18/07/2017

BY CMA NAYANA P SAVALA

B.COM,BGL(LAW),ICMAI, CISA , Dip in Computer Forensic, CAME, CFAP,

LA 9001:2015,

BBI/IPA-003/IP-N00051/2017-18/10491

INTRODUCTION TO BASIC FRAMEWORK

KEY PROVISIONS RELATING TO INTERIM

RESOLUTION PROCESS

ROLE OF INTERIM RESOLUTION

PROFESSIONAL

Insolvency Professional

Agencies

Information

Utilities

The Insolvency and

Bankruptcy Board of India

Insolvency Professional

Creditors committee -

operation and Financial

Creditors Corporate Applicant DRT

NCLT

Adjudicating

Authority

THE ECO - SYSTEM OF IBC

IPA AND IP IU AA IBBI

BIRD’S EYE VIEW OF THE CODE

PART – 1

PRELIMINARY

SECTIONS 1

TO 3

PART – 2 – CORPORATE

DEBTORS

INSOLVENCY RESOLUTION &

LIQUIDATION OF

CORPORATES

(7 CHAPTERS) (SECTIONS

4-77)

TOTAL SECTIONS - 255 ; 5 PARTS ; 11 SCHEDULES

PART – 3

INSOLVENCY

RESOLUTION &

BANKRUPTCY OF

INDIVIDUALS &

PARTNERSHIPS

(7 CHAPTERS)

(SECTIONS 78 TO

187)

PART -4 VARIOUS

AUTHORITIES –

BOARD/IP/IPA/COMMITTEES

(7 CHAPTERS)

(SECTIONS 188 TO 223)

PART – 5

CG POWER/ OVER-

RIDING EFFECT ON OTHER

LAWS AND AMENDMENTS

TO OTHER 11 ACTS

SCHEDULES

THE 11 ACTS1. Partnership Act

2. Central Excise

Act

3. Income Tax Act

4. Customs Act

5. Bank Recovery

Act

6. Finance Act,

1994

7. SAARFAESI

8. SICA

9. Pymt Settl Act

10. LLP Act

11. Companies Act

Section 244 –Transitional Provisions with

Schedules

Slew of Legislations leading to a fragmented legal structure

PRE-INDEPENDENCE LEGISLATIONS

* Presidency Towns Insolvency Act 1909 – PTIA (covering individuals,

partnerships and association of individuals in Chennai, Kolkata and Mumbai)

* Provincial Insolvency Act 1920 - PIA – Other than Presidency Towns ;

Subordinate courts for hearing insolvency cases, with District Court being

the Court of appeal

POST INDEPENDENCE LEGISLATIONS

* Recovery of Debts due to Banks and Financial Institutions Act, 1993

* Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest Act (SARFAESI) 2002

* Sick Industrial Companies (Special Provisions) Act, (SICA) 1985

* Companies Act, 1956 read with 2013 implemented in a phased manner

* Limited Liability Partnership Act, 2008

* Business models like ARC’s empowered by SARFAESI ACT AND

licensed by RBI to recover NPA

* Recovery of Debts due to Banks and Financial Institutions Act, 1993 –BANK WAS MIGHT AND MIGHT WAS RIGHT

* Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) 2002 -

* Sick Industrial Companies (Special Provisions) Act, (SICA) 1985 – only to corporates – misused by defaulters stand repealed today

* Companies Act, 1956 read with 2013 implemented in a phased manner

* Limited Liability Partnership Act, 2008

* Corporate Debt Restructuring

* Joint Lenders Forum

* Strategic Debt Restructuring

* Scheme for Sustainable Structuring of Stressed Assets -4’S

* PTIA - Presidency Towns Insolvency

* PIA- Provincial Insolvency Act

* ARC –Asset Reconstruction Company

Except SICA all are still continued

Corporate Debt Restructuring

Mechanism

Strategic Debt Restructuring

SchemeI. It covers all categories of assets in the books

of creditors classified in terms of RBI’s

prudential asset classification standards.

The Scheme covers assets which have been

restructured by CDR or any other restructuring

exercise undertaken by the companies.

II. It involves restructuring the existing debt by

increasing the repayment period or by

reducing the rate of interest or by granting of

fresh loans

It provides for conversion of debt into equity by

the lenders.

III. It has a three-tier structure which includes

CDR Cell, Empowered Group and a Standing

Forum. The final decision on restructuring is

taken by Standing Forum.

