous provisions due to change in the business complexities, opening of economies & further participation of Foreign Investors in domestic arena. With the government focus on ‘Ease of doing business’. It was imperative to adopt a new & uniform institutional framework to facilitate a formal and time bound insolvency resolution process & liquidation. CONCLUSION 66 RRR Chambers - [email protected]

67. A new chapter has been added in the history of insolvency, bankruptcy, liquidation litigation where a single window is given to the corporate litigants, individuals, LLP to adjudicate upon the matters complained off in a fast track mode. This will not only change the landscape of Corporate litigation avenues but will also pave path of robust defaulted assets recovery . CONCLUSION 67 RRR Chambers - [email protected]

68. 68 RRR Chambers - [email protected] THANK YOU