WHAT IS IBC (Insolvency & Bankruptcy Code?
Insolvency and Bankruptcy Code, 2016 (referred as IBC) which is considered as the biggest insolvency reform, is a central Act enacted for reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for maximization of the value of assets of such persons.
IBC was enacted and came into force w.e.f. 28th May 2016, however, some of the sections were made effective on various dates to implement in a systematic manner. Some of the parts have not even been notified till date i.e. 01/01/2019 e.g. bankruptcy process for partnership firms and individuals.
Insolvency & Bankruptcy (IBC) HISTORY
The era before IBC were having various scattered laws relating to insolvency and bankruptcy which caused inadequate and ineffective results with undue delays. For example
- SARFAESI – (Securitization and reconstruction of financial assets and enforcement of security interest) Act for security enforcement,
- RDDBFI (Recovery of debt due to banks and financial institutions) for debt recovery by banks and financial institutions,
- Companies Act for liquidation and winding up of the company,
- Presidency Towns Insolvency Act and Provincial Insolvency Act for sick-ness and insolvency of partnership firm, HUF & individual
Ineffective implementation, conflict in one of these laws and the time-consuming procedure in the aforementioned laws, made the Bankruptcy Law Reform Committee to draft and introduce Insolvency and Bankruptcy Law bill.
How petition under IBC is filed and process ?
In simple terms, if any company (Corporate debtor) makes the default in financial or operational debt which is due, in such situation, any such creditor who has debt and default in such debt may, file a petition before NCLT (National Company Law Tribunal) to initiate the insolvency process (corporate insolvency Resolution process CIRP) against such company Corporate debtor. Hence it requires the following conditions to file the petition before Hon’ble NCLT :
- There should be debt which is due to the company
- The Company would have defaulted in the repayment or fulfill such debt
- The amount of such default should be more than Rs. 1 Crs (w.e.f. from 25/03/2020)
- In Homebuyers case, there should be more than 10% of allottees or 100 in nos. whichever is less
The CIRP under IBC (Insolvency and Bankruptcy Code) has the following unique features than any other legal process
- Appointment of IRP – An IRP (interim resolution professional) is appointed by NCLT on initiation of CIRP order.
- Every creditor is required to file its claim for the amount against the company under CIRP
- All the major decision are taken by the committee of Creditors (CoC) which comprise only the financial creditors.
- Power of directors/board get suspended and all power comes with IRP/RP
- The process needs to be completed within 180 days (maximum 330 days)
- To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.
- Consolidate and amend all existing insolvency laws in India.
- To protect the interest of creditors including stakeholders in a company.
- To revive the company in a time-bound manner.
- To promote entrepreneurship
- To get the necessary relief to the creditors who have been waiting for the payments since a long time
- To curb down the fraudulent corporate persons who have been defaulting in making due payments.
- To work out a new and timely recovery procedure to be adopted by the banks, financial institutions or individuals.
- To set up an Insolvency and Bankruptcy Board of India.
- Maximization of value of assets of corporate persons.
KEY FEATURES OF IBC
- One set of laws for insolvency and bankruptcy
- Timely bound process for payment to creditors and insolvency process.
- It is the most prevalent law dealing with Insolvency and Resolution proceedings in India.
- It has an overriding effect on other laws.
- Gives equal representation to all the creditors for effective resolution of the stressed assets.
- Appointment of Insolvency Resolution Professional to take care of the business of financially distressed companies.
- Provide relief to all the creditors (Financial or Operational) who are owed some amount from the corporate persons.
- Empower the creditors to make key decisions during the insolvency proceedings.
- Includes homebuyers under the definition of financial creditors.
- Financial as well as operational creditors cab, initiate Corporate Insolvency Resolution Proceedings against corporate persons.
- Invitation to submit resolution plans to take over the distressed companies.
In the light of above features, we can clearly make out how this new legislation will act as superior law in effective industrial development. IBC will help in removing the defaulting and fraudulent businessmen from the market.
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