The lenders form a Joint Lenders’ Forum to

decide on the conversion of debt into equity as

per the Scheme

UNDER OLD PROVSIONS NEW PROVISIONS

LAWS V/S CODES MANY LAW - PTIA-1909,PIA-

1920,SICA-1985,SARFEASI

2002,TP-1882,CCP -1908 CO ACT

1956 , BIFR Etc

CODE 2016

OBJECTIVE Elimination of Bankrupt and

Insolvent Entities

Remodelling and Restucturing

STATUS Offence to continue GOING CONCERN - the business

may continue under a declared

protective arrangement while

alternative options to achieve

recovery are worked

Periodicity Ages date after date delaying

tactics

Speed – 270 days

Society Protection to debtors from

humiliation and oppression by his

creditors

Social Legislation

Litigation Creditors barred Initiation of Insolvency process by

creditors ,debtors

Takeaways 3 tier structure cell, Restructuring

existing Debt,Equity,interest ,time

limit etc

Freedom after 270 days start a

fresh.

* a) SICA, 1985

* b) Recovery of Debts Due to Banks and Financial Institutions Act, 1993

* c) SARFAESI Act, 2002; and

* d) Companies Act, 2013

Amendments of 11 enactments while repealing Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920:-

* The Indian Partnership Act 1932

* The Central Excise Act 1944

* The Income Tax Act 1961

* The Customs Act. 1962

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

* The Finance Act 1994

* The Securitisation & Reconstruction of Financial Assets and Enforcement of Security Act 2002 -SARFAESI Act

* Sick Industrial Companies (Special Provisions) Repeal Act, 2003

* The payment and Settlement Systems Act 2007

* The Limited Liability Partnership Act 2008

* The Companies Act, 2013

The objective of this Code as stated in the preamble to the Code

“is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate

persons, partnership firms and individuals in a time bound manner for maximization 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 Board of India, and for matters connected therewith or incidental thereto”

Audi alteram partem (or audiatur et altera pars) is a Latin phrase meaning "listen to the other side", or "let the other side be

heard as well". It is the principle that no person should be judged without a fair hearing in which each party is given the

opportunity to respond to the evidence against them. The Supreme Court of India in a recent judgment2, while interpreting the

maxim, held that every litigant before a court of law has the inherent expectation from the concerned court to be heard, being a

fundamental facet of the principles of natural justice

With the enforcement of the Insolvency and Bankruptcy Code, 2016 ("Code") in India, all the multiple laws related to I

& B are consolidated.

One of the fundamental features of the Code is that it allows creditors to assess the viability of a

debtor as a business decision, and agree upon a plan for its revival or a speedy liquidation

The main vision of this act is to encourage entrepreneurship and innovation. Some business ventures

will always fail, but they will be handled rapidly and swiftly. Entrepreneurs and lenders will be able

to move on, instead of being bogged down with decisions taken in the past

POINTS TO PONDER Will our justice system rise to this expectations ?? Deliberately left out right of debtor to be heard of !

1. Provision of certainty in the market to promote efficiency and growth.

2. Maximization of value of assets.

3. Striking a balance between liquidation and re-organization.

4. Ensuring equitable treatment of similarly situated creditors.

5. Provision of timely, efficient and impartial resolution of insolvency.

6. Preservation of the insolvency estate to allow equitable distribution to creditors.

7. Ensuring a transparent and predictable insolvency law that contains incentives for gathering and dispensing information.

8. Recognition of existing creditor rights and establishment of clear rules for ranking priority of claims.

9. Establishment of a framework for cross-border insolvency.

As stated in Volume I of the Bankruptcy Law Reforms Committee

(Source : UNCITRAL*, 2005 – Legislative Guide on Insolvency)

*United nations commission on International Trade law

*Greater emphasis on cash flow as against security of lending

*Allows genuine cases of sustainable businesses to tide over

temporary difficulties

*Faster movement of factors of production – labour and capital to

more productive business – makes economic sense

*Encourage FDI as it promotes Ease of Doing Business

*Auctions will get better values as against the present system,

where values fetched are more of distress cases

*Bankruptcy reform would yield higher recovery rates for

corporate bond holders, and remove one barrier that impedes the

corporate bond market.

The Insolvency and Bankruptcy Board of India – Powers and Functions

Apex body, administering of IBC, insolvency professional agencies, insolvency professionals and

information utilities, Promote transparency and best practices in its governance.

Make model laws to be adopted by Information Professional Agencies, prescribing minimum standards

of professional Competance, ethics, conducting exams etc

Notwithstanding anything contained in any other law for the time being in force, while

exercising the powers under this Code, the Board shall have the same powers as are

vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in

respect of the following matters, namely:—

(a) The discovery and production of books of account and other documents, at such place

and such time as may be specified by the Board.

(b) Summoning and enforcing the attendance of persons and examining them on oath.

(c) Inspection of any books, registers and other documents of any person at any place.

(d) Issuing of commissions for the examination of witnesses or documents

It consists of chairman,3 members each representing Ministry of Finance, Ministry of Corporate

law,and Ministry of Law.One member Nominated by RBI,Five members nominated C.Govt of whom

three shall be Whole time Member

X-19-21

Insolvency Professional Agencies

(a) Ensure compliance with the Code and rules, regulations and guidelines

issued thereunder governing the conduct of insolvency professional agencies

and insolvency professionals;

(b) Employ fair, reasonable, just, and non-discriminatory practices for the

enrolment and regulation of its professional members;

(c) Be accountable to the Board in relation to all bye-laws and directions

issued to its professional members;

(d) Develop the profession of insolvency professionals;

(e) Promote continuous professional development of its professional

members;

(f) Continuously improve upon its internal regulations and guidelines to

ensure that high standards of professional and ethical conduct are

maintained by its professional members; and

(g) Provide information about its activities to the Board.

