2. INSOLVENCY AND BANKRUPTCY CODE, 2016 - Latest Developments in 2018
A Presentation by:-
K.SENTHIL KUMAR
M.Com., M.A., M.Phil., M.B.A., M.L., FCMA., ACS

3. NEED FOR IBC IN INDIA Existing Mechanism – Inadequate & Ineffective :
No single Law dealing with IB in India;
overlapping jurisdiction
Painfully Slow Pace – Min 5 Yrs
Recovery rate is so less
More NPAs lying in Banks
High Process Cost of Insolvency
No Chance of Ease of Doing Business and Easy Exit

4. OLD DISEASE,NEW PRESCRIPTION WHY ?
Promote Entrepreneurship
Improve Credit Availability
Avoid Prolonging Time
Interest of all Stakeholders
Minimize the Role of Adjudicating
Authority
Lesser Compliance mechanism
Avoid Combination and Complication of many Laws

5. JOURNEY OF THE IBC 21.12.2015- IBC Bill of 2015 -introduced in LS
IBC Bill of Referred to Joint Committee of both Houses of Parliament
IBC Bill of Joint Committee placed its Report to both Houses of Parliament
IBC Bill of passed by LS
IBC Bill of passed by RS
IBC, Assented by President of India & Notified

6. APPLICABILITY OF IBC,2016
Any Company incorporated under the Companies Act, 2013 or under any provisions of previous Acts
Any other Company governed by any Special Act
Any LLP incorporated under the LLP Act, 2008
Any other body, as notified by the Central Government
Partnership Firms
Individuals

7. OBJECTS OF THE CODE Creditor in control regime
Consolidates existing insolvency laws and amends other legislations
Overriding effect on all other laws inconsistent with the provisions of the Code
Time bound resolutions for evaluation and viability determinations of companies referred for CIRP
Clearly defined order of priority ( *waterfall mechanism)
Investigation of antecedent transactions in case of illegal diversion of assets of company
Establishment of IBBI as an independent monitoring body for administration and governance of the insolvency and bankruptcy law

8. BASIC TERMS Creditor Debtor Insolvency Bankruptcy Winding up
Liquidation
Dissolution

9. WHO CAN INVOKE? Financial Creditor (Sec.7)
Corporate Debtor (Sec.10)
- A corporate person who owes a debt to any person
Operational Creditor (Sec.9)
- A person to whom an operational debt is owed &
- Includes any person to whom such debt legally assigned or transferred
Financial Creditor (Sec.7)
- Any person to whom a financial debt is owed &
- Includes a person to whom such debt legally assigned or transferred

10. INVOKING PROVISIONS OF CODE
DEFAULT
In case of Co. & LLP
In case of Partnership & Individual
Minimum amount of ` 1 lakh
Minimum amount of ` 1 thousand
Minimum amount of ` 1 lakh & ` 1 thousand can be increased upto ` 1 Cr & ` 1 lakh respectively by CG
Where any Company or LLP commits-
A default in paying its
Financial debt
Operational debt
Then a financial creditor/ operational creditor/ Company & LLP itself
May file an application, for initiating corporate insolvency resolution process with the Adjudicating Authority.

11. SCHEME UNDER THE CODE

12. Adjudicating Authority
NCLT
- Deal with insolvency matters of Co. & LLP
- Appeal to NCLAT
Debt Recovery Tribunal
Deal with insolvency matters of individual & Partnership firm
Appeal as to DRAT
GROUNDS FOR REJECTION
Adjudicating Authority within 14 days of receipt of application, by an order -
Admit the application
Reject the application
If it is incomplete
If it is complete
Default not occurred
Default occurred
NOTICE OF REJECTION
Adjudicating Authority shall before rejecting application, give notice to applicant to rectify defects in application within 7 days from the date of receipt of such notice

13. Cause a Public Announcement Appoint Interim Resolution Professional
TIME BOUND
180 days
270 days
90 days
(Maximum)
FAST TRACK :
45 days
(One time)
135 days
90 days
Adjudicating Authority after admission of application shall, by an order
Declare a Moratorium
Cause a Public Announcement
Appoint Interim Resolution Professional

14. MORATORIUM EFFECT [Sec.14 (1) (A) – (D)]
Adjudicating Authority shall by order prohibit the following:
Institution/continuation/proceedings of suits including execution of any judgment, decree or order in any Court
Transferring, encumbering, alienating or disposing of assets/legal right/beneficial interest
Any action to Foreclosure, Recover or enforce any security interest created including any action under SARFAESI Act, 2002
Recovery of any property by owner or lessor where such property is occupied

