SALIENT FEATURES OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016
The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive legislation aimed at streamlining the insolvency and bankruptcy process in India. Some of its salient features are:
- Time-bound resolution: The IBC mandates that the insolvency resolution process should be completed within a maximum of 330 days. This is a significant improvement over the previous system, which often resulted in prolonged legal battles and delays.
- Insolvency resolution professionals (IRPs): The IBC introduced the concept of IRPs who are appointed to manage the affairs of the debtor company during the insolvency process. These professionals are required to be independent and are responsible for ensuring a fair and transparent process.
- Committee of Creditors (CoC): The IBC requires the formation of a CoC comprising of financial creditors to oversee the insolvency resolution process. The CoC plays a crucial role in deciding the fate of the debtor company and is responsible for approving or rejecting the resolution plan.
- Insolvency resolution process for individuals: The IBC introduced a separate insolvency resolution process for individuals, which was not available under the previous legal framework. This allows individuals, including entrepreneurs and small business owners, to seek relief from insolvency.
- Cross-border insolvency: The IBC provides for a mechanism for dealing with cross-border insolvency. This allows for coordination and cooperation between Indian and foreign courts and insolvency practitioners in the case of an insolvent debtor with assets in multiple jurisdictions.
- Fast-track insolvency resolution process: The IBC provides for a fast-track insolvency resolution process for companies that have a small asset base and low turnover. This process is designed to be completed within 90 days.
- Priority of creditors: The IBC lays down a clear hierarchy of creditors, with secured creditors ranking higher than unsecured creditors. This ensures that the interests of secured creditors are protected and they receive priority in the distribution of assets during the insolvency process.
- Creation of Insolvency and Bankruptcy Board of India (IBBI): The IBBI is the regulatory body responsible for implementing and enforcing the provisions of the IBC. It oversees the functioning of insolvency professionals, insolvency professional agencies, and information utilities.
- Formation of the Committee of Creditors (CoC): The CoC is a representative body of the creditors, which oversees and approves the resolution process. It has the power to appoint the insolvency professional and approve the resolution plan.
- Resolution plan: The resolution plan is a proposal submitted by a prospective resolution applicant to the CoC, outlining how the debtor’s assets will be utilized to repay the creditors. The plan must be approved by the CoC and the NCLT.
- Liquidation: If a resolution plan is not approved within the prescribed timeline, or if the plan fails to revive the debtor, the NCLT may order liquidation of the debtor’s assets.
- Appeal mechanism: The IBC provides for an appeal mechanism for all decisions made during the resolution process, which can be challenged in the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court of India.
Overall, the Insolvency and Bankruptcy Code, 2016 is a landmark legislation that has brought significant changes to the insolvency and bankruptcy process in India. It has streamlined the process, provided greater clarity to stakeholders, and brought relief to those struggling with insolvency.
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