1. INSOLVENCY AND BANKRUPTCY CODE, 2016
Council For Fair Business Practices “Our Mission   “We shall promote the highest ethical practices, by business & professionals, in order to Provide complete satisfaction to consumers & other stakeholders.”
BY-
RAJESH NARAIN GUPTA; MANAGING PARTNER
SNG & PARTNERS

2. OBJECTS OF THE CODE The Code :
The Insolvency and Bankruptcy Code was passed by the Lok Sabha on May 5, 2016 and Rajya Sabha on May 11, 2016.
The Code :
Consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals;
In a time bound manner;
For maximization of value of assets of such persons;
To promote entrepreneurship and availability of credit;
Balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues; and
Establishes an Insolvency and Bankruptcy Board of India

3. APPLICABILITY
The Code applies to companies, LLPs, partnership firms, corporate persons and individuals and any other body specified by the Government.
According to the Code, the insolvency resolution processes will be conducted by insolvency professionals who will be licensed professionals and members of insolvency professional agencies.
NCLT is the Adjudicating Authority for corporate persons (companies, LLP etc.) and DRT is the Adjudicating Authority for individuals and partnership firms.

4. RELEVANT ENTITIES
The Code establishes the following new entities to be setup under the Code:
Insolvency and Bankruptcy Board of India;
Insolvency Professionals;
Insolvency Professional Agencies; and
Information Utilities.

5. NATIONAL COMPANY LAW TRIBUNAL
Adjudicates insolvency resolution for corporate persons including corporate debtors and personal guarantors.- Expeditious disposal of applications.
has territorial jurisdiction over the place where the registered office of the corporate person is located.
An insolvency resolution process or bankruptcy proceeding of a personal guarantor of the corporate debtor pending in any court or tribunal shall stand transferred to NCLT.
Appeal to the National Company Law Appellate Tribunal.( Sec 61)- within thirty days;
Appeal to SC- within forty five days (Sec 62).
Civil court not to have jurisdiction.

6. INSOLVENCY RESOLUTION PROCESS
Who can file application with AA
Debtor
Creditor
2 kinds of creditors
Financial Credit arising out of
loans, bonds, debentures, lease or HP, derivative transactions, guarantees, indemnities, etc.
Operational Credit arising from
provision of goods or services to the debtor, or under any law payable to the government
Application admitted – moratorium is declared and IRP
Effects of moratorium include Prohibition on:
Instituting suits
Transfer of assets
Enforcement of security including under SARFAESI , etc.

7. CORPORATE INSOLVENCY RESOLUTION - TIMELINES
Activity Under the Code
Number of Days
Filing of Application with NCLT
-14 days
Admission of Application / Declaration of Moratorium
0 days
NCLT to appoint Interim Resolution Professional
14 days
Public Announcement
16 days
Appoint registered valuer to calculate liquidation value
21 days
Creditors to submit claims
37 days
IRP to constitute Committee of Creditors and submit report
44 days
1st Committee of Creditors meeting
51 days
Preparation of Information Memorandum
65 days
Submission of Plan
150 days
Committee of Creditors approval of resolution plan -
Application to NCLT for approval
170 days
Initiation of liquidation
180 days
Application can be made to NCLT for an extension of 90 days

8. INSOLVENCY RESOLUTION - PROCESS
IRP to constitute Committee of Creditors (“CC”) – consisting of Financial Creditors only
Powers of IRP/RP
CC to appoint resolution professional (RP)
collate claims of creditors within 14 days
exercise powers of BOD
take assets into custody
CC + RP to prepare resolution plan (Plan)
Approved by 75% majority of CC
Submitted to AA
Approval
moratorium ceases to have effect
Rejection
liquidation proceeding commence

9. LIQUIDATION PROCEEDINGS
Liquidation can be initiated on:-
AA rejecting Plan submitted by CC
No Plan - within stipulated time
75% Majority of the CC resolves to liquidate the debtor
RP to act as liquidator
The Liquidator shall form an estate of the assets
Liquidator to collect all claims of all creditor within 30 days
Verify and then accept/reject these claims and communicate to the creditor within 7 days
Distribution of Assets

10. DISTRIBUTION PRIORITY
The costs and expenses incurred for the bankruptcy process
The workmen's dues for the period of twenty-four months preceding the bankruptcy commencement date shall be pari passu with debts owed to secured creditors
Any remaining debts and dues
Wages and any unpaid dues owed to employees, other than workmen, of the bankrupt for the period of twelve months preceding the bankruptcy
Preference shareholders
Financial debts owed to unsecured creditors
Equity shareholders or partners, as the case may be
Any amount due to the Central Government and the State Government including the amount to be received on account of Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the bankruptcy commencement date shall be pari passu debts owed to secured creditor for any amount unpaid following enforcement

11. HISTORICAL TRANSACTIONS
The National Company Law Tribunal can intervene and pass orders with respect to the following transactions:
Preferential Transactions (s43)
If any person is given a preference in any transaction by the borrower which has the effect of putting such person in a beneficial position, then it will be considered a preferential transaction. The time period for related parties is 2 years and for unrelated is 1 year. NCLT can pass an order to release or discharge the security interest or transfer the property back to the debtor (s44).
Undervalue Transactions (s45)
For the purposes of this section, an undervalue transaction is if the Borrower enters into a transaction with any person which is undervalued and not in the ordinary course of business. The timelines are the same as for preferential transactions. NCLT can restore the position as it existed before (s48).