Insolvency professional agency" means any person registered with the

Board under section 201 as an insolvency professional agency

Insolvency Professional Agencies

* IBBI (Insolvency Professional Agencies) Regulations, 2016

* Eligibility to register (Regulation 3)

* Sole object – IPA

*Model bye-laws & governance in line with IBBI (Model Bye Laws and

Governing Board of IPA) 2016

*Minimum Net Worth of Rs. 10 Crores

*Minimum Paid Up Share Capital of Rs. 5 Crores

*Not under control of Persons Resident Outside India & their shareholding

directly or indirectly does not exceed 49%

*Not a subsidiary of a body corporate through more than one layer

* Its promoters, directors and persons holding more than 10% of its share

capital are fit and proper persons

* The three professional Institutes namely ICAI, ICAI-Cost and ICSI have

promoted and registered their IPA pursuant to these regulations

Insolvency Professional Agencies

Section 200 contains the provisions with respect to Insolvency Professional Agencies (IPA).

They have to be registered with the Board.

While registering them, the Board considers the following principles :-

(a) to promote the professional development of and regulation of insolvency professionals;

(b) to promote the services of competent insolvency professionals to cater to the needs of debtors,

creditors and such other persons as may be specified;

(c) to promote good professional and ethical conduct amongst insolvency professionals;

(d) to protect the interests of debtors, creditors and such other persons as may be specified;

(e) to promote the growth of insolvency professional agencies for the effective resolution of insolvency

and bankruptcy processes under this Code.

Insolvency Professional

Section 3(19) of code- Insolvency professional" means a person enrolled under

section 206 with an IPA as its member and registered with the Board (IBBI) as

an insolvency professional under section 207;

Section207- Every Insolvency Professional (IP) shall, after obtaining the

membership of any Insolvency professional agency, register himself with IBBI

within such time, in such Manner and on payment of such fee, as may be

specified by regulations.

Section 206---No person shall render his services as an IP under this Code

without being enrolled as a member of an IPA and registered With IBBI.

IBBI (Insolvency Professionals) Regulations, 2016 notified on 29th November,

2016

No individual shall be eligible to be registered under the IBBI (IP)Regulations, 2016 as an insolvency professional if he-

(a) is a minor; or

(b) is not a person resident in India; or

(c) does not have the qualification and experience specified in theRegulations; or

(d) has been convicted by any competent court for an offence punishablewith imprisonment > 6 months or for an offence involving moralturpitude, and a period of 5 years has not elapsed from the date ofexpiry of the sentence: (Provided that if a person has been convictedof any offence and sentenced in respect thereof to imprisonment for aperiod of >=7 years, he shall not be eligible to be registered);

(e) is an undischarged insolvent, or has applied to be adjudicated as aninsolvent;

(f) has been declared to be of unsound mind; or

(g) is not a fit and proper person;

Criteria for “fit and proper” includes (i) integrity, reputation and character(ii) absence of convictions and restraint orders and (iii) competenceincluding financial solvency and net worth.

The criteria in terms of qualification and experience stipulated in

the IBBI (IP) Regulations, 2016 are :-

(a) He has passed the National Insolvency Examination; or

(b) Has passed the Limited Insolvency Examination and has fifteen

years of experience in management, after he received a Bachelor’s

degree from a university established or recognized by law; or

(c) Has passed the Limited Insolvency Examination and has ten

years of experience as –

(i) CA or (ii) CS or (iii) CMA or (iv) an advocate enrolled with a Bar

Council.

Highest Degree of Integrity and objectivity.Independence and impartiality, Professional competence,

Confidentiality.

Representation of correct facts and correcting misapprehensions.

Timeliness & Information management.

Occupation, employability and restrictions,Remuneration and costs

Gifts and hospitality.

Section 208 Functions

Where any insolvency resolution, fresh start, liquidation or bankruptcy

process has been initiated, it shall be the function of an insolvency

professional to take such actions as may be necessary, in the following

matters, namely:—

(a) A fresh start order process under Chapter II of Part III;

(b) Individual Insolvency resolution process under Chapter III of Part III

(c) Corporate Insolvency resolution process under Chapter II of Part II;

(d) Individual Bankruptcy process under Chapter IV of Part III; and

(e) Liquidation of a corporate debtor firm under Chapter III of Part II.

