1. OVERVIEW OF THE INSOLVENCY AND BANKRUPTCY CODE 2016 [IBC 2016]
S S SONTHALIA
M.Com. LLB. PGDCA, ACS, FCMA
Practicing Cost Accountant,Registered Valuer and Insolvency Professional
Former Chairman, Bhubaneswar Branch of ICAI and EIRC of ICAI
Former Chairman, Bhubaneswar Branch of ICSI and Council member EIRC of ICSI
Mobile

2. Insolvency and Bankruptcy Code, 2016
What is Insolvency and Bankruptcy
Insolvency is the inability of a person or corporation to pay their bills as and when they become due and payable.
Bankruptcy is when a person is declared incapable of paying their due and payable bills.

3. Insolvency and Bankruptcy Code, 2016
Why it is called as Code ant as Act.
Code” is usually known as a collection or compendium of laws. It refers to a systematic and comprehensive compilation of laws, rules or regulations that are consolidated and classified according to a particular subject matter.

4. Laws governing Insolvency before IBC 2016
Sick Industrial Companies (Special Provisions) Act, 1985 [SICA]
Recovery of Debts due to Banks and Financial Institutions Act, 1993
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act (SARFAESI) Act, 2002
Companies Act, 2013 (Winding up)
The Presidency towns Insolvency Act, 1909
The Provincial Insolvency Act, 1920

5. Insolvency and Bankruptcy Code, 2016
Introduction
The Insolvency and Bankruptcy Code, 2016, passed by the Parliament vide notification dated , is a welcome overhaul of the existing legal framework for resolution of Insolvency of an Entity.
The IBC 2016 (Code) is considered as the biggest economic reform next only to GST.

6. Insolvency and Bankruptcy Code, 2016
Introduction
The Code deals with insolvency of Corporates, LLPs, Individuals and Partnerships firms.
In a time bound manner for maximization of value of assets of such persons.
It focus on creditor’s driven insolvency resolution where ever possible and orderly exit wherever require.

7. Insolvency and Bankruptcy Code, 2016
Ease of doing business
Markets need freedom broadly at three stages of
a business
to start a business (free entry),
To continue the business (free competition) and
To discontinue the business (free exit).
This enables new firms to emerge continuously; and they do business when they remain efficient, and vacate the space when they are no more efficient. This ensures free flow of resources from inefficient uses to efficient uses

8. Insolvency and Bankruptcy Code, 2016
Ease of doing business
A firm may fail to deliver as planned for a variety of reasons.
It could be because of faulty conceptualisation of business, inefficient execution of business, change of business environment, or even malafide design in some cases.
Regardless of the reason, the failure impacts macro economy in multitudes of ways and needs to be addressed expeditiously and scares resources need to released and used for more efficient manner.

9. Need for the IBC 2016
IBC Code 2016 –Codification of all laws that existed in form of various statutes related to insolvency –under one umbrella
•Problem of multiplicity of laws related to insolvency in India
•No timeframe for resolution of Insolvency
•Bad debts and defaulters crisis in Banks

10. INSOLVENCY RESOLUTION: LONG TIME, POOR SHOW IN INDIA
Average recovery, by country.June 2015 (Cents on Dollar)
Average time, by country,
June 2015(Years)
India China
Brazil
Russia japan us UK
Source: World Bank

11. Roadmap to IBC 2016 Code Introduced in Parliament on 21st December,
2015
Referred to Parliamentary Standing Committee on 23rd December, 2015
Committee Report on 28th April, 2016
The Code passed by Lok Sabha on 5th May, 2016
The Code passed by Rajya Sabha on 11th May, 2016
Received the President’s assent on May 28, 2016
Notified in the Gazette of India as ‘The Insolvency and Bankruptcy Code 2016’ (effective )

12. The IBC Applicable to
Any company incorporated under the Companies Act, 2013 or 1956.
Any other company governed by any special Act for the time being in force.
Any Limited Liability Partnership.
Such other body incorporated under any law for the time being in force as specify by the Central Government .
Partnership firms and Individuals

13. The IBC 2016 Applies for…. Insolvency
Liquidation Voluntary Liquidation
Bankruptcy

14. To Whom is IBC 2016 Not Applicable ?
Part III of the Code pertaining to insolvency of Individuals and firms – does not apply to State of Jammu and Kashmir
The Code is not applicable to financial service providers.
For MFIs, NBFCs and financial service providers separate provisions are in pipeline on which suggestions are being invited from all stakeholders

