The Insolvency and Bankruptcy Code, 2016 (‘Code’) redefined the structure for the Indian Insolvency resolution Process.In no time, it became a reform by the stakeholders, of the stakeholders and for the stakeholders.The objective of the Code is time-bound resolution process for maximization of value of assets of the company for the interests of all its stakeholders.
The code is playing an essential role in addressing the non-performing assets (‘NPA’) of the banking sector. Despite vigorous efforts by the lenders for recovery procedure under Sarfaesi Act, 2002 it has not been considered to be vital tool for curtailing the NPA obstacle of the nation. Thus, the efficient insolvency framework in the country would be helpful in the resolution of non-performing loans and aims for the benefit of creditors other than banks and financial institutions.
The IBC, consolidating all existing insolvency-related laws, has brought about a revolutionary change in the form of a robust, modern and sophisticated insolvency framework. This framework seeks to achieve a resolution for corporate debtors in distress and failing that, their liquidation in a time-bound manner.
The significant innovation of the IBC is a four-pillar institutional framework comprising:
• the first pillar of the judicial adjudicating authority, being National Company Law Tribunal (‘NCLT’)
• the second pillar of the regulator, being Insolvency and Bankruptcy Board of India (‘IBBI’), monitoring
insolvency professionals and insolvency professional agencies (‘IPA’);
• the third pillar is the insolvency professionals, independent officers, play a key role in the efficient working
of the insolvency and bankruptcy process under the code;
• the fourth pillar of a new industry called information utilities (‘IU’) to electronically store documents and
terms of lending.
The code allows stressed asset resolution to be regulated by a definite legal structure called CIRP. The application for initiation of the CIRP can be filed by the financial creditor, operational creditor or corporate itself before NCLT on the minimum amount of default of INR One Lakh. The NCLT once admitted the application and initiates a CIRP against the company (‘corporate debtor’).
(a) the institution of new suits or the continuation of pending suits or proceedings against the corporate debtor;
(b) the transfer, encumbrance, alienation or disposing off any of its assets by the corporate debtor;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of
its property, including any action under Sarfaesi Act, 2002;
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
An interim resolution professional (‘IRP’) is appointed with the power to take charge of the company which has defaulted and the power of the board of directors of a corporate debtor stands suspended and its management powers will be vested with IRP who has to conduct the entire CIRP with the support and advice of a Committee of Creditors(‘CoC’) mainly comprising of unrelated financial creditors. The CoC needs to appoint Resolution Professional (‘RP’).It is the duty of the RP to protect and preserve the assets and to keep the business of the corporate debtor as the going concern. The RP is granted 180 days with 90 days to find a resolution, which can be extended by 90 days.
As per recent amendment second proviso of section 12 of the code, read with the order of the Supreme Court in the Essar case, the CIRP shall be completed within a period of 330 days from the CIRP commencement date, including any extension of the CIRP period and the time taken in legal proceedings in relation to such CIRP of the corporate
The resolution process under the code is ultimately in the hands of the majority vote of the CoC. It may approve a resolution plan by a vote of not less than 66% of the voting share. The CoC has to consider the feasibility and viability and various other requirements as prescribed under the applicable regulations. Therefore, the participation of creditor in the CIRP is considered to the most important features of any insolvency framework in order to manage the Insolvency Resolution Process effectively in India.
In case the RP fails to find a resolution within the stipulated timeline or the CoC does not approve the resolution plan by a vote of not less than 66% of the voting share, the corporate debtor is liquidated to pay the creditors.
Thus, the code introduced a paradigm shift from “Debtor in possession” to “Creditor in control” to the Indian market,and provides a market-determined and time-bound mechanism for an orderly resolution of insolvency, wherever
possible, and ease of exit, wherever required.
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