Obligations:

i. To take reasonable care and diligence while performing his duties;

ii. To comply with all requirements and terms and conditions specified in

the bye-laws of the insolvency professional agency of which he is a

member;

iii. To allow the insolvency professional agency to inspect his records;

iv. To submit a copy of the records of every proceeding before the

Adjudicating;

Function and obligation of insolvency professionals

Adjudicating Authority

DEBT

RECOVERY

TRIBUNAL- DRT

NATIONAL

COMPANY LAW

TRIBUNAL –

DIFFERENT STATE

LEVEL

NATIONAL

COMPANY LAW

APPELLATE

TRIBUNAL

INDIVIDUAL,FIRMS

DEBT RECOVERY

APPELLATE

TRIBUNAL- DRAT

COMPANIES LLP AND

OTHER ENTITIES

WITH LIMITED

LIABIALITY

NCLAT

TO HEAR APPEAL

ON ORDERS PASSED

BY THE BOARD IN

RESPECT TO IP & IU

SUPREME

COURT

TO HEAR APPEAL

ON ORDERS PASSED

BY NCLAT AND

DRAT

* IT IS CALLED CODE AND NOT ACT -Took 56 years for its BIRTH A systematic and comprehensive compilation of laws, rules, or regulations that are consolidated and classified according to subject matter. In preamble the word Act is used but in sec 2 & 3 word code is used

* Insolvency – It is a situation where individuals or companies are unable to repay their outstanding debt.

* Bankruptcy – formed from the Latin words ‘bancus’ means a bench or table & ‘ruptus’ means broken.

Bankruptcy is a legal scheme in which an insolvent debtor seeks relief.

* Liquidation - The company's operations are brought to an end, and its assets are divvied up among creditors and shareholders, according to the priority of their claims.

* Establishment of an Insolvency and Bankruptcy Board of India to exercise regulatory oversight over insolvency professionals, insolvency professional agencies and information utilities.

* Time bound resolution process

* Insolvency test moved from ‘erosion of net worth’ to ‘payment default

* Shift of jurisdiction to NCLT and DRT

* Insolvency Professional (IP) to take over the management and operations of the borrower during the CIRP

* Cross Border insolvency through Bilateral agreements with other countries

* Information utilities would collect, collate, authenticate and disseminate financial information to be used in insolvency, liquidation and bankruptcy proceedings

* Clear and unambiguous process to be followed by all stakeholders. Shift of control from shareholders and promoters to creditors

* Government dues would rank below to those of secured creditors and unsecured financial creditors

* Fast track corporate insolvency resolution process shall be completed within a period of ninety days from the insolvency commencement date

* Voluntary Liquidation of Corporate Persons, Firms and Individuals

INSOLVENCY – BANKRUPTCY -LIQUIDATION

RIP – CORPORATE NIRVAN

1) “Claim" means a right to payment, whether or not such right is reduced to judgment,

fixed, disputed, undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if

such breach gives rise to a right to payment, whether or not such right is reduced to

judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured

2) “Creditor" means any person to whom a debt is owed and includes a financial creditor,

an operational creditor, a secured creditor, an unsecured creditor and a decree- holder;

3) "debt" means a liability or obligation in respect of a claim which is due from any

person and includes a financial debt and operational debt;

3) Property" includes money, goods, actionable claims, land and every description of

property situated in India or outside India and every description of interest including

present or future or vested or contingent interest arising out of, or incidental to,

property;

1) “Corporate applicant” means

(a) corporate debtor; or

(b) a member or partner of the corporate debtor who is authorised to make an application for the

corporate insolvency resolution process under the constitutional document of the corporate

debtor; or

(c) an individual who is in charge of managing the operations and resources of the corporate

debtor; or

(d) a person who has the control and supervision over the financial affairs of the corporate

debtor;-

2) "insolvency resolution process costs" means—

(a) the amount of any interim finance and thecosts incurred in raising such

finance;

(b) the fees payable to any person acting as a resolution professional;

(c) any costs incurred by the resolution professional in running the

business of the corporate debtor as a going concern;

(d) any costs incurred at the expense of the Government to facilitate the

insolvency resolution process; and

(e) any other costs as may be specified by the Board;

3)"initiation date" means the date on which a financial creditor, corporate applicant or operational

creditor, as the case may be, makes an application to the Adjudicating Authority for initiating

corporate insolvency resolution process

4) insolvency commencement date" means the date of admission of an applicationfor initiating corporate insolvency resolution process by the Adjudicating Authorityunder sections 7, 9 or section 10, as the case may be;

5))“Operational creditor" means a person to whom an operational debt is owed and includes any personto whom such debt has been legally assigned or transferred;

6) “Operational debt" means a claim in respect of the provision of goods or services includingemployment or a debt in respect of the repayment of dues arising under any law for the time being inforce and payable to the Central Government, any State Government or any local authority;

7)“Resolution applicant" means any person who submits a resolution plan to the resolution professional;

8) “Resolution professional", for the purposes of this Part, means an insolvency professional appointedto conduct the corporate insolvency resolution process and includes an interim resolution professional;and

9) “Resolution plan" means a plan proposed by any person for insolvency resolution of the corporatedebtor as a going concern in accordance with Part II;

10) “Voting share" means the share of the voting rights of a single financial creditor in the committee ofcreditors which is based on the proportion of the financial debt owed to such financial creditor inrelation to the financial debt owed by the corporate debtor.

