Insolvency and Bankruptcy Code

 

Insolvency is the state where an individual or a company is unable to pay off their debts as and when they fall due. It can be caused by various factors such as economic slowdown, natural calamities, or simply poor financial management. To deal with such situations, the government has enacted various laws and regulations that help individuals and businesses to deal with insolvency. In this blog, we will discuss the Insolvency and Bankruptcy Code (IBC), which was enacted in 2016 in India, and how it has helped businesses and individuals to deal with insolvency.

Overview of the Insolvency and Bankruptcy Code (IBC):

The Insolvency and Bankruptcy Code (IBC) is a comprehensive legislation that aims to consolidate and amend the laws relating to insolvency and bankruptcy in India. It was enacted in 2016 to provide a time-bound and efficient mechanism for resolving insolvency and bankruptcy cases. The IBC provides for two main processes for insolvency resolution – the corporate insolvency resolution process (CIRP) and the individual insolvency resolution process (IIRP).

Corporate Insolvency Resolution Process (CIRP):

The CIRP is a process that is initiated by a creditor, a shareholder, or the corporate debtor itself when it is unable to pay its debts. The process begins with the appointment of an insolvency resolution professional (IRP) who takes over the management of the company. The IRP then conducts an independent investigation to verify the claims of the creditors and prepares a resolution plan for the revival of the company. The resolution plan is then approved by the committee of creditors (CoC) and if it is approved by at least 75% of the voting shares, it is submitted to the National Company Law Tribunal (NCLT) for final approval.

If the resolution plan is not approved by the CoC or the NCLT, the company goes into liquidation and its assets are sold to repay the creditors. The IBC provides for a maximum period of 330 days for the completion of the CIRP process, which can be extended by another 90 days in exceptional cases.

Individual Insolvency Resolution Process (IIRP):

The IIRP is a process that is initiated by an individual debtor who is unable to pay off his debts. The process begins with the appointment of an insolvency professional (IP) who takes over the management of the debtor's assets. The IP then conducts an investigation to verify the claims of the creditors and prepares a resolution plan for the repayment of the debts.

The resolution plan is then submitted to the adjudicating authority for approval. If the resolution plan is approved, the debtor is released from his debts and if it is not approved, the debtor goes into bankruptcy and his assets are sold to repay the creditors. The IBC provides for a maximum period of 180 days for the completion of the IIRP process, which can be extended by another 90 days in exceptional cases.

Key Features of the Insolvency and Bankruptcy Code:

1.     Time-bound process: The IBC provides for a time-bound process for the resolution of insolvency cases. The maximum period for the completion of the CIRP process is 330 days and for the IIRP process is 180 days.

2.     Appointment of insolvency professionals: The IBC provides for the appointment of insolvency professionals who are licensed professionals with specialized knowledge and expertise in insolvency resolution.

3.     Committee of creditors: The IBC provides for the formation of a committee of creditors (CoC) who have the power to approve or reject the resolution plan.

4.     Cross-border insolvency: The IBC provides for the resolution of cross-border insolvency cases by giving recognition to foreign insolvency proceedings.

5.     Priority of creditors: The IBC provides for the priority