Applicability of Insolvency And Bankruptcy Code 2016 By CS Aakanchha Vyas



Dear Professional Colleagues,

The Insolvency and Bankruptcy Code, 2015 was introduced in the Lok Sabha on 21 December 2015. The Code was referred to a Joint Committee of Parliament on 23 December 2015 and recommended by the Committee on 28 April 2016. The Code was passed by the Lok Sabha on 5 May 2016 and by the Rajya Sabha on 11 May 2016. The Code received assent from President on 28 May 2016. The code is applicable to the whole of India.
 
The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India. The aim of this code is to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The provision of this code is applicable to any company incorporated under the companies act 2013, or under any previous law, limited liability partnership incorporated under LLP Act, 2008. Partnership firm and individuals, and any other body incorporated under any law for the time being in force.
 
Insolvency Resolution Process for Corporate persons:

The I&B Code is applicable to the corporate person only when the amount of default is not less than one lakh rupees and not more than one crore rupees.

When a corporate debtor fails to pay his debts, then the financial creditor or an operational creditor of a corporate debtor can make an application in prescribed format to the Adjudication authority i.e. National company law tribunal for initiate the corporate insolvency resolution process against the corporate debtor.

The Adjudication Authority after ascertaining the existence of default from the records available with information utility or other evidence furnished by the applicant, if satisfied that default has occurred and the application is complete in all manner then accept the application and communicate his decision to the applicant. When the adjudicating authority passes the order of admission of such application that date called the insolvency commencement date.

The Adjudicating Authority after the admission of the application declare the moratorium period, make a public announcement for submission of claims, and appoint an interim resolution professional.

The public announcement shall be made immediately not later than 3 days from the date appointment of interim resolution professional.
 
The interim resolution professional after collation of all claims and determination of the financial position of the corporate debtor constitute a committee of creditors.

The committee of creditors shall comprise all financial creditors of the corporate debtor. The first meeting of the creditors shall be held within seven days of the constitution of the committee of creditors.
 
Notice of meeting of the creditors' committee:

The resolution professional give notice of each meeting of the committee of creditors
to:
  • Members of Committee of creditors
  • Members of the suspended Board of Directors or the partners of the corporate persons.
  • Operational creditors or their representatives if the amount of their aggregate due is not less than ten percent of the debt.
The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating authority.

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors meets the requirements it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

After the order of approval, the moratorium order passed by the adjudicating authority shall cease to have an effect and the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.
 
Liquidation Process:

Where the Adjudicating Authority before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process does not receive a resolution plan or rejects the resolution plan for the non-compliance of the requirements, it shall pass the order of liquidation and issue a public announcement.
 
When a liquidation order has been passed no suit or another legal proceeding shall be instituted by or against the corporate debtor, but legal proceeding may be instituted by the liquidator on behalf of the corporate debtor, with the prior approval of the adjudicating authority.
 
The liquidator shall receive and collect the claims of creditors within a period of thirty days from the date of commencement of the liquidation process.

A creditor may withdraw or vary his claim within fourteen days of its submission.

The liquidator shall verify the claims within thirty days from the last date of receipt of the claim.

The liquidator communicates his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims.
 
Preferential Transaction:

A transaction shall be deemed preferential transaction if

  • There is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor;
  • The transfer not made in the ordinary course of the business;
  • A preference is given to a related party during the period of two years preceding the insolvency commencement date;
  • A preference is given to a person other than a related party during the period of one year preceding the insolvency commencement date.
The fee payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients, and the proceeds to the relevant recipient shall be distributed after such deduction.
 
When the assets of the corporate debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor.
 
The Adjudicating authority shall pass the order of dissolution on receipt of an application by the liquidator. The corporate debtor shall be dissolved from the date of that order.
 
A copy of an order shall within seven days from the date of such order, be forwarded to the authority with which the corporate debtor is registered.
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