Insolvency and Bankruptcy Code, 2016 –Highlights • ICSI

 

Insolvency and Bankruptcy Code, 2016 –Highlights

·        The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha on December 21, 2015 and was referred to Joint committee on The Insolvency and Bankruptcy Code, 2015.  The report was presented in Loksabha and laid down in Rajya sabha on April 28, 2016. The code has been  passed by Lok Sabha on May 05, 2016 and Rajya Sabha on May 11, 2016.  

·         The preamble of the code reads ads under:

To consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation 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 Fund, and for matters connected therewith or incidental thereto.

·         The Code proposes to cover Insolvency of individuals, unlimited liability partnerships, Limited Liability partnerships (LLPs) and companies.

·         The Insolvency Resolution Process (IRP) for individuals and unlimited liability partnerships varies from that of companies and LLPs. The Debt Recovery Tribunal (“DRT”) shall be the Adjudicating Authority with jurisdiction over individuals and unlimited liability partnership firms. Appeals from the order of DRT shall lie to the Debt Recovery Appellate Tribunal (“DRAT”). The National Company Law Tribunal (“NCLT”) shall be the Adjudicating Authority with jurisdiction over companies, limited liability entities. Appeals from the order of NCLT shall lie to the National Company Law Appellate Tribunal (“NCLAT”).

·         The Code seeks to repeal the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920.

·          The Code  seeks to amend  the following 11 Legislations.

1.    The Indian Partnership Act 1932

2.    The Central Excise Act 1944

3.    The Income Tax Act 1961

4.    The Customs Act. 1962

5.     Recovery of Debts Due to Banks and Financial Institutions Act, 1993

6.    The Finance Act 1994

7.    The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002

8.    Sick Industrial Companies (Special Provisions) Repeal Act, 2003

9.    The payment and Settlement Systems Act 2007

10. The Limited Liability Partnership Act 2008

11. the Companies Act, 2013

·         The Code proposes to establish an Insolvency Regulator (The Insolvency and Bankruptcy Board of India) to exercise regulatory oversight over

1.    Insolvency Professionals,

2.    Insolvency Professional Agencies and

3.    Information Utilities.

·         The Code proposes to regulate insolvency professionals and insolvency professional agencies. Under Regulator’s oversight, these agencies will develop professional standards, codes of ethics and exercise a disciplinary role over errant members leading to the development of a competitive industry for insolvency professionals.

·         The Code proposes for information utilities which would collect, collate, authenticate and disseminate financial information from listed companies and financial and operational creditors of companies. An individual insolvency database is also proposed to be set up with the goal of providing information on insolvency status of individuals.

·         The Code proposes a swift process and timeline of 180 days for dealing with applications for corporate insolvency resolution. This can be extended for 90 days by the Adjudicating Authority only in exceptional cases. During insolvency resolution period (of 180/270 days), the management of the debtor is placed in the hands of an interim resolution professional/resolution professional.

·         Further, an insolvency resolution plan prepared by the resolution professional has to be approved by a majority of 75% of voting share of the financial creditors. Once the plan is approved, it would require sanction of the Adjudicating Authority. If an insolvency resolution plan is rejected, the Adjudicating Authority will make an order for the liquidation. The Code proposes for a fast track insolvency resolution process for companies with smaller operations. The process will have to be completed within 90 days, which may be extended upto 45 more days if 75% of financial creditors agree.  Extension shall not be given more than once.

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