Business Environment under New Insolvency Laws in India India & South Asia Textile Summit, 2017 7th JUNE, 2017 Four Seasons, mumbai Mr. Ishtiaq ali (Founding Partner, Orbit Law Services, India)

Purpose of Presentation To create awareness about the Default Management in doing Business under New Insolvency Laws in India. To understand the Process to Exit from the Business or Rehabilitation of the Business under New Insolvency Laws in India. The evolution of Model Concession Agreement for National Highways is vital to the framework on which the success of Public Private Partnership lies. Series of discussions took place between Planning Commission and Ministry of Road Transport and Highways and National Highways Authority of India on issues like Grant vs Premium, Site Handover, Omnibus Bipartite State Support Agreement, Specifications and Standards, Supervision, Change of Scope, Security to Lenders, Change in Ownership, Breach of Maintenance Obligations, Variations in Traffic growth, Overloading, Termination etc. The balanced and proactive approach that evolved out of these discussions made the Model Concession Agreement comprehensive, less ambiguous and justifiable for both concessionaire and the Government. www.orbitlaw.co.in

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Background for Introduction of Insolvency and Bankruptcy Code, 2016 (“IBC”) Before the enactment of the Insolvency and Bankruptcy Code, 2016, there was no single legal framework in India that dealt with insolvency and bankruptcy. The provisions relating to insolvency and bankruptcy were scattered over many legislations viz: For Companies Sick Industrial Companies (Special Provisions) Act, 1985 (dealing with the sick industrial companies), The Recovery of Debt Due to Banks and Financial Institutions Act, 1993, The Securitization and Reconstruction of Financial Assets and Enforcement of security Interest Act, 2002 and The Companies Act, 2013 For individuals The Presidency Towns and Insolvency Act, 1909 and The Provincial Insolvency Act, 1920 www.orbitlaw.co.in

High courts were handling the Liquidation proceeding of companies Jurisdiction High courts were handling the Liquidation proceeding of companies District courts or High courts, as the case may be, were handling bankruptcy insolvency proceedings of individuals and partnership firms. Multiple Jurisdictions were existed under various statutes for Debt Recovery & Insolvency Resolution. Cumbersome Procedure for Rehabilitation of Business or to Exit from the Business www.orbitlaw.co.in

OBJECTIVE OF IBC To consolidate and amend various laws relating to reorganization and insolvency resolution of Corporate persons /partnership /individual; To provide Adjudicating Authority - National Company Law Tribunal (NCLT) for corporate persons and Debt Recovery Tribunal (DRT) for firms and individual, for resolution of insolvency, liquidation and bankruptcy. To Complete the Insolvency Process in time bound manner Maximization of value of assets of persons To promote Entrepreneurship To make availability of credit and balance the interest of all the stakeholders in rehabilitation/restructuring of business process Introduction of insolvency professionals (“IP”) to ensure more professionalism and to bring efficiency in resolution proceedings. To establish the Insolvency and Bankruptcy Board of India (“Board”) for regulation of IP, Insolvency Professional Agencies (“IPA”) and Information Utilities(“IU”) www.orbitlaw.co.in

ROLE OF INSOLVENCY PROFESSIONAL Insolvency professional (IP) is a person enrolled, under section 206 of IBC, with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207. IPs play a key role in the management and administration of the entire insolvency resolutions, fresh start, liquidation and bankruptcy process. [section 208 of IBC] www.orbitlaw.co.in

ROLE OF INSOLVENCY PROFESSIONAL AGENCY Insolvency professional agency can be any person registered with the Board under section 201 as an insolvency professional agency; IPA is : to promote the professional development of and regulation of IPs; to promote service of competent insolvency professionals to cater to the needs of debtors, creditors, and such other persons, as may be specified; to promote good professional and ethical conduct amongst insolvency professionals; to protect interest of debtors, creditors, and such other persons, as may be specified. www.orbitlaw.co.in

THE ROLE OF INFORMATION UTILITY Information Utility (IU) is a person who is registered with the Board as an Information Utility under section 210 of IBC. The purpose of IU is to manage submission and transmission of data pertaining to insolvency and provide such services as may be specified including “core services” to any person, if such person complies with the terms and conditions as may be specified by regulations. Core Services as defined under section 3 (9) 0f IBC are as under: accepting electronic submission of financial information in such form and manner as may be specified; safe and accurate recording of financial information; authenticating and verifying the financial information submitted by a person; and providing access to information stored with the information utility to persons as may be specified; www.orbitlaw.co.in

PERSONS COVERED UNDER IBC Sole Proprietorship or Individual Partnership Limited Liability Partnership (LLP) Private Company Public Company One person Company www.orbitlaw.co.in