15. MORATORIUM EFFECT
[Sec.14 (1) (A) – (D)]
Objective
Maximizing value of the Entity to Continue Operation
No additional stress on Business
- Supply of essential goods or services to the Corporate Debtor as may be specified shall not be terminated or suspended or interrupted
- Central Government in consultation with any financial regulator may specify such transactions.
Order of Moratorium made by Adjudicating Authority; Start from Date of Admission of Application;
Cease to effect – Date of Approval of Resolution Plan or Liquidation Order
MORATORIUM PERIOD
[sec 14(1)]

16. PUBLIC ANNOUNCEMENT Public announcement contain following information:
Name & address of defaulted Corp. Debtor
Name of Registrar with which Corp. Debtor is incorporated or registered
Last date for submission of Claims
Details of Interim Resolution Professional
- Management of Corporate Debtors
- Responsible for Receiving claims
Penalties for False or Misleading Claims
Date on which the Insolvency Resolution Process close (i.e. 180 days from the date of admission of application)
Public Announcement shall be made in such manner as may be specified

17. INTERIM RESOLUTION PROFESSIONALS
APPOINTMENT:
Appointment by Adjudicating Authority within 14 days from Admission of Application
TENURE:
Once IRP is appointed :
Management of affairs of Corp. Debtor shall vest with IRP
Powers of BOD/ Partners (LLP) shall stand suspended & will be exercised by IRP
Officers & Managers of Corp. Debtor shall report to IRP
FI maintaining accounts of Corp. Debtor shall follow instructions of IRP
Shall not exceed 30 days from date of Appointment

18. RESOLUTION PROFESSIONAL
Appointment by Committee of Creditors may in their first meeting
within 7 (Seven) days of Constitution of Committee
Resolve to appoint the Interim Resolution Professional as a Resolution Professional (OR)
Replace the Interim Resolution Professional by another Resolution Professional.
Resolution Professional shall conduct the entire Insolvency Resolution Process and manage the operations of the company during the corporate Insolvency Resolution Process Period.
Resolution Professional shall exercise all such powers and duties as are vested on the Interim Resolution Professional.
All Meetings of the Committee of Creditors shall be conducted by the Resolution Professional

19. DUTIES OF RESOLUTION PROFESSIONALS
MEETING OF THE COMMITTEE OF CREDITORS
Convene & attend all meetings
Present all resolution plans at the meetings
DOCUMENTS
Maintain an updated list of claims
Prepare the information memorandum
RIGHTS
Take immediate custody and control of all the assets including business records of the company/LLP
Represent and act on behalf of the company/LLP with third parties

20. REPLACEMENT OF RESOLUTION PROFESSIONALS
CoC to replace the Resolution Professional any time during the pendency of IRP.
CoC may forward name of another Insolvency Professional to the Adjudicating Authority
The Adjudicating Authority shall forward name of proposed Resolution Professional to the Board for confirmation
On confirmation being received from the Board, appoint him as Resolution Professional

21. COMMITTEE OF CREDITORS
The Interim Resolution Professional shall -
Collate all claims
Determine of financial position
AND
Constitute a Committee of Creditors– comprising of all Financial Creditors
All decisions of Committee taken by vote of not less than 75%
Related Party:
If no Financial Creditor, CoC shall exercise with functions.
Shall not have any Right of Representation, Participation or voting
Position of Financial Creditor- Consortium Agreement : Each Financial Creditor shall be the part of Committee Voting shares shall be on the basis of Financial Debts.

22. COMMITTEE OF CREDITORS
Position of Financial Creditor when he is an Operational Creditor:
shall be considered Financial Creditor to the extent of Financial Debts;
Voting Shares to the extent of Financial Debts;
Operational Creditor to the extent of Operational Debt;
Assignment of Operational Debt
If an Operational Creditor has assigned or legally transferred any Operational Debt to a Financial Creditor, the Assignee of Transferee shall be considered as an Operational Creditor to the extent of such assignment or legal transfer.
Determination of Voting Share by Financial Creditor
IBC Board may specify the manner of determining of voting share.