Debt default :- Part 3 applies only for defaults of Rs. 1 lakh

or more. CG empowered to prescribe higher amount but not

greater than Rs. 1 Crore. (Section 4)

Persons who may initiate insolvency resolution process :-

Financial Creditor –singly or jointly (As defined in Section

5(7),

Operational Creditor (As defined in Section 5 (20) OR

Corporate Debtor (As defined in Section 3(8)

Insolvency Resolution Process Period : - means the period

of 180 days beginning from the insolvency commencement

date and ending on the 180th day . And it may be extended

by further 90 days (Section 5(14).

(a) a corporate debtor undergoing a corporate insolvencyresolution process; or

(b) a corporate debtor having completed corporate insolvencyresolution process twelve months preceding the date ofmaking of the application; or

(c) a corporate debtor or a financial creditor who has violatedany of the terms of resolution plan which was approvedtwelve months before the date of making of an applicationunder this Chapter; or

(d) a corporate debtor in respect of whom a liquidation orderhas been made.

1) Where any corporate debtor commits a default, a financial creditor, an

operational creditor or the corporate debtor itself may initiate corporate insolvency

resolution process in respect of such the corporate debtor

2) Single or jointly shall make application and furnish record of default and name

of RP to act as IRP

2) Apply to Adjudicating authority who shall, within fourteen days of the receipt

of the application under sub-section (2), ascertain the existence of a default from

the records of an information utility or on the basis of other evidence furnished by

the financial creditor under sub-section (3). And ensure that no disciplinary

proceeding are against proposed RP .

3)Upon admission of application, the Adjudicating Authority will inform to all

concerned parties and will declare moratorium which prohibits institution or

continuation of any kind of litigation in any court of law, tribunal, arbitration

panel or other authority against the corporate debtor;

4)During this process, the management of the debtor and custody of the assets of

the corporate debtor will be vested with the resolution professional to ensure

protection of the assets of the debtor.

INSOLVENCY RESOLUTION PROFESSIONAL

Financial Creditor - Can file proceedings with the NCLT along with proof of default. Shall

also suggest an interim resolution professional to manage the defaulter

Operational Creditor - Needs to give a 10-day notice to the debtor for repayment before

taking action

Corporate Creditor - Defaulting company can start proceedings by making a reference to

the Adjudicating Authority

NCLT to determine the default within 14 days

Financial creditors to take all key decisions in relation to company’s debt restructuring

Threat of automatic liquidation even for small defaults can have unpredictable impacts.

Directors of company or partners of LLP eligible to attend meetings of Committee of

creditors, but not eligible to vote

*

*Part II, Chapter II of the Insolvency and Bankruptcy Code

2016;

*Insolvency and Bankruptcy (Application to Adjudication

Authority) Rules, 2016;

*Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate Persons) Regulations,

2016;

*The Companies (Transfer of Pending Proceedings) Rules,

2016, with respect to transferred proceedings (High Court

and BIFR)

Appointment and Eligibility

Application & Disclosures

Public Announcement

Communication

the role of an IRP - 30 DAYS

Power of management

Invitation ,admission and updation of Claims – Creditors and basis ofproofs

Committee of Creditors

Preparation of Information Memorandum

Reporting to Adjudicating Authority

Challenges – Time lines ,Relevant Fees, Appointment of Professionals,Basis of receiving fees

Liabilities – Corporate Debtors - False information

Liabilties – IRP – acts and omissions

1) APPOINTMENT:

“Resolution Professional”

Section 5(27) of the Code states that “Resolution Professional”, for the purposes of this Part (i.e for Corporate

Insolvency Resolution Process), means an insolvency professional appointed to conduct the corporate insolvency

resolution process and includes an interim resolution professional;

“Insolvency Professional”

Section 3(19) states “Insolvency Professional” means a person enrolled under section 206 of the Code with an

insolvency professional agency as its member and registered with the Board [i.e Insolvency and Bankruptcy Board

of India(“IBBI”)] as an insolvency professional under section 207 of the Code.

2) TERM OF INTERIM RESOLUTION PROFESSIONAL (IRP)

As per Section 16(5) of the Code the term of the interim resolution professional shall not exceed thirty days from

date of his appointment.

