I.
Object of the Act:
An
act to consolidate and amend laws relating to reorganization and insolvency
resolution of corporate persons, partnership firms and individuals in a time
bound manner.
The
Act deals with insolvency of the following persons:
·
Corporate
Persons i.e companies
·
Partnership
Firms
·
Individuals
II.
Institutions Established under the
Act:
1. The Insolvency and Bankruptcy Board
of India:
2. Insolvency Professionals
3. Insolvency Professional Agencies
4. Information Utility.
(a )The
Insolvency and Bankruptcy Board of India:
·
It
is a body corporate, having perpetual succession and common seal. It has power
to enter contract and to sue and to be sued.
·
It
consists of a chairman and members
·
Its
functions are as follows:
-
Register
insolvency professional agencies, insolvency professionals and information
utility
-
Specify
eligibility professionals, monitor performance of insolvency professionals
-
Make
regulations and guideline on the matter relating to implementation of the code
(b)
Insolvency Professionals:
·
Any
degree holder, if he passes the exam conducted by Insolvency and Bankruptcy
Board of India can register himself as Insolvency Professional. (yet to come)
·
Any
Cost Accountant, Chartered Accountant and an advocate having 10 years post
qualification experience, may attend limited insolvency professional exam and
register as insolvency professional
·
Any
Cost Accountant, Chartered Accountant and an advocate having 15 years post
qualification experience, may attend limited insolvency professional exam and
register as insolvency professional for a limited period of six months. (No
Exam). Validity expires after six month from the date of registration.
(c ) Insolvency Professional Agency:
It is a regulatory body wherein
insolvency professional has to register themselves after qualifying exam
conducted by Insolvency and Bankruptcy Board of India. As on date, Institute of
Company Secretary of India, ICAI has floated the Insolvency Professional
Agencies
(d) INFORMATION
UTILITY;
Since there were
considerable amount times spent in earlier statutes to prove default, an
information utility agency was created under the Code to be in charge of
collecting and disseminating financial information and business information.
The information received from information utility (like CIBIL) would be
considered as conclusive proof of default.
III. ADJUDICATION
AUTHORITIES:
Corporate Persons : National Company Law Tribunal
Appeal : Appeal against the orders
of NCLT with National Company Law Appellate Tribunal and then appeal would be
before Supreme Court.
Individuals and Partnership Firms : Debt Recovery Tribunal
Appeal against the orders of DRT
will be before DRAT and the orders of DRAT will be challenged before Supreme
Court.
IV.
INITIATION OF INSOLVENCY PROCESS:
Pecuniary Limit of default required
for initiation of insolvency process before Adjudication Authority:
Corporate Persons: Default should be Rs 1 lacs
Individuals and Partnership Firms:
Rs 1000
V.
WHO CAN INITIATE INSOLVENCY PROCESS
IN CORPORATE PERSONS (COMPANIES):
-
Financials
Creditors – like Banks, NBFC.,etc
-
Operational
Creditors – Those creditors supplied goods, raw materials and services to the company.
-
Corporate
Persons himself
VI.
IMPORTANT PROCESS UNDER INSOLVENCY
OF CORPORATE PERSONS:
(i)
BY FINANCIAL CREDITOR:
- Financial Creditor, jointly
with other financial creditor may file an application for initiating
corporate insolvency resolution process against corporate debtor before
National Company Law Tribunal
- Within 14 days, NCLT determines
the existence of default
- IF there is no default,
application will be dismissed
- If there is a default, the
application is complete and the following steps occur:
-
Declaration
of Moratorium and Public Announcement. Once Moratorium begins all the
proceedings against the company, by the company will come to stand still
including SARFAESI and DRT proceedings.
-
Public
Announcement of Corporate Insolvency Resolution Process
-
Insolvency
Professional will be appointed by Adjudicating Authority. IP would take over
the company and run the company till resolution plan made.
