The insolvency and bankruptcy code 2016 is bankruptcy law of India which seeks to consolidate the existing framework by creating a single law Commenced 28 may 2016
Insolvency is the state of being unable to pay the money owed, by a person or company, on time
Bankruptcy is the legal proceedings involving a person or business that is unable to repay outstanding debts. All the debtors assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt
Key features of ibc 2016
1) resolution of insolvency It is possible to initiate the procedure either by creditors or debtors. For company procedure must be fully completed in 180 days, which can later be stretched by 90 days only when large percentage of creditors permit or agree For small organisations (assets less than 1 Cr) 90 days + 45 days
2) Regulator of insolvency IBBI shall oversee the proceedings related to insolvency
3) Licensed Insolvency Professionals (IP) The management of insolvency procedure shall be done by licensed insolvency professionals. They would also exercise control on debtors assets at the time of insolvency procedure
4) Insolvency and bankruptcy adjudicator The code has introduced two distinct tribunals for overseeing the procedure resolving insolvency, for companies and individuals a) NCLT – National company law tribunal for organizations and limited liability partnership companies b) DRT – Debt recovery tribunal for overseeing insolvency resolution for individuals as well as partnership firms
5) Procedure Insolvency plea given to authority by creditors or debtors Plea can be accepted or rejected in maximum 14 days If accepted tribunal will appoint IRP ie insolvency resolution professional for drafting a plan of resolution 180 days can be extended by 90 days Court will initiate the process of resolving corporate insolvency For that period the company’s directors shall remain suspended whereas the promoters shall have no say in the company management IRP can seek help of the management of company for handling everyday operations In case the CIRP is unable to revive the organisation, then the process of liquidation shall be initiated
6) Amendments Certain individuals are prohibited from providing any plan of resolution in case there are many defaults Hence wilful defaulters, management or promoters of company in case there is any non-performing outstanding debts for more than one year, as well as directors who have been disqualified cannot submit any plan Bill also places a restriction on the selling of a defaulters property to any such individuals at the time of liquidation
Priority of payment in liquidation 1) insolvency related costs and liquidation costs 2) The secured creditors and workman dues up-to 24 months (rank equally) 3) outstanding salaries of other employs and dues up-to 12 months 4) dues of unsecured creditors 5) Government dues up-to 2 years and unpaid amount of secured creditors (rank equally) 6) remainder of debts, and dues 7) to preference shareholders 8) to equity shareholders