15. Acts Modified by IBC 2016 Chapter XIX and XX of Companies Act, 2013
Chapter XIII of the LLP Act, 2008
Indian Partnership Act 1932
Central Excise Act 1944
Income Tax Act 1961
Customs Act 1962
Finance Act 1994
Payment and Settlement Systems Act 2007

16. Acts Modified by IBC 2016 Recovery of Debts due to Banks and Financial
Institutions Act (RDDBFI), 1993
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI)

17. Acts Repealed by IBC 2016 The Presidency-towns Insolvency Act, 1909
The Provincial Insolvency Act, 1920
Sick Industrial Companies (Special Provisions) Act,1985 (“SICA”) repealed from
Board for Industrial and Financial Reconstruction (“BIFR”) and the Appellate Authority for Industrial and Financial Reconstruction (“AAIFR”) dissolved

18. Structure of the Code
The Code is divided into 5 Parts; 255 Sections; 11
Schedules and 21 Chapters.
o Part I – Preliminary – Section 1 to 3
o Part II - Insolvency resolution and liquidation for corporate persons – Section 4 to 77
o Part III – Insolvency resolution and bankruptcy for individuals and partnership firms – section 78 to 187
o Part IV – Regulation of Insolvency Professionals, agencies and information utilities – section 188 to 223
o Part V – Miscellaneous- Section 224 to 255
11 Schedules amending 11 existing Acts
Issued 2 Rules and 7 Regulations for operation of the Code.

19. Notified Rules
Insolvency and Bankruptcy Board of India (Salary, Allowances and other Terms and Conditions of Service of Chairperson and members) Rules, 2016 – Notified on
The Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rules, – Notified on

20. Notified Regulations
Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, [ ]
Insolvency and Bankruptcy Board of India
(Model Bye-laws and Governing Board of
Insolvency Professional Agencies)
Regulations, [ ]

21. Notified Regulations
Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 [Notified on Has come into effect on ]

22. Notified Regulations
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, [Notified on Has come into effect on ]
Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, [ ]

23. Notified Regulations
Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, [Notified on Has come into effect on ]
Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017.
[Notified on Has come into effect
on ]

24. Insolvency and Bankruptcy Code, 2016
It envisages an ecosystem comprising Insolvency and Bankruptcy Board of India (Board), Information Utilities (IUs), Insolvency Professional Agencies(IPAs), Insolvency Professionals (IPs) and Insolvency Professional Entities (IPEs) National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCLAT), Debt Recovery Tribunal (DRT), Debt Recovery Appellate Tribunal (DRAT), for implementation of the Code.

25. Insolvency and Bankruptcy Board of India
Time Bound IRP/RP
Insolvency and Bankruptcy Board of India
Creditor Based
The
Code
Waterfall Mechanism
Calming Period

26. IBC 2016 - Key Highlights Creates time-bound processes for insolvency
resolution of companies and individuals.
Insolvency Resolution - completed within 180 days otherwise assets of borrowers may be sold to repay creditors.
Resolution processes to be conducted by licensed insolvency professionals (IPs) registered with insolvency professional agencies (IPAs).
Establishment of Information Utilities (IUs).

27. IBC Key Highlights
The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.
The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution for companies and LLP
The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution for Iindividuals and Partnership firm.

28. The Insolvency and Bankruptcy Board of India (S 188)
Insolvency Professional Agencies
Sections Chapter III of part IV
Insolvency Professionals Sections Chapter IV of part IV
The Insolvency and Bankruptcy Board of India (S 188)
Sections Chapter I of part IV
Information Utilities Sections Chapter V of partIV

29. Information Utilities
Registered Bodies to collect, collate, authenticate and disseminate financial information of debtors in centralised electronic databases.
The Code requires creditors to provide financial information of debtors to multiple utilities on an ongoing basis.
Such information would be available to creditors, resolution professionals, liquidators and other stakeholders in insolvency and bankruptcy proceedings.
The purpose of this is to remove information asymmetry and dependency on the debtor's management for critical information that is needed, to swiftly resolve insolvency.

30. Insolvency Professional Agencies (IPA)
IPA - front line regulator for the insolvency
professionals.
IPAs - registered body to admit Insolvency Professional as members and to develop code of conduct and promote best practices in governance during insolvency proceedings
It also redresses the grievances of consumers against its members
No person shall render his services as insolvency professional under this Code without being enrolled as a member of an IPA

31. Insolvency Professional Agencies (IPA)
IBBI has granted registration to following 3 companies to act as IPAs under the IBBI (Insolvency Professional Agencies) Regulations, 2016:
Indian Institute of Insolvency Professionals of
ICAI [
ICSI Insolvency Professionals Agency [
Insolvency Professional Agency of Institute of
Cost Accountants of India [

32. Insolvency Professional (IP)
IP to enrolled with an IPA as its member and registered with the IBBI.
Insolvency and Bankruptcy /Liquidation process will be managed by these licensed professionals.
The IPs will control the assets of the debtor and manage the affairs of business during the insolvency process.
The IPs will act as Liquidator/Bankruptcy trusty during the liquidation/Bankruptcy process.

