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Insolvency and Bankruptcy Code, 2016 –Highlights


The Insolvency and Bankruptcy Code

2015 was brought in Lok Sabha on 21st December 2015 and was invoked to Joint Committee on The Insolvency and Bankruptcy Code 2015. The report was presented in Lok Sabha and Rajya Sabha on 28th April 2016. This code has been passed by Lok Sabha on 5th May 2016 and by Rajya Sabha on 11th May 2016.

2015 was brought in Lok Sabha on 21st December 2015 and was invoked to Joint Committee on The Insolvency and Bankruptcy Code 2015. The report was presented in Lok Sabha and Rajya Sabha on 28th April 2016. This code has been passed by Lok Sabha on 5th May 2016 and by Rajya Sabha on 11th May 2016.

The preamble of code reads as under:

To reinforce and revise the laws describing the 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 advertise entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Fund and for matters connected therewith or incidental thereto.

  • The Code proposes to cover Insolvency of individuals, unlimited liability partnerships, Limited Liability partnerships (LLPs) and companies.
  • The Insolvency Resolution Process (IRP) for individuals and unlimited liability partnerships varies from the one for companies and LLPs. The Debt Recovery Tribunal (“DRT”) should be the Adjudicating Authority with jurisdiction over individuals and unlimited liability partnership firms. The Appeals from the order of DRT shall lie to Debt Recovery Appellate Tribunal (“DRAT”). The National Company Law Tribunal (“NCLT”) shall be the Adjudicating Authority with jurisdiction over companies, limited liability partnerships. Petition form the order of NCLT should lie to the National Company Law Appellate Tribunal (“NCLAT”).
  • The code seeks to annulment of the Presidency Towns Insolvency Act 1909 and Provincial Insolvency Act 1920.

The Code seeks to revise the following 11 legislations: -

  • The Indian Partnership Act 1932
  • The Central Excise Act 1944
  • The Income Tax Act 1961
  • The Customs Act 1962
  • Recovery of Debts Due to Banks and Financial Institutions Act 1993.
  • The Finance Act 1994.
  • The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002.
  • Sick Industrial Companies (Special Provisions) Repeal Act 2003.
  • The payment and Settlement Systems Act 2007.
  • The Limited Liability Partnership Act 2008.
  • The Companies Act, 2013.

The code come up with to enact an Insolvency Regulator (The Insolvency and Bankruptcy Board of India) to exercise regulatory oversight over

  • Insolvency Professionals (IP)
  • Insolvency Professionals Agencies (IPA)
  • Information Utilities (IU)

The Code asserts to regulate insolvency professionals and insolvency professional agencies. The Insolvency and Bankruptcy Board of India will guide these agencies to develop professional standards, codes of ethics and exercise a disciplinary role over fallible members leading to the development of a competitive industry for insolvency professionals.

The code offers information utilities which would gather, collate, attest and circulate financial information from listed companies and financial as well as operational creditors of companies. An individual insolvency database is also introduced to be set up with the goal of giving information on insolvency status of individuals.

The Code proposes a swift process and timeline of 180 days is set for dealing with applications for corporate insolvency resolution. This can be protracted for 90 days by the Adjudicating Authority only in some exceptional cases. During insolvency resolution period (of 180/270 days), the management of the debtor is placed in the hands of an interim resolution professional/resolution professional.

Further, an insolvency resolution plan prepared by the resolution professional has to be approved by at least 75% of voting share of the financial creditors. Once the plan is authorized, it will need sanction of the Adjudicating Authority. If plan is rejected, the Adjudicating Authority will make an order for the liquidation.

The code propounds for a fast track insolvency resolution process for companies with the smaller operations. The process will have to be completed within 90 days that can be extended up to 45 more days if the 75% of the financial creditors agree. Extension cannot be given more than once.

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