INSOLVENCY & BANKRUPTCY REFORMS IBC-DESIGN IMPLEMENTATION & THE WAY FORWARD-GLOBAL PERSPECTIVE – ISSUES & CHALLENGES- PPT 17.11.2023.pptx

INSOLVENCY & BANKRUPTCY REFORMS IBC-DESIGN IMPLEMENTATION & THE WAY FORWARD-GLOBAL PERSPECTIVE – ISSUES & CHALLENGES

1. 1 INSOLVENCY & BANKRUPTCY REFORMS: IBC-DESIGN, IMPLEMENTATION & THE WAY FORWARD-GLOBAL PERSPECTIVE – ISSUES & CHALLENGES RRR Chambers - [email protected] RRR CHAMBERS Email ID- [email protected]

2. 2 Coverage History Need IBC Process Role of Directors

3. 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. 3 RRR Chambers - [email protected]

4. Differentiation Insolvency; Bankruptcy; and Liquidation Why is it 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. UNDERSTANDING THE CODE RRR Chambers - [email protected]

5. 2 BASIC CONCEPTS 5 RRR Chambers - [email protected]

6. Presidency Towns Insolvency Act, 1909 Provincial Insolvency Act, 1920 SICA, 1985 RDDBI, 1993 SARFAESI, 2002 COMPANIES ACT, 2013 IBC, 2016 INCEPTION OF INSOLVENCY LAWS IN BHARAT RRR Chambers - [email protected]

7. OBJECTIVES? 7

8. OBJECTIVES 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. RRR Chambers - [email protected]

9. OBJECTIVES The code would have an Over riding 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 + 60 days (in case of legal proceedings in relation to such resolution process of the corporate debtor)) for the Company. Insolvency professional to take over the management of the Company. RRR Chambers - [email protected]

10. WHY CODE WAS NEEDED? 10

11. 11 RRR Chambers - [email protected]

12. 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 12

13. WHAT ARE THE CRUX POINTS OF IBC? 13

14. 14 RRR Chambers - [email protected]

15. WHY IBC FOR BHARAT? 15

16. IBC FOR BHARAT [email protected] India currently ranks 52 nd out of 195 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. 16 RRR Chambers - [email protected]

17. 17 TIMELINE 2014 2015 2016 2016 Nov 2015 – Draft bill submitted by BLRC Dec 2015 - IBC Bill was introduced in Lok Sabha August 2014 Bankruptcy Law Recovery Committee was formed 05 May 2016 - Passed by Lok Sabha 11 May 2016 - Passed by Rajya Sabha 28 May 2016- Received President’s accent 01 Dec 2016 - IBC came into effect. & Amendments in the Acts & Regulations RRR Chambers - [email protected]

18. 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. 18 RRR Chambers - [email protected]

19. STRUCTURE OF THE ACT ? 19

20. APPLICABILITY STRUCTURE In entirety, the Code has 255 sections which are divided into 5 Parts as given below Part I Preliminary (Definitions) Part II Insolvency Resolution and Liquidation for Corporate Persons Part III Insolvency Resolution and Bankruptcy for individuals and Partnership Firms Part IV Regulation of Insolvency Professionals, Agencies and Information Utilities Part V Miscellaneous (enables amendments in other statues such as Companies Act 2013) Schedules (11 Schedules) Provides for amendments to be carried out in other statues All kinds of: Corporate Enterprises; Limited Liability Partnerships; Partnership Firms; and Individuals. SCOPE Insolvency; Liquidation; Voluntary Liquidation (solvent insolvency); and Bankruptcy APPLICABILITY, SCOPE & STRUCTURE RRR Chambers - [email protected]

21. Applicability Applicable To All Kinds Of: Corporate Enterprises; Limited Liability Partnerships; P ersonal guarantors to corporate debtors; Partnership Firms; and Individuals. STRUCTURE OF ACT Scope Relates to: Insolvency; Liquidation; Voluntary Liquidation (solvent insolvency); and Bankruptcy PPIRP (Pre-packaged Insolvency Resolution Process) 21 RRR Chambers - [email protected]

22. 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 22 RRR Chambers - [email protected]

23. KEY POINTS OF IBC? 23

24. 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 has been legally assigned or transferred Operational Creditor (Sec.9) - A person to whom an operational debt is owed & - Includes any person to whom such debt has been legally assigned or transferred WHO CAN INVOKE? 24 RRR Chambers - [email protected]

25. 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 25 RRR Chambers - [email protected]

26. WHO ARE THE ROLE PLAYERS? 26

27. 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 27 RRR Chambers - [email protected]

28. Regulator Adjudicator Insolvency and Bankruptcy Board of India (IBBI) National Company Law Tribunal Debt Recovery Tribunal Corporate Entities Non-Corporate Entities Companies/LLPs Individuals and Partnership Firms Insolvency Professional Agencies; Insolvency Professionals; and Information Utilities FRAMEWORK OF THE CODE CS Dr AHALADA RAO VUMMENTHALA RRR Chambers - [email protected]

29. Collation of claims and constitution of committee of creditors by Interim Resolution Professional Appointment of Resolution Professional in the creditors meeting held within 7 days of constitution of committee of creditors Resolution Professional to prepare Information Memorandum Resolution Applicant to prepare (on the basis of Information Memorandum) and submit resolution plan to Resolution Professional for examination & further submission for approval of committee of creditor Resolution plan approved by committee Resolution plan rejected by committee NCLT approves plan NCLT rejects plan Liquidation process starts Admission of application and appointment of Interim Resolution Professional BROAD CIRP - PROCESS RRR Chambers - [email protected]