33. Insolvency Professional (IP)
As on , Insolvency Professionals
registered under Regulation 7 read with Regulation 5 of IBBI (Insolvency Professionals) Regulations, 2016, with IBBI = 1987
Information Professional Entities- 80
Information Utilities – 1
(National E-governance services Ltd, Mumbai)

34. IBBI (Insolvency Professionals) Regulations, 2016
Vide Notification Dated but applicable from
5 Chapters and 14 Regulations
First Schedule – Code of Conduct for Insolvency Professionals
Second Schedule – Form A – Application for Registration
as Insolvency Professional.
Second Schedule – Form B – Certificate of Registration
Second Schedule – Form C – Application for Recognition
as Insolvency Professional Entity
Second Schedule – Form D – Certificate of Recognition

35. IBBI (Insolvency Professionals) Regulations, 2016
Chapter – I – General
Chapter – II – Insolvency Examination
Chapter – III – Registration of Insolvency Professionals
Chapter – IV – Temporary Surrender and Disciplinary
proceedings
Chapter – V - Recognition of Insolvency Professional
Entities.

36. Registration; Qualifications and Experience – Regulation 5
An individual shall be eligible for registration,
if he-
(a) has passed the National Insolvency
Examination;
(b) has passed the National Insolvency Examination, and has fifteen years of experience in management, after he received a Bachelor’s degree from a university established or recognized by law; or

37. Qualifications and Experience – Regulation 5
(c) has passed the Limited Insolvency Examination and has
ten years of experience as –
(i) a chartered accountant enrolled as a member of the
Institute of Chartered Accountants of India,
(ii) a company secretary enrolled as a member of the
Institute of Company Secretaries of India,
(iii) a cost accountant enrolled as a member of the
Institute of Cost Accountants of India, or
(iv) an advocate enrolled with a Bar Council.

38. Professional Opportunities in IBC 2016
An Insolvency Professional (IP) may hold any of the following roles under this code to resolve the
Insolvency of
Companies,
Limited Liability Partnership (LLP),
Partnership firm and
Individuals
Bankruptcy Trusty for Partnership firm and Individuals
Liquidator for Companies and LLP

39. Recognition of Insolvency Professional Entities – Regulation 12
A limited liability partnership, a registered partnership firm or a company may be recognised as an insolvency professional entity if-
(a) a majority of the partners of the limited liability partnership or registered partnership firm are registered as insolvency professionals; or
(b) a majority of the whole-time directors of the company are registered as insolvency professionals, as the case may be

40. Adjudicating Authorities
For Individuals and Firms
For Corporate
National Company Law Tribunal (NCLT)
Debt Recovery Tribunal (DRT)
National Company Law Appellate Tribunal (NCLAT)
Debt Recovery Appellate Tribunal (DRAT)
Supreme Court

41. Corporate Insolvency Process (including LLP)
No Default
Default
Voluntary Liquidation u/s59
Insolvency Resolution Process u/s 6
Fast Track u/s 55
Financial Creditors
Operational
Creditors
Defaulting Debtor
Liquidation

42. Fast Track Corporate Insolvency
The Insolvency Code further prescribes a fast track corporate insolvency process for the entities with less complex structuring or businesses where the whole insolvency process will be required to be completed within a period of 90 days or an extended period of further 45 days at most.
The Central Government will prescribe the classes of entities based on the assets and liabilities, amount of debt and other criteria, which will be subject to the fast track process.

