The Insolvency and Bankruptcy Code, 2016 Insolvency and Bankruptcy... · 2020-01-23 · The...

The Insolvency and Bankruptcy Code, 2016

Snapshot

M.K. Dandeker & Co.,

The Insolvency and Bankruptcy Code, 2016:

• Extends to whole of India

• Part III (Insolvency for Individuals and Firms) shall not extend to Jammu & Kashmir

• Overrules all other Acts.

Insolvency Resolution and Liquidation (Corporate Persons)

• Company

• Limited Liability Partnership

• Any other person incorporated with limited liability

• Minimum default is INR 100,000

Insolvency Resolution and Bankruptcy

• Individuals

• Partnership Firms

Default not less than INR 1,000

Financial Service

Provider not

covered

Process – Financial Creditors


1. Financial Creditor

2. Operational Creditor

3. Corporate Debtor itself

Initiate corporate insolvency resolution

process

Financial Creditor makes application to

Adjudicating Authority (NCLT)*

(Insolvency Initiation date)

Submits along with application:

a) Record of default

b) Name of Resolution Professional proposed to act as Interim Resolution Profession

c) Other information specified by Board

1. Application :

* National Company Law Tribunal. Adjudicating Authority for Insolvency Resolution and Bankruptcy process is Dispute Resolution Tribunal (DRT).

Process – Financial Creditors


2. Application Acceptance / Rejection:

Within 14 days of receipt of application, NCLT ascertains

existence of default

Order to be communicated within 7 days to:

• Financial Creditor and Corporate Debtor, if accepted

• Financial Creditor, if rejected.

Else, NCLT rejects application by Order.

Issues notice to applicant to rectify the defect in application within 7 days of receipt of such notice before such order

NCLT accepts the application by order (Insolvency Commencement date), if satisfied that:a. Default has occurred

b. Application is complete

c. No disciplinary proceedings pending against proposed resolution professional

Process – Operational Creditors


On occurrence of default, delivers a demand notice of unpaid operational debtor copy ofan invoice demanding payment of default amount.

Corporate Debtor within 10 days, bring to notice of Operational Creditor:

• Existence of dispute, if any and Record of pendency of suit / arbitration proceeding filed before such notice / invoice receipt

• Repayment of unpaid operational debt:

i. By sending attested copy of record of electronic transfer of unpaid amount from bank account of corporate debtor.

ii. By sending attested copy of record that operational creditor has encashed a chequeissued.

If payment / dispute notice not received by operational creditor after 10 days, may filean application before NCLT for initiating corporate insolvency resolution process.

Contd..



Documents to be produced with application:

• Copy of invoice demanding payment / demand notice delivered by operationalcreditor.

• Affidavit that no notice is given by corporate debtor relating to dispute of unpaidoperational debt.

• Copy of certificate from Corporate Debtor’s Financial Institution that there is nopayment of unpaid operational debt

Operational Creditor may propose resolution professional to act as interim resolutionprofessional.

Operation Debt means claim in respect of:

• Provision of goods or services• Employment debt• Statutory debts



2. Application Acceptance / Rejection (Operational Creditors):

NCLT accepts the application by order within 14 days and communicates to Operational creditor and Corporate debtor, if :

a. Application is complete

b. No repayment of unpaid operational debt

c. Invoice / Notice for payment is delivered by Operational Creditor

d. No dispute notice is received by Operational Creditor / No record of dispute

e. No disciplinary proceedings pending against proposed resolution professional.

NCLT rejects by order and communicates to Operational creditor and Corporate debtors, if:

a. Application is incomplete

b. There is repayment of unpaid operational debt

c. Creditor not delivered the invoice / notice for payment

d. Dispute Notice is received / There is a record of dispute

e. Disciplinary proceedings pending against the professional

Time Limit for completion of insolvency resolution process


Within 180 days from the date of application to initiate the process (Insolvency Initiation date), process to be completed and decision to be communicated to NCLT.

Maximum of 90 days, upon application by Resolution Professional (before completion of 180 days).

Instruction by resolution passed at Committee of Creditors meeting by a vote of 75% of voting shares.

NCLT to satisfy that process cannot be completed within 180 days.

Extension more than once not permitted.

Time Limit

Extension

Applicant should submit Resolution plan to NCLT, forwarded through Interim Resolution Professional.

Resolution Plan

Appointment and Tenure of Interim Resolution Professional


Appointment of Proposed

Professional

NCLT shall appoint the proposed professional as Interim Resolution Professional within 14 days.

Acceptance by Interim Resolution Professional and Notice by Applicant within 3 days from appointment date

Professional not proposed

If application for corporate insolvency resolution process and professional is not proposed:

• NCLT to make reference to Board (IBBI) for recommendation of insolvency professional.

• Board within 10 days of receipt of reference, recommends the professional name.

Term of Interim Resolution

Professional

Shall not exceed 30 days from NCLT Appointment date

Contd..


Powers

From appointment date:

• Management of affairs vests with the professional.

• Power of Board of Directors / Partners stand suspended and be exercised by the professional.

• Officers and Managers to report to the professional and provide access to required records.

• Financial Institution acts on the professional’s instruction

• Appoints 2 Valuers, Auditors, Company Secretary, Accountant, legal and other professionals.