APPLICATION OF IBC PROVISIONS Part II of IBC Relating to Insolvency Resolution And Liquidation For Corporate Persons Part III of IBC Relating to Insolvency Resolution And Bankruptcy For Individuals And Partnership Firms www.orbitlaw.co.in

ADJUDICATING AUTHORITY For Corporate Person - National Company Law Tribunal (NCLT) For Individuals And Partnership Firms - Debt Recovery Tribunal (DRT) www.orbitlaw.co.in

Who can File Application for Corporate Insolvency Proceeding? Corporate Debtor “Corporate Debtor” means a corporate person who owes a debt to any person. [section 3 (8) of IBC] Financial Creditor “Financial Creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. [section 5 (7)of IBC] Operational Creditor “Operational Creditor” means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. [section 5 (20) of IBC] www.orbitlaw.co.in

Relevant Terms used in IBC 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. [section 3 (11) of IBC] 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. [section 3 (6) of IBC] Operational debt means a claim in respect of the provision of goods or services including employment or a 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. [section 5 (21) of IBC] Financial debt means a debt along with 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. [section 5 (8) of IBC] www.orbitlaw.co.in

Process For insolvency resolution/liquidation of a Corporate Debtor Application To Be filed before NCLT by (a) Financial Creditor [ section 7 of IBC] , Operation Creditor [ section 9 of IBC] and (d) Corporate Debtor [ section 10 of IBC] for insolvency resolution and liquidation of Corporate Debtor. Timeline Ideally corporate insolvency resolution process should be completed in 180 days. If it is fast track, it should be completed in 90 days. (Section 12 & 56 of IBC) Moratorium Once the application is admitted, a moratorium will be declared till the completion of the resolution process. During the moratorium, no suits or proceedings can be filed or if filed, be proceeded against the corporate debtor/company; the company cannot transfer its assets; no action under SARFAESI be taken. If an order for approval of resolution process or for liquidation of the company is passed, the moratorium will cease to exist. (Section 14 of IBC) www.orbitlaw.co.in

Interim Resolution Professional (IRP) Public Announcement Public announcement of the corporate insolvency resolution process made in such manner as may be directed in the rules. [ Section 15 of IBC] Interim Resolution Professional (IRP) NCLT to appoint Interim Resolution Professional (IRP) within 14 days from the Insolvency Commencement date i.e. the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section 10, as the case may be. [ Section 16 of IBC] Affairs to vest in IRP From the date of his appointment, the affairs of the company will vest in the IRP; directors’ powers will be suspended; staff will report to the IRP; financial institutions will act as per the instructions of the IRP. IRP may execute documents in the name of the company and he may take actions as may be specified by Board; he can have access to books of account and other relevant records of the company [ Section 17 of IBC]. Action by IRP IRP will collect information with regard to the assets, finances and operations of the company for determining the financial position; receive claims submitted by creditors; constitute creditors committee; take control of the assets of the company. IRP will try to ensure that the company remains a going concern and will try to run the business by appointing professionals, raising interim finance (any financial debt to be raised by the resolution professional during the insolvency resolution process period) etc. [ Section 18 of IBC]. www.orbitlaw.co.in

Committee of Creditors (COC) Committee of creditors will take decisions based on majority which shall not be less than 75%. COC will hold first meeting within 7 days of constitution of COC. They may confirm the IRP as Resolution Professional (RP) in the first meeting or propose another name as RP which will be decided by NCLT on confirmation from Board. [Section 21 of IBC]. Resolution Professional RP will do the acts/functions what IRP could do as per above. RP may file application for avoidance of transactions. Such transactions include transfers made by the company one year preceding the filing of application by the company for resolution. The filing of application by RP for avoidance will have no effect on the proceedings. COC Decisions COC decisions are final and overriding with regard to raising interim finance. creation of security interest, changing capital structure, record any change in ownership interest of the company, for debiting any account maintained by financial institutions, related party transactions, amending constitutional documents, disposal of shares by any shareholder of the company, Management change etc. www.orbitlaw.co.in

Information Memorandum (IM) RP will prepare an information memorandum containing relevant information (financial position etc.) as may be specified by Board (in rules). Resolution Plan Based on the IM, the company may submit a resolution plan to RP. RP will submit the resolution plan to COC. COC may approve the plan. The COC approved resolution plan will be submitted to NCLT. Approval of resolution plan by NCLT If NCLT approves the resolution plan, the same is binding on the company, its employees, creditors, guarantors and other stakeholders. NCLT may reject the resolution plan if the same is not in accordance with section 30 (2 ) of IBC. Appeal An appeal may be filed against the order of NCLT as above before NCLAT and then with Supreme Court from the order of NCLAT. [Section 61, 62 of IBC] www.orbitlaw.co.in