43. Fast Track CIRP – U/s 55
An application for fast track CIRP may be made in respect of the following corporate debtors -
- A corporate debtor with a
Share capital of less than 50 Lakhs or Turnover of less than Lakhs
Start-ups
Unlisted companies with total assets of less than lakhs

44. Process Flow of Successful IRP
Resolution Plan
Default of over Rs
Proposal Approved
proposed by
1,00,000
by 66% Creditors
creditors
Petition with
Proposal Accepted
Adjudicating
Confirmation of IP
by Adjudicating Authority
Authority [NCLT]
Appoint interim
Creditors
Insolvency Professional
Committee Formation

45. Application of IBC 2016
Who can apply: Financial Creditors, Operational Creditors or the defaulting debtor himself.
Nature of default that triggers corporate insolvency: Any financial or operational creditor can apply for insolvency on default of debt or interest payment exceeding INR 1,00,000. However, operational creditor must give 10 days notice to defaulting debtors.
Whom to apply: Adjudicating Authority (AA)- NCLT
Documents to be filed: Along with application furnish –
Record of the default recorded with the information utility or evidence of
default.
The name of the resolution professional proposed to act as an interim resolution professional and
Incase of operational creditors proof of giving notice to debtor and affidavit that there is no dispute relating to claim and certificate from bank of creditor that amount has not been received.
any other information as may be specified by the Board

46. Time limits
Normal Insolvency Resolution Process shall be completed within a period of 180 days from date of admission of admission of application.
The period can be extended if resolution passed at a meeting of the committee of creditors by a vote of 66% of the voting shares. It can be extended for a period not exceeding 90 days.
Such extension cannot be granted more than once
In case of fast track the maximum period is 90
days extendable to further 45 days.

47. Moratorium
The NCLT orders a moratorium on the debtor's operations for the period of the IRP during which no action can be taken against the company or the assets of the company. This operates as a 'calm period' during which no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can take place against the debtor.

48. Appointment and tenure of interim resolution professional (IRP)
AA shall appoint an IRP within 14 days from insolvency commencement date.
No disciplinary proceedings shall be pending against
interim resolution professional.
Board shall within 10 days of receipt of reference from AA, recommend the name of an insolvency professional to AA against whom no disciplinary proceedings are pending.
Management of the affairs of the corporate debtor shall vest in IRP.
IRP have power similar to BOD of company and should take steps to maintain value of assets and constitute Committee of Creditors
The term of the IRP is for 30 days from the date of his appointment.
The IRP on receipt of all claims and other information, shall constitute the COC and prepare a Information memorandum.
The first meeting of COC shall be within 7 days of its constitution and will be conducted by IRP.

49. Public announcement of IRP
The IRP within 3 days of his appoint shall issue the Public announcement.
Public announcement shall contain following information
name and address of the corporate debtor under the corporate insolvency resolution process
name of the authority with which the corporate debtor is incorporated or registered
the last date for submission of claims
details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims
penalties for false or misleading claims
the date on which the corporate insolvency resolution
process shall close

50. Actions Requiring Approval of Committee of Creditors
Raise any interim finance beyond limit decided by the committee
Create any security interest over the assets of the corporate debtor
Change the capital structure of the corporate debtor
Record any change in the ownership interest of the corporate debtor
Spend amount beyond limit sanctioned by creditors committee
Undertake any related party transaction
Amend any constitutional documents of the corporate debtor
Delegate its authority to any other person
Dispose of or permit the disposal of shares
Make any change in the management of the corporate debtor or its subsidiary
Transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business
Make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors
Make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor

51. Liquidation Scenario
The creditor's committee resolves with 66% majority voting by value to liquidate the corporate debtor at any time during the IRP;
The creditor's committee does not approve a resolution plan within 180 days or such extended period as approved by the NCLT;
The NCLT rejects the resolution plan submitted to it by the creditor’s committee on technical grounds; or
The debtor contravenes the agreed resolution plan and an affected person makes an application to the NCLT to liquidate the corporate debtor.
Corporate debtor can also opt for voluntary liquidation by a special resolution in a General Meeting.

52. Liquidation Estate
The liquidator to form a liquidation estate which will include
any assets over which the corporate debtor has ownership rights,
encumbered assets,
tangible and intangible assets,
assets issued as collateral over which creditors have reliquished rights
all proceeds of liquidation as and when they are realized
Following shall not be included in liquidation estate asset and shall not be used for recovery –
assets owned by a third party which are in possession of the corporate debtor
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
assets of any Indian or foreign subsidiary of the corporate debtor
any other assets as may be specified by the Board, including assets which could be subject to set-off on account of mutual dealings between the corporate debtor and any creditor.