23. RESOLUTION PLAN
Preparation of Information Memorandum for formulating a Resolution Plan
Providing to Resolution Applicant access to all relevant information
Resolution Applicant will submit a Resolution Plan to the Resolution Professional prepared as per Information Memorandum
Examination of Resolution Plan
Presentation of RP to CoC for Approval
Submitting Resolution Plan to Adjudicating Authority
Adjudicating Authority may by order approve the Resolution Plan;
Moratorium Period ends
R P will be binding on the Corp. Debtor, its Employees, Members, Creditors, Guarantors & other Stakeholders
If Resolution Plan not approved or
Not ready within 180 days or
Adjudicating Authority rejects the Resolution Plan
It will pass a Liquidation Order.
R P will act as a Liquidator and all the powers of the Board of Directors will vest with the Liquidator

24. WATERFALL MECHANISM UNDER IBC
The following debts will be paid in PRIORITY given below:
Insolvency Resolution Cost & Liquidation Cost;
Debts to Secured Creditor (who have relinquished their security interest) & Workmens’ dues (for 24 months before commencement);
Wages & Unpaid Dues to employees (other than workmen) (for 12 months before commencement);
Financial Debts to Unsecured Creditors;
Workmen’s Dues for earlier period;
Crown Debts and Debts to Secured Creditor following Enforcement of Security Interest;
Remaining Debts;
Preference Shareholders;
Equity Shareholders or partners.

25. NEW INSTITUTIONS INSOLVENCY & BANKRUPTCY BOARD OF INDIA
INSOLVENCY PROFESSIONAL AGENCY
INFORMATION UTILITY

26. KEY BENEFITS Time bound settlement of Insolvency.
Banks & Asset reconstruction companies immediate gainers
Comprehensive coverage- Companies, LLP, Individuals & more can be added
Database of Serial Defaulters
Protect workers

27. CHALLENGE Not a Magic – Benefits follow after 3-5 years from now.
To create Large pool of Insolvency Professionals.
Draft Procedural Rules for
Insolvency Professionals
Information Utilities
Establishment of several new institutional mechanisms.
High value of Performance Bond
Order of priority to Distribute Assets
Secured Creditors – why not upto Collateral Value?
Unsecured creditors have priority over Trade Creditors?
Government Dues – after unsecured creditors ?
Formation of Multiple Information Utilities – Information about a Company may not be available through a Single IUs
Insolvency & Bankruptcy Fund- manner of usage of the Fund ?

28. PROFESSIONAL AVENUE Interim Resolution Professional
To prepare Resolution plan
To Represent
- Financial Creditor;
- Operational Creditor;
- Corporate Debtor
before NCLT- DRT & NCLAT- DRAT
To represent the Winding Up cases before the Tribunal
To prepare scheme & seek approval from Tribunal for Revival & Rehabilitation of Sick Cos.

29. STATISTICS

31. LANDMARK DECISIONS
Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP (Supreme Court Judgment dated 24th July 2017)
Inherent powers under Article 142 of the Constitution invoked to permit parties to withdraw application post settlement
Innoventive Industries Ltd. vs. ICICI Bank (Supreme Court Judgment dated 31st August 2017)
Supremacy of the Code over other laws
Application by financial creditor will have to be admitted once the debt was proved to be “due”
On appointment of a resolution professional, an erstwhile director of the corporate debtor cannot file a petition on behalf of the company
Who may prefer an appeal on behalf of the corporate debtor against an order of admission of an insolvency application?

32. Mobilox Innovation Pvt. Ltd. vs. Kirusa Software Pvt. Ltd
Mobilox Innovation Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. (Supreme Court Judgment dated 21st September 2017)
Insolvency Bill of 2015 included the term “bonafide” in the definition of dispute, the same was omitted in the Code
Scope of “dispute” was inclusive and not exhaustive
Once existence of a “real dispute” was established, the petition will have to be rejected by the NCLT
Surendra Trading Company vs. Juggilal Kamalpat Jute Mill Company Limited & Ors. (Supreme Court Judgment dated 19th September 2017)
Held that the time limit of 7 days for removing defects is directory [provisos to Sections 7(5) and 9 (5)]

33. Macquarie Bank Limited Vs
Macquarie Bank Limited Vs. Shilpi Cable Technologies Limited (Supreme Court Judgment dated 15th December 2017)
Requirement to deliver a demand notice / invoice of unpaid operational debt mandatory
Requirement to file an affidavit or certificate from financial institution only directory
Procedural hurdles should not be imposed on creditors; domestic and foreign creditors ought not to be discriminated
Demand notice can be issued by an advocate

34. Overview of the IBC amendment Ordinance, 2018…
IS LIMITATION ACT APPLICABLE?
Neelkanth Township and Construction Pvt. Ltd. vs. Urban Infrastructure Pvt. Ltd. (Supreme Court Order dated 23rd August 2017)
The question of limitation was left open
Black Pearl Hotels Pvt. Ltd. vs. Planet M Retail Ltd. (NCLAT Judgment dated 17th October 2017)
Right to apply under the Code would accrue only on 1st December, 2016 when the Code came into force

