What Is Insolvency?

What is
IBC ?
Insolvency and Bankruptcy Code 2016 is one
of the biggest step undertaken by India
towards much required economic reform of
country. That’s why government has rolled
out such a code in a very speedy manner for
its implementation.
Difference between
Insolvency and
Bankruptcy?
Going forward to understand what is Insolvency and Bankruptcy Code 2016.
It is important to understand basic difference between Insolvency and
Bankruptcy:-
INSOLVENCY BANKRUPTCY
Why Insolvency and bankruptcy code
is so important?
Thus Insolvency and Bankruptcy Code 2016 is a one stop solution for resolving insolvencies
which at present is a cumbersome and a long process which is not by any means
economically viable arrangement. In a developing country like India, where new and growing
business entities are propelling the economic growth in the country, it is one of the most
essential business supporting element to bring in a mechanism which could ease down their
business transactions by settling defaulting or struggling or bankrupt entities without causing
damage to any contributor in the economy. Continuation of Non Performing assets in any
economy not only leads to locking of funds and assets of such entities, it also locks up these
business entities for solutions in courts which hampers the business of the lender who has
given financial assistance to the NPA business entity. The World Bank says that it takes more
than 4 years in India and the average recovery is 25 cents to the dollar. Government came up
with sick industrial companies act SICA and the Board of Industrial Financial
Reconstruction BIFR which failed to fulfil the objective of speedily revive or liquidate
companies and recover assets and so Government has proposed a New Bankruptcy Code.
THE INSOLVENCY AND BANKRUPTCY
CODE, 2016-
ARRANGEMENT OF SECTIONS
Basic structure of the Code contains 255
sections,
11 schedules, 5 parts and 21 chapters
under IBC.
FIVE PARTS OF THE CODE
 Part I – Preliminary –Section 1 to 3
 Part II – Insolvency resolution and liquidation for
corporate bodies – Section 4 to 77 with 7 chapters
 Part III – Insolvency resolution and bankruptcy for
individuals and partnership firms – section 78 to
187 with 7 chaptersa
 Part IV – Regulation of Insolvency Professionals,
agencies and information utilities – section 188 to
223 with 7 chapters
 Part V – Miscellaneous
AGENCIES AND INTERMEDIARIES INVOLVED UNDER
AN INSOLVENCY AND BANKRUPTCY PROCESS:
Insolvency and Bankruptcy Board (IBB)

Insolvency Professional Agency (IPA)
Information Utilities (IUs)
Insolvency Professionals (IPs)
Adjudicatory authorities (NCLT/DRT)
Duties, powers and responsibilities of every
intermediary has been precisely mentioned
in the code.
Duties, powers and responsibilities of every intermediary has been
precisely mentioned in the code.
Who is the Adjudicating Authority under the code?
NCL shall deal with the matters relating to corporate insolvency,
LLP and personal guarantees given in relation to corporate debtors.
DRT shall deal with individual insolvency and partnership firms,
however still the law if insolvency of individual insolvency and
partnership firms is not effective as on date. Therefore the point
that- who shall be adjudicating authority in case of individual
insolvency and partnership firms, shall be more cleared only when
the law shall be made effective.
Adjucating authority would have exclusive jurisdiction to deal
with insolvency related matters, no injuction shall be granted by
any court, tribunal or authority in respect of any proceeding, in
pursuance of any power/action conferred on the NCLT/DRT.
PROCEDURE OF INSOLVENCY RESOLUTION PROCESS (IRP) UNDER THE
CODE:
Key points to understand

before initiation of Insolvency
Resolution Process
 IRP cannot be initiated
unless there is a default
which is beyond the
Minimum threshold.
 IRP cannot be initiated
against the financial service
provider.
Who cannot apply for IRP
(Section 11)?
• a corporate debtor undergoing a corporate insolvency resolution
process; or
• a corporate debtor having completed corporate insolvency
resolution process twelve months preceding the date of making of
the application;
• a corporate debtor or a financial creditor who has violated any of
the terms of resolution plan which was approved twelve months
before the date of making of an application under this Chapter; or
• a corporate debtor in respect of whom a liquidation order has
been made
Who can initiate/apply for
IRP:
• Financial Creditor
• Operational Creditor
• Corporate Applicant
INSOLVENCY RESOLUTION PROCESS UNDER THE
CODE:-
A financial creditor (himself or jointly with other financial creditors), an operational
creditor or the corporate debtor (through Corporate applicant i.e. corporate debtor
itself; or an authorized member, partner of corporate debtor; or a person who has
financial affairs under his control and supervision) may initiate corporate insolvency
resolution process in case a default is committed by corporate debtor. An application can
be made before the National Company Law Tribunal (NCLT) for the resolution process.
Operational creditor needs to give demand notice of 10 days to corporate debtor and If
corporate debtor fails to repay any dues to operational creditor or show no case of
existing dispute or arbitration, then the operational creditor can approach NCLT.
Corporate insolvency process shall be completed within 180 days of admission of
application by NCLT. Upon admission of application by NCLT, Creditors’ claims will be
frozen for 180 days, during which time NCLT will hear proposals for revival and decide on
the future course of action. And thereupon, no other coercive proceedings can be
launched against the corporate debtor in any other law, until approval of resolution plan
or until initiation of liquidation process.
NCLT appoints an interim Insolvency Professional (IP) upon confirmation by the
Insolvency and Bankruptcy Board (hereinafter, “the Board”) within 14 days of acceptance
of application. Interim IP holds office for 30 days only. Interim IP takes control of the
debtor’s assets and company’s operations, collect financial information of the debtor
from information utilities.
NCLT causes public announcement to be made of the initiation of corporate insolvency
process and calls for submission of claims by any other creditors.
After receiving claims pursuant to public announcement, interim IP constitutes the creditors’
committee. All financial creditors shall be part of creditors’ committee and if any financial creditor is
related party of corporate debtor, then such financial creditor will not have any right of
representation, participation or voting. Operational creditors should be part of Creditors’ Committee
(without voting right) if their aggregate dues are not less than 10% of the debt.
Creditors’ committee shall meet first within seven days of its constitution and decide by 66% of votes
either to replace or confirm interim IP as Resolution Professional. Thereupon, Resolution Professional
is appointed by the NCLT with confirmation by the Board. The creditors’ committee can change
Resolution Professional any time, with a majority of 66% votes.
The creditors’ committee has to then take decisions regarding insolvency resolution by a 66%
majority voting.
If three-fourths of the financial creditors consider the case complex and require extension of time
beyond 180 days, the NCLT can grant a one-time extension of up to 90 days.
Resolution Professional to conduct entire corporate insolvency resolution process and manage the
corporate debtor during the period.
Resolution Professional shall prepare information memorandum for the purpose of enabling
resolution applicant to prepare resolution plan. A resolution applicant means the person who
proposes the resolution plan to the resolution professional. And upon receipt of such resolution
plans, Resolution Professional shall place for approval before the creditors’ committee.
Once a resolution is passed, the creditors’ committee has to decide on the restructuring process that
could either be a revised repayment plan for the company, or liquidation of the assets of the
company. If no decision is made during the said process, the assets of debtor will be liquidated to
repay the debt.
The resolution plan will be sent to NCLT for final approval, and implemented once approved.
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Key points to understand

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