53. Powers and duties of Liquidator
To verify claims
To take into his custody or control all the assets, property, effects and
actionable
To evaluate the assets and property of the corporate debtor
To take measures to protect and preserve the assets
To carry on the business of the corporate debtor for its beneficial liquidation
Sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract
To invite and settle claims of creditors and claimants and distribute proceeds
To institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor
To investigate the financial affairs of the corporate debtor to determine
undervalued or preferential transactions

54. Order of priority for distribution of Assets
The order (called as waterfall process) is as follows:
1. Insolvency related costs
2. a. Secured creditors and
b. Workmen dues upto 24 months
3. Other employee’s salaries/dues up to 12 months
4. Financial debts (unsecured creditors)
a. Government dues (up to 2 years)
b. Debt of secured creditors (Shortfall)
6. Any remaining debts and dues (Operational Creditors)
7. Preference shareholders
8. Equity shareholders

55. Rights of Secured Creditor during Liquidation Process
A secured creditor may choose to realise his security and receive proceeds from the sale of the secured assets in first priority.
If the secured creditor enforces his claims outside the liquidation, he must contribute any excess proceeds to the liquidation trust and in case of any shortfall, the secured creditors will be below unsecured creditors to the extent of the shortfall.

56. Avoidance Transactions
Liquidator has right to cancel or modify terms of certain transactions entered into by defaulting entity within one year of the initiation of IRP with third parties or within two years of initiation with related parties, which in his opinion are of Preferential in nature or Undervalued transactions primarily entered into to benefit a particular class of people.

57. INSOLVENCY OF INDIVIDUALS AND FIRMS
Fresh Start option
Insolvency Resolution Process Bankruptcy Process
INSOLVENCY OF INDIVIDUALS AND
FIRMS

58. Basic Procedure
For individuals and unlimited partnerships, the Code applies in all cases where the minimum default amount is INR 1000 and above. [Minimum amount of default of higher value which shall not be more than Rs /- may be notified]
Two distinct processes:
Fresh Start Order (FSO) - individuals with assets and income lower than specified amounts will be eligible for a discharge from their qualifying debts Their debts will be written off, giving the debtor a “fresh start”
Insolvency Resolution Process (IRP) - process of negotiation between debtors and creditors supervised by a Resolution Professional (RP)

59. Fresh Start Order (FSO)
Part III Chapter II Section 80-93
This option is for defaults where amount involved are petty.
Who can Apply: Defaulting Individual with:
Annual gross income not exceeding Rs. 60,000
Aggregate value of assets not exceeding Rs. 20,000
Defaulting loan not exceeding Rs, 35,000
No dwelling house
No previous fresh start, insolvency, etc
Whom to apply: Adjudicating Authority: DRT
Process: The resolution (insolvency) professional will investigate and prepare a final list of all qualifying debts within 180 days from the date of application. On the expiry of this period, the DRT may pass an order discharging debtor from the qualifying debts and accord an opportunity to the debtor to start afresh, financially.

60. Insolvency Resolution Process
Part III Chapter III
Who Can apply: By creditor himself or through resolution professional of defaulting debtor. However in case of partnership firms, the application can be made by all or majority of the partners.
Application by creditors of partnership firm can be made for insolvency proceeding against a single partner or the firm.
Debtor shall not be entitled to make an application under sub-
section (1) if he is—
(a) an undischarged bankrupt;
(b) undergoing a fresh start process;
(c) undergoing an insolvency resolution process; or
(d) undergoing a bankruptcy process

61. Interim Moratorium and appointment of resolution professional
An interim moratorium commences on the date of application till the date of admission of application during which no legal action can be proceeded or initiated in respect to any debts.
Within seven days of receipt of application, DRT will either nominate a resolution professional or in case application is filled by through a resolution professional confirm that there are no disciplinary proceedings pending against such resolution professional to the Board.
Board will in next seven days either confirm or reject the appointment within next seven days.
The resolution professional so appointed will examine and submit a report to the Adjudicating Authority recommending for approval or rejection of the application within 10 days of appointment.
The Adjudicating Authority will then within fourteen days from the date of submission of the report, either admit or reject the application.

62. The process
If the application is accepted, a moratorium of 180 days will begin where no legal action on debts and assets would be permissible.
In the Insolvency Resolution Process, the creditors and the debtor will engage in negotiations to arrive at an agreeable repayment plan for composition of the debts and affairs of the debtor, supervised by a resolution professional.
The repayment plan will require approval of a three-fourth majority of creditors in value.
The repayment plan may authorize or require the resolution professional to:
(a) carry on the debtor's business or trade on his behalf or in his name; or
(b) realize the assets of the debtor; or
(c) administer or dispose of any funds of the debtor.
The repayment plan will be implemented in supervision of the insolvency professional.

63. Bankruptcy Process
The bankruptcy of an individual can be initiated only after the failure of the resolution process or non-implementation of repayment plan.
The bankruptcy trustee is responsible for administration of the estate of the bankrupt and for distribution of the proceeds on the basis of the priority.