Lok Sabha has passed the much awaited Insolvency and Bankruptcy Code 2016 on May 05, 2016. It covers individuals, companies, limited liability partnerships and partnership firms. The new code will speed up the resolution process for stressed assets in the country. It attempts to simplify the process of insolvency and bankruptcy proceedings. The highlights of bankruptcy code are enumerated hereunder:
1. Strict time deadlines : Authority to decide insolvency applications within 180 days further, an extension of additional 90 days can be allowed
2. Fast track insolvency process: Fast track process is available for corporates, debtors with low income and assets, specified class of creditors and any other category notified by Govt. Under fast track process, 90 days time-limit is provided to complete whole process and further an extension of 45 days is allowed.
3. Adjudicating Authority:
– NCLT for Corporates
– DRTs for individuals and partnerships firms
– NCLAT to act as Appellate Authority
4. Insolvency Regulator: To exercise regulatory authority over insolvency professionals, insolvency professional agencies and informational utilities.
5. Stringent punishment to defaulter: The bill proposes upto five-year jail term to debtors for concealment of property and debars bankrupt individuals from holding any public office.
6. Initiation of Insolvency process
6.1 Who can initiate corporate insolvency process?
Financial Creditor: Financial creditor can file application before Adjudicating Authority for initiation of insolvency process against Corporate Debtor along with-
– Proof of default and Name of resolution professional to act as an interim resolution professional
Operational Creditor: Creditor can initiate corporate insolvency process by giving 10 day notice to corporate-debtor
Corporate Debtor: The Corporate Debtor himself can initiate corporate insolvency process by making a reference to adjudicating authority
6.2 Time-limit for admitting/rejection of plea: The Adjudicating Authority shall admit or reject application within 14 days of receipt
6.3 Declaration of moratorium: The Authority shall declare moratorium to avoid institution of suits, transferring of assets, foreclosure, etc.
6.4 Public announcement: It includes details of debtor, name of ‘interim resolution profession’ and last date of submission of claims.
6.5 ‘Interim resolution professional’: Adjudicating authority to appoint interim resolution profession within 14 days from insolvency commencement date
6.6 Committee of creditors: Interim resolution professional shall constitute committee of creditors after collating all claims against debtors and determining their financial position. All decisions to be taken by 75% voting share of financial creditors. Resolution profession shall conduct the meeting of committee. Meeting may be in person or through electronic means
6.7 Submission and Approval of resolution plan: Any applicant can submit a resolution plan to resolution professional, such professional can forward the resolution plan to authority after taking creditors’ approval.
6.8 Adjudicating Authority can order liquidation if:
– Resolution plan is not presented in given time
– Resolution plan is not as per rules
– Committee of creditors demands liquidation
– Debtor-company violates the terms of resolution plans
7. Appointment of Liquidator:
– Resolution professionals shall act as liquidator
8. Workmen dues to get priority: Workers’ salaries for up to 24 months will get first priority in case of liquidation of assets of a company ahead of secured creditors.
9. Creation of ‘insolvency information utilities’
– to collect, collate, authenticate and disseminate financial information from listed companies and financial and operational creditors of companies