35. Post Amendment Ordinance, 2018:
Is Limitation Act applicable to Tribunals?
Ref: M.P. Steel Corporation vs. Commissioner of Central Excise (Supreme Court Judgment dated 23rd April 2015)
Bar of limitation applies to suits, appeals and applications before “Courts” and not quasi-judicial bodies (those that are part of judicial branch of the State)
Post Amendment Ordinance, 2018:
Section 238A: Limitation Act, 1963 applies to proceedings or appeals before AA, NCLAR, DRT and DRAT

36. HOME BUYERS AS FINANCIAL CREDITORS
KEY OBSERVATIONS OF THE INSOLVENCY COMMITTTEE:
“Time value” interpreted to mean price paid for the length of time for which the money has been disbursed
Insolvency Law Committee opined that monies so raised are a tool for raising finance for the project
Homebuyers to be treated on par with other financial creditors
Assocham Report - RERA as growth impetus: does the promise hold out on the ground?
RERA regulates and formalizes real estate sector; IBC restructures or liquidates the business
Apex Court steps in to secure homebuyers’ rights

37. Post Amendment Ordinance, 2018: Sec. 5(8): Financial debt ………
Post Amendment Ordinance, 2018: Sec. 5(8): Financial debt ………. (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation. - For the purposes of this sub-clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and…..” Sec. 21: Committee of Creditors (6A) provides for manner of representation for other classes of creditors.
Clarifications required
Whether secured or unsecured creditors?
Whether commercial real estate buyers are included?

38. GUARANTORS UNDER IBC
Alpha & Omega Diagnostics (India) Ltd. vs. ARCIL (NCLAT Judgment dated 31st July 2017)
Moratorium is applicable only on the assets of the corporate debtor that are reflected in the balance sheet
No moratorium can be claimed on the assets of the guarantor
Post Amendment Ordinance, 2018:
Section 5(5A): corporate guarantor defined
Section 14: moratorium to not apply to a surety in a contract for guarantee to a corporate debtor

39. (as amended on 18th January, 2018)
PROMOTERS UNDER IBC
Section 29A of the IBC
(as amended on 18th January, 2018)
(In)Eligibility criteria:
Layer 1 – the “person” is ineligible (wilful defaulter, disqualified director, etc.)
Layer 2 – connected person is ineligible (promoter of a company in which preferential or undervalued transactions have taken place and order made under Code by Adjudicating Authority, etc.)
Layer 3 – related party of a connected person
Layer 4 – person acting jointly / in concert with a person under the above 3 layers of ineligibility

40. 1st Resolution Plan approved under the Code
In the matter of Synergies Dooray Automative Limited (Hyderabad NCLT Order dated 2nd Aug. 2017
1st Resolution Plan approved under the Code

41. Synergies Castings Limited Assigned 92.93% of its debt holding in SDAL
Millennium Finance Limited (NBFC)
In 2005, Synergies Dooray’s (SDAL) lenders approved leasing out of company assets to Synergies Castings for 4 years
SDAL declared sick company in lenders assigned their debts (93% of borrowings) to Synergies Castings in 2008 and 2011
92.93% of the debts assigned by Synergies Castings to NBFC, two days prior to Government notifying that SICA would be repealed
SDAL filed an Application under Sec. 10 of IBC for initiating CIRP

42. Post assignment of the debt, NBFC got a seat in the CoC with more than 75% voting share
EARC objected to the assignment agreements – questionable
RP submitted that resolution plan was in accordance with the Code
Resolution plan was admitted by NCLT with certain conditions
APPEAL FILED BY EARC PENDING IN THE NCLAT

43. Examples where the bar derailed insolvency process:
VTB Bank led Numetal (Rewant Ruia, member of Ruia family of Essar) rendered ineligible to bid for Essar Steel
ArcelorMittal ineligible to bid for Essar Steel as Lakshmi Mittal (since dropped his name as promoter) was one of the promoters (while not in management) of KSS Petron and Uttam Galva.
[provided all defaulting accounts of respective NPAs are regularized before submission of resolution plan]
Promoter of JSW Steel related to promoter of Monnet Ispat, for which JSW-AION Capital submitted their bid to take over the company, which was approved by the CoC.
[neither JSW not Monnet invested in each other companies]

44. Post Amendment Ordinance, 2018:
Section 29A:
Ineligible to submit resolution plan if at the time of submission of plan has an NPA
The clause does not apply to persons who have acquired NPA pursuant to resolution plan approved under IBC, for a period of 3 years from the date of such approval
Sec. 5(24A):
Related party in relation to an ‘”individual” defined

46. THANK YOU!