3) ELIGIBILITY FOR RESOLUTION PROFESSIONAL

a ) Independent:

TEST OF INDEPENDENCY - is eligible to be appointed as an independent director on

the board of the corporate debtor under section 149 of the Companies Act, 2013

(18 of 2013), where the corporate debtor is a company

b ) Related Party

c) Not an Employee- proprietor – partner – CA/CMA Auditors & PCS firm OR

ADVOCATE ( 10%) OF GTO FOR LAST 3 YEARS

d) Not to continue as Resolution Professional under certain circumstances -represents any of the other stakeholders in

the same corporate insolvency resolution process.

APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL (IRP)

1)Section 16(1) of the Code states that the Adjudicating Authority (i.e National Company Law Tribunal (NCLT)) shall appoint an interim resolution professional within fourteen days from the insolvency commencement date (i.e date of admission of application by NCLT).

2) Section 16(2) Appointment of IRP where the CIRP application is filed by Financial Creditor or Corporate Debtor- Application under section (7) or section (10)

3) Section 16 (3) of the Code states that where the application for corporate insolvency resolution process is made by an operational creditor

* Where No proposal for an interim resolution professional is made, the Adjudicating Authority (NCLT) shall make a reference to the Board (IBBI) for the recommendation of an insolvency professional who may act as an interim resolution professional;

* Where Proposal for an IRP is made (b) a proposal for an interim resolution professional is made under sub-section (4)of section 9 of the Code, the resolution professional as proposed, shall be appointed as the interim resolutionprofessional, if no disciplinary proceedings are pending against him.

* The Board (IBBI) shall, within ten days of the receipt of a reference from the Adjudicating Authority (NCLT) under section 16(3) of the Code, recommend to NCLT, the name of an insolvency professional against whom no disciplinary proceedings are pending.

TERM OF INTERIM RESOLUTION PROFESSIONAL:

* As per Section 16(5) of the Code the term of the interim resolution professional shall not exceed thirty days from date of his appointment

* Application & Disclosures

Rule 9 (1) Application to AA along with form 2 –( Written communication from IRP )

Rule 9 (2) Eligibility Certificate from IRP – (agrees, registration number, IRP /IP, Disciplinary Proceeding, affirmation,disclosures)

Public Announcement:-

U/s 13 & u/s 15 of chapter III IBBI (CIRP) Regulations, 2016.

U/s 13(1) :- Adjudicating Authority shall:-

(a) declare a moratorium in accordance with Section 14 of the Code;

(b) cause a public announcement of the initiation of the CIRP with respect to

the corporate debtor to be made and call for claims in the manner laid

down in Section 15 of the Code; and

(c) Appoint the interim resolution professional for the corporate debtor

in accordance with Section 16 of the Code

U/s 13(2) :- mandates, that the public announcement shall be made

“immediately”* after the appointment of the interim resolution professional

* Not later than 3 days from the date of appointment of IRP

1. Name and address of the corporate debtor under the CIRP;

2. Name of the authority with which the corporate debtor is incorporated or registered;

3. The last date for submission of claims;

4. Details of the interim resolution professional who shall be vested with the Management of the corporate debtor and be responsible for receiving the claims;

5. Penalties for false or misleading claims;

6. The date* on which the CIRP shall commnences and closes.

* *the date on which the CIRP shall close shall be the 180th day from the date of the admission of the application u/s 7, 9 or 10 of the Code, as the case may be.

* PUBLIC ANNOUNCEMENT :- WHO MAKES

* Chapter III, Regulation 6 of the IBBI (CIRP) Regulations, 2016 stipulates that public announcement by an interim resolution professional pertaining to his/her appointment shall be made within three (3) days of such appointment.

Mode of making Public Announcement

* In in one English newspaper & one regional language newspaper

* on the website, if any, of the corporate debtor; and

* on the website, if any, designated by Insolvency and Bankruptcy Board of India for the purpose.

The Public Announcement shall invite creditors for submission of proof of claims and give them fourteen (14) days to submit the same from the date of appointment of the interim resolution professional.

The expenses of the Public Announcement shall be borne by Applicant

* expenses of the Public Announcement shall not form part of the insolvency resolution process costs.

Communication to all concerned Authorities regarding

Appointment of Interim resolution Professional & initiation of

CIRP --- :-

BANK

Stock Exchange

ROC

Depositories of Securities

OTHERS

IBBI (Insolvency Resolution Process by Corporate Persons) Regulations,

2016 prescribes for:-

1. Manner of submission of claims

2. Classification of Claims

3. Proof of Claims

4. Last Date for submission of claims

5. Reporting requirements of IRP with respect to verification of claims

As per section 3(6) of the Code, “claim” means –

(a) a right to payment, whether or not such right is reduced to judgment, fixed,

disputed, undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time being in

force, if such breach gives rise to a right to payment, whether or not such right

is reduced to judgment, fixed, matured, unmatured, disputed, undisputed,

secured or unsecured.