• Can become Independent Director of Corporate Debtor.



Duties

• Calls for the claims by stipulating the last date for submission of claim in the public notice.

• Files statement on financial position, Assets & Liabilities with NCLT within 30 days of appointment.

• Constitute a Committee of Creditors within 2 weeks from Insolvency Acceptance date.


Moratorium and Public Announcement


Moratorium & Public

Announcement

NCLT after acceptance of application:

• Declare a moratorium immediately (Interim).

• 30 days from Insolvency Commencement date.

• Cause a public announcement of initiation of corporate insolvency resolution process immediately.

• Cost of public notice to be borne by the Applicant.

Prohibition during Moratorium

• Institution of suits / continuation of pending suits or proceedings against corporate debtors

• Transferring / Encumbering / alienating / disposing off assets

• Action to foreclose / recover / enforce security interest created by Corporate debtor

• Recovery of property occupied / in possession of Corporate debtor by lessor.

• Not applicable for supply of essential goods / services.


Moratorium Period

Have effect till completion of Corporate insolvency resolution process.

Moratorium ceases, if liquidation of Corporate Debtor is sanctioned.

Moratorium and Public Announcement

Committee of Creditors & Appointment of Resolution Professional


Composition

All Financial Creditors of Corporate debtor.

In case of more than one financial creditor, each such financial creditor to form part of the Committee. Voting share is determined basis of financial debts owed to them,

Decision making

Financial Creditors - Decisions to be taken by vote of not less than 75% of voting share.

Operational Creditors – Decision to be taken by vote of not less than 75% of voting share and not less than 50% of number of operational creditors in Committee.

First Meeting & Appointment of

Resolution Professional

• To be held within 7 days of constitution of the committee.

• By majority of vote not less than 75% may resolve to appoint interim resolution professional as Resolution professional / replace interim resolution professional.


Notice of Meetings of Committee of Creditors

Resolution Professional shall give notice to:

• Members of Committee

• Members of suspended Board or Partners

• Operational Creditors / their representatives, if aggregate due is not less than 10% of the debt.

• Directors, Partners shall not have right to vote in the meetings.

Committee of Operational Creditors

18 largest Creditors in value, 1 representative each from Workmen and Employees.

Quorum

33% Quorum

Decision Making – Vote by 75% of total voting rights (financial creditors).

– Vote by 75% of total voting rights & 50% of number of Committee members (Operational creditors).



Appointment of Interim Resolution Professional as

Resolution Professional

Committee of Creditors communicates to the professional, Corporate Debtor and NCLT.

Appointment of person other than Resolution

Professional (Operational Creditors)

• Committee shall make application to NCLT.

• NCLT forwards the name of the resolution professional to Board for its confirmation

• NCLT shall make the appointment after Board’s confirmation.

• If Board do not confirm within 10 days, NCLT by order directs the interim professional to continue to function as Resolution Professional till Board confirms.


Appointment of Insolvency professional

(Financial Creditors)

Can appoint an insolvency professional other than the resolution professional at his own cost to represent himself in the Committee of Creditors to the extent of his voting shares.

Liquidation of Corporate Debtors


Resolution Professional as Liquidator

NCLT has option to appoint Resolution Professional himself / herself as Liquidator, if corporate debtor is to be liquidated.

Liquidation to be completed within 24 months.

Liquidator to submit the Statement of Assets and Liabilities, Progress Reports to NCLT.

Time for completion

* Official Liquidator can sue / can be sued on behalf of the liquidating Corporate debtor.


Secured Creditors

Allowed to enforce security on verification of security interest by Liquidator.

Can remain outside liquidation proceedings and enforce securities. However, claims will not be given priority over other claims, including Government dues.

Can join liquidation proceedings and relinquish security interests to liquidation assets, their claims, along with workmen’s dues for 24 months , are given priority over all other claims.

Relinquishment of securities by Secured Creditors is required to claim priority over taxation dues.

Liquidation of Corporate Debtors

Few Practical Insights


Where to file Insolvency Petition

No guidelines in Code.

Advisable to file in the place where main business is conducted / predominant presence of corporate debtors.

Petition to be published in 1 newspaper each of English and Regional language and of in wide circulation in the region.

Resolution Professional to appoint 3rd Valuer.

½(Lowest valuation among the 2 valuation report plus the value as per 3rd valuer) to be considered as the value of property.

Drastic difference in valuation report


Natural Justice

Financial Creditor should give notice to Corporate Debtor about initiation of insolvency resolution and liquidation process as a natural justice.

NCLT can reject the petition if natural justice not followed.

The views are upheld by judicial pronouncements (ICICI Bank Limited Vs. Innovative Industries)

There should be a dispute. However, mere dispute is not adequate.

Documents evidencing the dispute to be submitted by Operational Creditor to NCLT.

Dispute should be in existence before commencement of the insolvency resolution and liquidation process.

Dispute in case of Operational Creditor

Few Practical Insights

Thank You

M. K. Dandeker & Co.,Chartered Accountants


The Insolvency and Bankruptcy Code, 2016 Insolvency and Bankruptcy... · 2020-01-23 · The...

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