The Insolvency and Bankruptcy Code, 2016 is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. It also seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
The Insolvency and Bankruptcy Code, 2016 received the assent of the President of India on 28 May 2016. However, certain provisions of the Insolvency and Bankruptcy Code, 2016 have come into force from 5th August 2016, 19 August 2016 and 1st November, 2016. The intent of this code is to
- Maximize the value of assets of persons
- Promote entrepreneurship
- Make available credit and balance the interests of all the stakeholders
The Insolvency and Bankruptcy Code, 2016 seeks to repeal the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. In addition, it seeks to amend 11 laws which includes the Companies Act, 2013, Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Sick Industrial Companies (Special Provisions) Repeal Act, 2003 among others
Insolvency is the state of being unable to pay the money owed, by a person or company, on time; those in a state of insolvency are said to be insolvent. One of the major concerns which arise is recovery of the debts, at the time of winding up of a company. Companies are given various loans and investments by numerous banks, shareholders, secured creditors etc. However, secured creditors are first to be satisfied by paying back the debts followed by other creditors.
The Insolvency and Bankruptcy Code, 2016 has covered and applied to all individuals (including person resident outside India), companies, limited liability partnership firms and partnership firms in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy. Any debtor or creditor can initiate corporate insolvency resolution process, and the said process will be managed by licensed professionals.
The Insolvency and Bankruptcy Code, 2016 proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies:
(i) the National Company Law Tribunal for Companies and Limited Liability Partnership firms; and
(ii) the Debt Recovery Tribunal for individuals and partnerships
One of the most significant features of the Insolvency and Bankruptcy Code, 2016 is the grant of moratorium during which creditor action will be stayed and this has to be granted by the Adjudicating Authority.
Given that many corporate transactions and businesses involve an international element, the Code attempts to address this by including provisions for cross border insolvency.
The code has specified various timelines for the initiating and completing the corporate insolvency resolution process, i.e,
I. Filing of insolvency application in ‘X’ days
II. Application shall be considered by the adjudicating authority for admission or rejection, an opportunity of being heard will be given to the application
III. An insolvency resolution professional shall also be appointment within 14 days from the date of admission of the application
IV. Committee of creditors shall be constituted
V. Resolution plan shall be submitted for approval or rejection and leads to insolvency resolution process completion
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