Claims in a CIRP can be submitted by :-

a) Section 5(7) of the Code - A ‘Financial Creditor’

meaning any person to whom a financial debt is owed and

includes a person to whom such debt has been legally

assigned or transferred to;

b) Section 5(20) of the Code - An ‘Operational Creditor’

(other than a Workman) meaning a person to whom an

operational debt is owed and includes any person to whom

such debt has been legally assigned or transferred.

c) Section 3(36) of the Code - A ‘Workman’ within the

meaning of clause(s) of section 2 of the Industrial Disputes

Act, 1947

As per section 5(8) of the Code “financial debt” means a debt alongwith interest, if any,

which is disbursed against the consideration for the time value of money and includes –

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised

equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures,

loan stock or any similar instrument;

(d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a

finance or capital lease under the Indian Accounting Standards or such other accounting standards as

may be prescribed;

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;

(f) any amount raised under any other transaction, including any forward sale or purchase agreement,

having the commercial effect of a borrowing;

(g) any derivative transaction entered into in connection with protection against or benefit from

fluctuation in any rate or price and for calculating the value of any derivative transaction, only the

market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of

credit or any other instrument issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items

referred to in sub-clauses (a) to (h) of this clause;

i) Financial creditors by electronics means only in form C

ii) Basis of proof of claims –

(a) the records available with an information utility, if any;

(b) other relevant documents, including -

(i) a financial contract supported by financial statements as evidence of the debt;

(ii) a record evidencing that the amounts committed by the financial creditor to

the corporate debtor under a facility has been drawn by the corporate debtor;

(iii) financial statements showing that the debt has not been repaid; or

(iv) an order of a court or tribunal that has adjudicated upon the non payment of a

debt, if any.

Submission of claims by Creditors till the approval of Resolution Plan

Regulation 12(2) of the CIRP Regulations states that a creditor, who failed to

submit proof of claim within the time stipulated in the public announcement,

may submit such proof to the interim resolution professional or the resolution

professional, as the case may be, till the approval of a resolution plan by the

committee. Such Creditors shall be the part of COC

As per section 5(21) of the Code “operational debt” means a

claim in respect of the provision of goods or services

including

a) employment or a

b) debt in respect of the repayment of dues arising under any law

for the time being in force and payable to

• the Central Government,

• any State Government or

• any local authority

i) Operational creditors by electronics means only in form B

ii) Basis of proof of claims –

(a) the records available with an information utility, if any;

(b) other relevant documents, including -

(i) a contract for the supply of goods and services with corporate debtor;

(ii) an invoice demanding payment for the goods and services supplied to the

corporate debtor;

(iii)an order of a court or tribunal that has adjudicated upon the nonpayment

of a debt, if any; or

(iv) financial accounts.

Claims by workmen and employees

A person claiming to be a workman or an employee of the corporate debtor

shall submit proof of claim to the interim resolution professional in person, by

post or by electronic means in Form D of the Schedule.

Or when there are many employees or workmen then application can be

submitted in form E thru Authorised Representative.

i) Basis of proof of claims –

(a) the records available with an information utility, if any;

(b) other relevant documents, including -

(i) a proof of employment such as contract of employment for the

Period for which such workman or employee is claiming dues;

(ii) evidence of notice demanding payment of unpaid dues and any

documentary or other proof that payment has not been made; or

(iii) an order of a court or tribunal that has adjudicated upon the

non payment of a dues, if any.

1) Verification of every Claims as on date of commencement of Insolvency date

2) Maintain the list of creditors and their claims admitted, security interest

3) Updation of claims as per Rule 14(1) & 14 (2) & Rule 15

4) Make available for inspection by

• by the persons who submitted proofs of claim

• members, partners, directors and guarantors of the corporate debtor;

• displayed on the website, if any, of the corporate debtor;

• filed with the Adjudicating Authority

• presented at the first meeting of the committee.

5) Constitution of Committee of Creditors – Financial Operational

Creditors committee

6) (a) The management of the affairs of the corporate debtor is taken over by

him/her;

(b) The powers of the Board of Directors or the partners of the Corporate

Debtor, as the case may be, are suspended and be exercised by the IRP;

(c) The officers and managers of the corporate debtor shall report to the IRP and co-

operate with him/her in providing access to documents and recordsof the corporate

debtor;

(d) The financial institutions maintaining accounts of the corporate debtor

shall furnish all information relating to the corporate debtor available with

them to the IRP.

6) Sec (17)

(a) The management of the affairs of the corporate debtor is taken over

by him/her;

(b) The powers of the Board of Directors or the partners of the Corporate

Debtor, as the case may be, are suspended and be exercised by the IRP;

(c) The officers and managers of the corporate debtor shall report to the IRP and

co-operate with him/her in providing access to documents and records of the

corporate debtor;

(d) The financial institutions maintaining accounts of the corporate debtor

shall furnish all information relating to the corporate debtor available with

them to the IRP.