30. Regulator Insolvency and Bankruptcy Board of India (IBBI) Insolvency Professional Agencies; Insolvency Professionals; and Information Utilities ROLE PL A YERS 30 RRR Chambers - [email protected]

31. CREDITORS ROLE PL A YERS FINANCIAL CREDITORS OPERATIONAL CREDITORS BANKS/FI Companies /LLPs /NBFCs SERVICE PROVIDERS SUPPLIERS/VENDORS 31 RRR Chambers - [email protected]

32. 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 32 RRR Chambers - [email protected]

33. 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 33 RRR Chambers - [email protected]

34. NCLT shall appoint an IRP within fourteen days from the insolvency commencement date. From the date of appointment of the IRP- the management of the affairs of the corporate debtor shall vest in the IRP; the powers of the board of directors or the partners of the corporate debtor, shall stand suspended and be exercised by the IRP; Role of IRP the officers and managers of the corporate debtor shall report to the IRP and provide access to documents of the corporate debtor as may be required by IRP the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of IRP in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional. The interim resolution professional shall make every endeavor to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. INTERIM RESOLUTION PRFESSIONAL (IRP) RRR Chambers - [email protected]

35. From the date of appointment of the IRP- collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made; constitute a committee of creditors file information collected with the information utility. take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to IRP The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors DUTIES OF IRP RRR Chambers - [email protected]

36. IRP has been vested with the powers to- Appoint accountants, legal counsels who may provide specialist advice to the IRP; Enter into contracts on behalf of the corporate debtor or to amend/ modify the contracts which were entered into before the commencement of the CIRP; Raise interim finance; Issue instructions to the personnel of the corporate debtor to keep the corporate debtor as a going concern; Take all such actions as are necessary to keep the corporate debtor as a going concern. IRP has to manage the operations of the corporate debtor as a going concern to enable him to protect and preserve the value of the property of the corporate debtor. The IRP may sell unencumbered assets of the corporate debtor, other than in the ordinary course of business, if he is of the opinion that such a sale is necessary for a better realization of value. POWERS OF IRP RRR Chambers - [email protected]

37. WHAT IS THE PROCESS OF RESOLUTION? 37

38. KING OF GOOD TIMES – Really ??? 38

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

40. 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: The term of the interim resolution professional shall continue till the date of appointment of the resolution professional under section 22 Once IRP is appointed : INTERIM RESOLUTION PROFESSIONAL 40 RRR Chambers - [email protected]

41. 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 41 RRR Chambers - [email protected]

42. 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 42 RRR Chambers - [email protected]

43. 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 43

44. 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 44 RRR Chambers - [email protected]

45. WHAT IF THE RESOLUTION PROCESS FAILS? 45

46. WHAT IF THE RESOLUTION PROCESS FAILS? 46

47. When a entity g oes into red zone !!! 47 RRR Chambers - [email protected]

48. DIFFERENCE BETWEEN INSOLVENCY BANKRUPTCY AND LIQUIDATION? 48

49. 49

50. 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. 50 RRR Chambers - [email protected]

51. IMPACT ON OTHER LAWS AFTER THE IBC? 51

52. Repealed Acts Presidency Town Insolvency Act, 1909; and Provisional Insolvency Act, 1920 Some of the amended Acts Sick Industrial Companies (Special Provisions) Repeal Act, 2003; Recovery of Debts Due to banks and financial institutions Act, 1993; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and Companies Act, 2013 IMPACT ON OTHER STATUTES RRR Chambers - [email protected]

53. 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 f in d suitable. Now Adjudicating Authority for the individuals will be DRT while the NCLT will be governing issues for corporate persons . 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 the Companies Act to IBC. 53 RRR Chambers - [email protected]

54. OTHER ACTS 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]

55. WHAT IS THE ROLE OF DIRECTORS? 55

56. 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. 56 RRR Chambers - [email protected]

57. Public Announcement by IRP in FORM A. Submission of Proof of Claims by creditors, workmen and employees to IRP in FORMs B,C,D,E as may be applicable. Verification of Claims by IRP within 7 days of receipt Constitution of Committee of Creditors (“COC”) Where corporate debtor has no financial debt, COC shall consist of- 18 largest operational creditors by value 1 workmen representative 1 employee representative IRP to file Report certifying constitution of COC to NCLT IRP to convene first meeting of COC IRP to appoint 2 registered valuers to determine the liquidation value of corporate debtor IRP shall provide the Liquidation value to COC in electronic form IRP/RP shall submit Information Memorandum in electronic form to each member of COC RP shall present all Resolution plans that meet requirements of Code to COC for its consideration RP on instruction of COC may apply for Extension of CIRP period before NCLT. By sending pdf file to [email protected] PARTICIPATION IN ALL STAGES RRR Chambers - [email protected]

58. MANAGEMENT PERSPECTIVE 58 58

59. Insolvency resolution and liquidation cost Secured creditor (in case he has relinquished security) Wages and unpaid dues to employees (other than workmen) for a period of 12 months preceding liquidation commencement date Unsecured creditors Central and State government dues Any remaining debts or dues Preference shareholders, if any Equity shareholders or partners, as the case may be Workmen’s dues ( for period of 24 months preceding liquidation commencement date) + In case of liquidation, the asset of the corporate debtor will be sold and the proceeds will be distributed amongst the creditors in the following order of priority:- + Secured creditor for an unrealised amount for enforcing security interest WATERFALL MECHANISM RRR Chambers - [email protected]

60. WATERFALL MECHANISM-Issues & Challenges Provident fund dues State government dues Taxes and cess RRR Chambers - [email protected]

61. THANK YOU 61 RRR Chambers - [email protected]