- Insolvency Professional shall
do the following :
-
Constitute
the Committee of Creditors
-
COC
has power to change the Insolvency Professional
-
Preparation
of Information Memorandum ( information of company assets and viability of
restructure)
-
Submission
of Resolution Plan by Resolutions Professional in consultation of Committee of
Creditors, Directors, ..etc (Whether restructure is possible or not )
-
Approval
of Resolution Plan will be approved by NCLT
- IF NCLT did not approve
Resolution Plan within 180 days and further 90 days can be extended,
Company will go in for liquidation process.
- Insolvency Professional shall
not take any of the following actions without prior approval of the COC
in the moratorium period:
-
(a)
Raise any interim finance in excess of the amount as may be decided by the
committee
-
(b)
create any security interest over the assets of the corporate debtor
-
(
c) change the capital structure
-
(d)
record any change in the ownership interest of the corporate debtor.
-
(e)
give instruction to financial institutions maintaining accounts of the
corporate debtor for a debt transaction from any such accounts in excess of the
amount as may be decided by the COC in
their meeting
-
(f)
undertake any related party transaction
-
g)
amend any constitutional documents of the corporate debtor
-
h)
delegate its authority to any other person
-
i)
dispose of or permit the disposal of
shares of any shareholder of the corporate debtor or their nominees to third
party
-
j)
make any change in the management of the corporate debtor or its subsidiary
-
k)
transfer rights or financial debts or operational debts under material
contracts otherwise than in the ordinary course of business
-
l)
make changes in the appointment or terms of contract of such personnel
specified by the COC.
-
m)
make changes in the appointment or terms of contract of statutory auditors,
internal auditors of the corporate debtor.
-
To
obtain approval to do the above IP should convene a meeting of COC where in 75%
of creditors having voting share should approve the same. Action of IP without approval of COC is void and COC can report to the Board for
action against IP.
II)
Corporate Insolvency Resolution
Process By Operational Creditor:
Operational Creditor on occurrence of
event default, a demand notice has to be sent demanding invoice amount
If the Corporate Debtor after
receiving notice , did not pay the amount within 10 days, Operational Creditor
can file application for insolvency against the defaulting corporate debtor.
iii)
LIQUIDATION PROCESS FOR CORPORATE
DEBTOR:
On the following grounds
Adjudication Authority (NCLT) can pass an order of liquidation process:
·
Resolution
Plan is not received with the time (i.e 180 days + 90 days)
·
Resolution
Plan so proposed is rejected
·
Committee
of Creditors through Resolution Professional inform the NCLT for liquidation
·
Resolution
Plan approved by NCLT is contravened by the Corporate Debor.
iv)
Appointment of Liquidator:
Once NCLT passes order
for liquidation Resolution Professional appointed earlier may appointed as
Official Liquidatior. ( Creditors can change the Resolution Professional
through an application). Liquidator will consolidate estate and call for
claims. After sale of assets, will be distributed by liquidator as per the
priority prescribed under the Code.
VII. IMPORTANT
PROCESS UNDER INSOLVENCY OF INDIVIDUALS AND PARTNERSHIP FIRMS :
( Rules and provisions yet to be
notified)
FRESH
START PROCESS :
It is like loan waiver
scheme. An debtor can file an
application before DRT for fresh start.
Once he files application, interim moratorium will begin, a resolution
professional will be appointed and he will examine the application and will
file his report. Adjudication Authority,
ie Debt Recovery Tribunal will pass an order of discharge of the debt to fresh start or reject the
application.
Eligibility
to file Fresh Start Process:
- Gross Annual Income does not
exceed Rs 60000/-
- Aggregate Value of Assets does
not exceed Rs 20000/- but does not include excluded assets
- Aggregate qualifying debt does
not exceed Rs 35000/- but it does not include excluded debt, debt to the
extent it is secured, debt which has been incurred 3 months prior to the
date of application.
Excluded Asset : (i) Unencumbered tools, vehicles
and other equipments for his personal use or for the purpose of his employment,
business or vocation
(ii)
Unencumbered
furniture,
(iii)
Unencumbered
LIC Policy, Pension Plan
(iv)
Unencumbered
signle dwelling unit owned by the debtor
Excluded Debt:
- Liability to pay maintenance
- Liability in student loan and
any other to be prescribed
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