Insolvency and Bankruptcy code Dhiraj Dave June 2017

Why Insolvency Code Improve ‘Ease of Doing Business’ ranking for India High Stress level in Banking System Release Capital quickly from system for productive re-usage The average life of cases recommended for restructuring in 2002 was 7 years and the average life of cases recommended for winding up to the court was 6.5 years Consolidating various regulation under one umbrella Increasing share on bond in debt market in India Increasing confidence of international investor in Indian market Difficult regulation related to enforcement of security by Foreign lender which increase cost of borrowing for Indian borrower

Ease of doing business : India’s ranking

What has changed? Insolvency test moved from ‘erosion of net worth’ to ‘payment default’ Single insolvency and bankruptcy framework. Replaces SICA Time bound resolution process Advantage Creditor Shift of control from shareholders and promoters to creditors Provide confidence to lenders of their rights and their enforcement. Better symmetry of information flow between creditors and debtors Government dues would rank below to those of secured creditors and unsecured financial creditors Insolvency Professional (IP) to take over the management and operations of the borrower during the CIRP Focus to get back fraudulent diversion of assets, personal contribution can be sought; imprisonment possible

Insolvency and Bankruptcy Code Infrastructure NCLT Information Utility Insolvency Professional Insolvent Entity Committee of Creditor Insolvency and Bankruptcy Board Insolvency Agency

Corporate Insolvency Resolution Process Default Appointment of a resolution professional Formation of committee of Creditors Moratorium period (180/270 days) Goes into Liquidation Implementation of Resolution plan 75% of the creditor to approve Yes No

Corporate Resolution Timeline No of Days -ve 14 Admission of Application, Moratorium Declared 14 21 16 30-44 37 51 180 65 150 170 NCLT Appoint Interim RP Public announcement Appoint 2 Valuer to calculate liquidation value IRP to constitute CoC and submit report Creditor to submit claims First CoC meeting Preparation of IM Submission of plan Coc’s approval of resolution plan Application for NCLT approval Initiation of Liquidation Filing of application to NCLT

Corporate Liquidation : Priority of claims Insolvency resolution process and liquidation cost Insolvency cost include funding cost for running the debtor as going concern Secured creditor and workman dues (upto 24 months) Secured creditor can opt for SARFAESI Action, No clarity on right of different class of creditor Other Employee dues (upto 12 months) Non Workman/ Contract labour Financial debt of unsecured Creditors ECB/ Fixed deposit Government dues (upto 2 years) and unpaid secured creditor SARFAESI lender residual claim Any other remaining debt Other dues of debtors Preference shareholder Having Priority over Equity Equity shareholder Least priority class

Key Role of Resolution Professional Appointed Resolution professional IP shall exercise all that power of the board of director of the corporate debtor Board of Power of corporate debtor are suspended from IP appointment date Officer and manager of corporate debtor shall report to IRP/RP IRP/IP shall act and execute in the name and on behalf of corporate debtor all deed, receipts and other documents Key role of Resolution professional Form Committee of Creditor Chair Committee of Creditor Prepare information memorandum and invite resolution plan Investigate financial affair of the company Key role of Liquidator Receive, verify and value claims of all the creditors, and settle such claims Take into his custody or control all the assets, and sell the assets Carry on the business of the corporate debtor for its beneficial liquidation Apply to the Adjudicating Authority for avoidance of transactions