12. HISTORICAL TRANSACTIONS
The National Company Law Tribunal can intervene and pass orders with respect to the following transactions:
Transactions defrauding creditors (s49)
If the Borrower deliberately defrauds creditors then the NCLT can restore the position as it existed before the defrauding transaction and protect the interests of the victims of the transaction.
Extortionate Credit Transactions (s50)
If the Borrower is a party to an extortionate credit transaction which is unconscionable under the law of contracts or requires the debtor to make exorbitant payments, then it will fall within the ambit of this section. The transaction must have taken place in the last 2 years. NCLT can set aside, restore the position or modify the terms of the transaction (s51).

13. INSOLVENCY PROFESSIONALS
The term Insolvency Professional means a person enrolled with an insolvency professional agency as its member and registered with the Board.
The Insolvency Professional shall undertake the following actions:
Immediate custody and control of the assets of the corporate debtor
Convene and attend all meetings of the committee of creditors
Present all resolution plans
Appoint accountants, legal or other professional as specified by the Board
Exercise the powers of the board of directors or the partners of the corporate debtor
The Liquidator shall undertake the following actions:
Verify claims of all the creditors
Take custody or control of all the assets of the corporate debtor
Evaluate the assets of the corporate debtor
Carry on the business of the corporate debtor for its beneficial liquidation.

14. KEY TAKEAWAYS Following our the key takeaways from the Code:
Complex judicial framework eliminated
Single Insolvency & Bankruptcy framework
Second chance and opportunity for businesses
Unambiguous procedure – strict timelines to be followed by all stakeholders.
Borrower is subject to strict scrutiny and has compelling reasons to maintain financial discipline
Clear priority of distribution upon liquidation (Government dues are subservient to those of secured and unsecured creditors)

15. BENEFITS The key benefits of the Code are: Consolidation of laws
High Borrower Accountability
Market for financial instruments/ bonds etc. as various restructuring options are available
Opportunity for investors for actual turnaround stories and opportunity for stressed asset companies
No interference of promoters/owners during insolvency process
Creditors position vis-à-vis government dues improved
Importance to Insolvency Professionals
Fraudulent diversion of funds/related party transactions can be tracked/reversed and accountability (civil and criminal)
No court interference
Moratorium (not from date of filing but admission) can ensure smooth process

16. CHALLENGES Insolvency Professional Selection Process
Grading on basis of Experience or other factors
Periodic Monitoring by IPA will be helpful – however, grading is important)
Transparency in engagement between IP and their respective firms or with IP entities - legitimizing relationships - avoiding backdoor arrangement
IP entities - Impact of Circular dated 15th June 2017
IP Entities cannot can not act as IPs under the Code – Accordingly, whether the current practice of a partner of a firm being appointed as an IP and the firm acting as / carrying out the services of IP is in conformity with the regulations? Whether this practise is the best practise as competitive offers for costs and services are not being evaluated.
Grading process of the IP entity
Avoiding conflicts and Failures – Recent case – lack of IPs – Hyderabad NCLT
Firms who have earlier assessed project viability or have professionally advised on failed restructuring in CDR / JLFs and / or monitored / audited cash flows under these schemes should not be the IP for those entities

17. CHALLENGES…...CONT’D Suspension of Boards
If results are not finalized how IM can be created for resolution plan
Concerns to investors if Balance sheets are unaudited
Issues on compliance where board is suspended & compliances required under,
SEBI, including listing provisions; Income Tax; GST; Companies Act and FEMA
Whenever a person proposed as an Interim Resolution Professional (IRP) can appear as counsel/representative on behalf of Financial Creditor (FC), Operational Creditor (OC) or Corporate Debtor (CD)? (RNG’s view: No)
IBC, 2016 provides for various time lines. Which are mandatory and which are directory? (Till admission- directory. After admission – mandatory)
Lack of robust Information Utilities structure may lead to legal interventions and delays.
The timeline may not be adequate to agree to a resolution plan, especially in complex/large cases.
Banks and Borrowers will now need to file the details of the security and charges created with multiple agencies, that is, the Registrar of Companies, CERSAI and multiple Information Utilities. This will defeat the purpose of ease of doing business, lead to multiplication of cost and negatively impact the initiative of ‘Digital India’.

18. THANK YOU