Insolvency representative plays a central role in the effective and efficient implementation of an insolvency law, with certain powers over debtors and their assets and a duty to protect those assets and their value, as well as the interests of creditors and employees, and to ensure that the law is applied effectively and impartially.
⇒ UNCITRAL Legislative Guide on Insolvency Law
WHAT EXACTLY IS THE CODE?
The Insolvency and Bankruptcy Code is a transformational piece of legislation as it seeks to establish an ecosystem for handling Insolvency & Bankruptcy issues. The Code received Presidential Assent on 28th May, 2016 when the landmark Bill introduced in the Lok Sabha in November 2015 finally became an Act. It is a landmark legislation consolidating erstwhile SICA, 1985 and some provisions of the Companies Act. Existing laws governing Revival, Rehabilitation, Restructuring were covered under Sick Industrial Companies Act (SICA) and Companies Act (Winding Up). Four different forums i.e. High Courts, CLB (now NCLT, effective from 1.6.2016), BIFR and the DRTs, with overlapping jurisdiction gave rise to the systemic delays and complexities in the process of recovery. The Code consolidates and amend laws relating to revival, restructuring and winding up of the sick or debt oriented industries and companies as well as time bound resolution of corporate and individual bankruptcy. It is a game changer in which the Bankers, Courts, Investors and the initiators of insolvency proceedings will have to work in harmony for devising either a survival plan or liquidation of sick units and others facing debt default.
The corporate insolvency resolution process envisaged under the Code, 2016 is prominently a creditor-driven process, whereby the decision to let the debtor survive or to liquidate the same rests on a collective body of the creditors, i.e. the committee of creditors, after collation of all claims. It is also a double-edged sword. Where on one hand, the predominant objective of thee code is to see whether there are reasonable prospects for revival of the business and if it not, the business be put in liquidation mode and assets be liquidated in a time bound manner.
The Code thus, creates a new institutional framework which consists of adjudicatory bodies, a regulator, Insolvency Professionals and information utilities where it does not make any distinction between the rights of international and domestic creditors or between classes of financial institutions.
APPLICABILITY OF THE CODE:
The provisions of the Code are applicable to
(i.e. all entities other than financial service providers).
Corporate Insolvency includes two processes within its ambit,
(i) Insolvency Resolution and
WHAT DOES THE CODE PROVIDE FOR?
WHO AND WHEN CAN INITIATE A CORPORATE INSOLVENCY CASE?
The corporate insolvency resolution process can be initiated by
For the purpose of the Code, financial creditors and operational creditors include persons resident outside India.
A case can be filed if there is a default of Rs. 1 Lakh (minimum value prescribed can be increased to Rs. 1 crore by notification) for any debt.
WHAT IS BEING AN IP?
It is a position of trust and confidence. In administering the resolution outcomes, the role of the IP encompasses a wide range of functions, which include adhering to procedure of the law, as well as accounting and finance related functions. The latter include the identification of the assets and liabilities of the defaulting debtor, its management during the insolvency proceedings if it is an enterprise, preparation of the resolution proposal, implementation of the solution for individual resolution, the construction, negotiation and mediation of deals as well as distribution of the realisation proceeds under bankruptcy resolution. In performing these tasks, an IP acts as an agent of the adjudicator. He prepares the information memorandum which serves as an input for the formulation of the resolution plan, which confirms to the certain minimum requirements laid down.
ROLE OF AN IP: ESSENTIALS vis-à-vis CHALLENGES
WHAT ARE THE MINIMUM CERTAIN REQUIREMENTS REQUIRED IN THE RESOLUTION PLAN?
Each resolution plan should
The Code is in its infancy currently, and is a bold and imaginative step forward for insolvency resolution in India, and has great potential to succeed. The expertise and resources of the IP to ensure appropriate use of judicial time and ensure that the NCLTs are not pushed with an unmanageable caseload ab initio, is what shall make the Code effective and a success.
(Author – CS Reema Jain, ACS is a Company Secretary in Practice from New Delhi and can be contacted at firstname.lastname@example.org)