Liquidation Process and Distribution of Sale Proceeds If NCLT rejects the resolution plan, liquidation order will be passed by NCL. COC can decide the liquidation of the company before NCLT passes an order on the resolution plan, NCLT shall bound to pass an order for liquidation. Similarly, if the order approving the resolution plan is contravened by the concerned corporate debtor, any person other than corporate debtor, whose interest are prejudicially affected by such contravention , may file an application before NCLT for liquidation on which NCLT may pass an order for liquidation of corporate debtor. [Section 33 of IBC] RP As the Liquidator When an order for liquidation is passed, RP shall act as liquidator and all the powers of the board of directors and key managerial personnel shall vest in the liquidator. The liquidator shall act as per the overall instructions of the NCLT and do all things as are required (section 35 of IBC). www.orbitlaw.co.in

Liquidation Estate The assets of the company will be known as liquidation estate The liquidator shall hold the assets as fiduciary for the benefit of the creditors. The assets mentioned in section 36(4) of IBC are not considered as part of liquidation estate which are as under : assets owned by a third party which are in possession of the corporate debtor, including- (i) assets held in trust for any third party; (ii) bailment contracts; (iii) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund; (iv) other contractual arrangements which do not stipulate transfer of title but only use of the assets; and (v) such other assets as may be notified by the Central Government in consultation with any financial sector regulator; assets in security collateral held by financial services providers and are subject to netting and set-off in multi-lateral trading or clearing transactions; personal assets of any shareholder or partner of a corporate debtor as the case may be provided such assets are not held on account of avoidance transactions that may be avoided under this Chapter; assets of any Indian or foreign subsidiary of the corporate debtor; or any other assets as may be specified by the Board, including assets which could be subject to set-off on account of mutual dealing between the corporate Debtor and any creditor www.orbitlaw.co.in

Distribution of Sale Proceeds Claims Within 30 days from the date of commencement of liquidation process, the liquidator shall collect claims from creditors. The creditors may withdraw or vary their claim within 15 days of submission.[Section 38 of IBC] Disposal of Claims The liquidator may after verification of the claims, accept or reject the claims and the aggrieved party may approach NCLT against the decision of the liquidator[ Section 39, 42 of IBC]. Distribution of Sale Proceeds The proceeds from the sale of assets shall be distributed in the priority of costs of insolvency resolution process workmen’s dues and dues of secured creditors on pari passu basis unpaid dues of employees other than workmen financial debts due to unsecured creditors government dues and debts due to secured creditors which are unpaid following enforcement of security interest remaining debts and dues.[ Section 53 of IBC] www.orbitlaw.co.in

Certain Transaction Not Valid Preferential transactions will be avoided by the order of NCLT. Any transfer of property made (i) in favour of related parties ( as defined in Section 5 (24) of IBC) two years preceding the commencement of insolvency resolution process; and (ii) in favour of any other person one year preceding the commencement of resolution process, where such parties or persons stood guarantee/surety or extended credit for antecedent financial debt or operational debt or other liability of the company, such transfers shall be avoided for which the RP or the liquidator will make an application to NCLT. Undervalued transactions will be avoided by the order of NCLT. Any transfer of property made (i) in favour of related parties two years preceding the commencement of insolvency resolution process; and (ii) in favour of any other person one year preceding the commencement of resolution process, where property transferred by way of gift or transfer for a value significantly less than the value of the consideration provided by the company, such transfers shall be avoided for which the RP or the liquidator will make an application to NCLT. In both the above cases, NCLT may pass an order that the property so transferred shall be vested in the company as if no transfer took place. www.orbitlaw.co.in

Questions & Further Information Orbit Law Services is a law firm with offices in New Delhi, Mumbai, Chennai and Vijayawada, India. The Firm’s partners have decades of experience and expertise and are often called upon to advise on complex legal issues in challenging business environments. As trusted advisors, we have represented a wide variety of commercial, industrial, institutional and individual clients, including banks, financial institutions, large and mid-sized public sector as well as private sector companies, partnerships, business groups, and emerging companies – nationally and internationally. This document has been prepared for general guidance only. It does not contain definitive advice; please contact Orbit Law Services if you would like more detailed information on any item referred to. Further Information If you require further information, or wish to discuss any of the above, you can contact: Ishtiaq Ali Founding Partner T +91 (22) 61692222 M +91 9869022636 E ishtiaq.ali@orbitlaw.co.in www.orbitlaw.co.in