IBBI and IBC

  • September 20, 2022
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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IBBI and IBC

Subject : Economy

Context:

The Insolvency and Bankruptcy Board of India (IBBI) has amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations,  with the “objective to maximise value in resolution”

Amendments:

  • The Committee of Creditors (CoC) can now examine whether a compromise or an arrangement can be explored for a corporate debtor during the liquidation period.
  • A resolution professional and the CoC will look for sale of one or more assets of the corporate debtor concerned in cases where there are no resolution plans for the whole business
    • It will enable a resolution plan to include sale of one or more assets of CD (Corporate Debtor) to one or more successful resolution applicants submitting resolution plans for such assets and providing for appropriate treatment of the remaining assets.

Concept:

The Insolvency and Bankruptcy Code, 2016 (IBC)

  • The Insolvency and Bankruptcy Code (IBC) provides for a market-linked and time-bound resolution of stressed assets.
  • It covers all individuals, companies, Limited Liability Partnerships (LLPs) and partnership firms.
  • The goal of the code is to address insolvencies in a timely way; the evaluation and viability determination must be done within 180 days.
    • The Company is subject to a 180-day moratorium (which can be extended up to 270 days). The resolution time frame for startups and small businesses is 90 days, which can be extended by 45 days.
  • Objectives of IBC
    • To consolidate and amend all existing insolvency laws in India.
    • To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.
    • To protect the interest of creditors including stakeholders in a company.
    • To revive the company in a time-bound manner.
    • To promote entrepreneurship.
    • To get the necessary relief to the creditors and consequently increase the credit supply in the economy.
    • To work out a new and timely recovery procedure to be adopted by the banks, financial institutions or individuals.
    • To set up an Insolvency and Bankruptcy Board of India.
    • Maximization of the value of assets of corporate persons.

The framework consists of the following bodies/institutions:

  • Insolvency Professionals: They will be in charge of the resolution procedure. They also handle the debtor’s assets and provide information to creditors to help them make decisions.
  • Insolvency Professional Agencies: Insolvency practitioners will be registered with professional agencies for insolvency. Exams would be conducted to certify insolvency specialists, and a code of behaviour for their performance would be enforced by the agencies.
  • Information utilities: They will maintain track of debts owed to creditors, as well as repayments and debt defaults.
  • Adjudicating authorities: They will sanction the start of the resolution procedure, appoint the insolvency professional, and sign off on the creditors’ ultimate judgement.
  • The National Company Law Tribunal (NCLT) is the deciding authority for corporations and limited liability firms.
    • Individuals and partnership firms have their debts adjudicated by the Debt Recovery Tribunal (DRT).
  • The Insolvency and Bankruptcy Board will oversee insolvency experts, professional agencies, and information utilities established under the Code.

Insolvency Resolution Process

  • Insolvency resolution process can be initiated by any of the stakeholders of the firm:  firm / debtors / creditors / employees.
  • If the adjudicating authority accepts, an Insolvency resolution professional (IP) is appointed.
  • The power of the management and the board of the firm is transferred to the committee of creditors (CoC). They act through the IP.
  • The IP has to decide whether to revive the company (insolvency resolution) or liquidate it (liquidation).
    • If they decide to revive, they have to find someone willing to buy the firm.
    • The creditors also have to accept a significant reduction in debt. The reduction is known as a haircut.
    • They invite open bids from the interested parties to buy the firm.
    • They choose the party with the best resolution plan, that is acceptable to the majority of the creditors (75% in CoC), to take over the management of the firm.

Insolvency and Bankruptcy Board of India

  • It was established on 1st October, 2016 under the Insolvency and Bankruptcy Code, 2016 (Code). 
  • It is a key pillar of the ecosystem responsible for implementation of the Code that consolidates and amends the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.
  • Functions 
    • It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and Information Utilities.
    • It writes and enforces rules for processes, namely, corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code.
    • It has recently been tasked to promote the development of, and regulate, the working and practices of, insolvency professionals, insolvency professional agencies and information utilities and other institutions, in furtherance of the purposes of the Code.
    •  It has also been designated as the ‘Authority’ under the Companies (Registered Valuers and Valuation Rules), 2017 for regulation and development of the profession of valuers in the country.
economy IBBI and IBC