7) Section 17(2) of the Code lists out the various powers that an IRP shall have,

including the power to:

(a) do all acts and execute documents in the name of and on behalf of

corporate debtor;

(b) take such actions, in the manner and subject to such restrictions, as may be specified

by the Board;

(c) access the electronic records of the corporate debtor from the Information Utility;

(d) access the books of account, records and other relevant documents of corporate debtor

available with the Government authorities, statutory auditors, accountants and such

other persons as may be specified.

8) Section (18) of the Code lists out the various powers that an IRP shall have,

including the power to:

(a) collection of all the financial information relating to the corporate debtor;

(b) receipt and collation of debt claims submitted by creditors to the IRP;

(c) constitution of the committee of creditors;

(d) taking control over and monitoring the assets of the corporate debtor;

(e) filing the information collected with an information utility;

(f) take control and custody of any asset over which the corporate debtor has ownership

rights as recorded in the balance sheet of the corporate debtor, or with the information

utility or the depository of securities or any other registry that records the ownership of

assets.

9) Section (19) Obligations of the Personnel and Promoters of the Corporate

Debtor ----TO extend all assistance and co-operation required by the IRP in the

management of the affairs of the corporate debtor.

10) Section (20) It lays down that the IRP has

• to manage the operations of the corporate debtor as a going concern

• to enable him to protect and preserve the value of the property of the

corporate debtor.

These include the power to:

(a) appoint accountants, legal counsel or such other professionals who may

provide specialist advice to the IRP. Such professionals may include turnaround

specialists and management experts.

(b) Enter into contracts on behalf of the corporate debtor or to amend or modify the

contracts or transactions which were entered into before the commencement of the

CIRP;

(c) Raise interim finance. However, any interim finance raised by providing security of an

encumbered property of the corporate debtor will require prior permission of the

concerned creditor;

(d) Issue instructions to personnel of the corporate debtor as may be necessary for keeping

the corporate debtor as a going concern;

11) Appointment of TWO Registered Valuers with in 7 days of his appointment . Third

Registered valuers may be required if there is significant variation in valuation

12) Regulation 30 - Assistance of local district administration

Section 21 requires the IRP to constitute a Committee of Creditors (COC) after

collation of all Claims. The Committee shall comprise of all the financial creditors

of the corporate debtor

A Related party within the meaning of Section 5(24) of the code to whom a

Corporate Debtor owes a financial debt shall not have any right of representation,

participation or voting in a meeting of COC.

Where there are no financial creditors or where all financial creditors are related

parties of the Corporate Debtor, the COC will be set up with only Operational

Creditors as under :-

a) 18 largest operational creditors by value, if no. is less than 18, then all

b) One representative elected by all workmen other than those workmen covered

by a) above

c) One representative elected by all employees other than those employees

covered by a) above.

Voting rights shall be in proportion to the debts owed.

*Notice by electronic means – text or attachment or both or

notification providing URL

*Subject line to state name of corporate debtor, place, date and

time of meeting

*Attachment in PDf format or link with instruction for

downloading relevant version of software

*System should be capable of producing confirmation of total

number of recipients along with record of each recipient as

also failed transmissions and subsequent resending

*Resposibility of IRP is only for transmiting the email and not

responsible for a failure of transmission beyond his control.

* If a participant other than a member fails to provide or update

email to the IRP / RP, non receipt of notice shall not invalidate

the meeting.

*Regulation 17 (1) of the CIRP Regulations requires the IRP to

file a report certifying constitution of the committee to NCLT

on or before the expiry of 30 days from the date of his

appointment.

*Regulation 17(2) of the CIRP Regulations requires the IRP to

convene the first meeting of the committee within 7 days of

filing the report with NCLT

*The IRP should plan activities in such a manner that the first

meeting of the COC is convened within 30 days of his

appointment, since under Regulation 16(5) of the Code, his

office as IRP expires.

1) Formation of COC

* first meeting of the Committee of Creditors shall be held within seven days from the constitution of committee of creditors and the IRP shall be the Chairperson in that meeting.

* Seven days notice – it can be less than7 days by electronic means

* 7days Notice of coc meeting to be given to

* members of Committee of creditors

*members of the suspended Board of Directors or the partners of the corporate persons, as the case may be

* operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent. of the debt.

* Content of Notices shall state agenda, voting methods etc

*Quorum

* Participation through VC

* Conduct of Meeting

* Voting by Committee

* Announcement of Various Decisions taken and vote for and against each such matters voted for.

*Minutes of meeting

Act like Doctors knife to cure rather Butcher’s knife to kill;

SWOT analysis

Determine Eligible or not

Credibility of debtors and creditors

Understand the business needs, cause of failure efforts for turnaround

Assess the values of assets

Timelines

Speed

% Not really in touch with customers through deep dialogue

% No real differentiation in the market

% Leadership breakdown at the top

% Business Model Failure

% Poor Management Team

% Running out of Cash

% Product /Process Problems

% Arrogance

% Inflexibilty

% Obsolete Technology

% Pricing cost issues

% lack of passion

% legal Challenges

THANK YOU