Insolvency and Bankruptcy Code is an act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for the maximisation of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.
The Insolvency and Bankruptcy Code, 2016 (IBC) was passed by the Parliament on 11 May 2016, received Presidential assent on 28 May 2016 and was notified in the official gazette on the same day.
It is an act that has overriding power over all the existing acts and legislation. Under this act the financial creditors i.e. banks are free to drag the companies for a resolution process even if a single payment is defaulted by the companies or firms. There are two adjudicating authorities one for individuals and partnership firms which is DRT ( Debt Recovery Tribunal) while the other is for companies named as NCLT ( National Company Law Tribunal ). Recently, the Government of India has doubled the monetary limit to Rs. 20 lakh for filing loan recovery application in the Debt Recovery Tribunal by the banks and financial institutions.
The resolution process applied under the Insolvency and Bankruptcy Code is shown by flow chart as:
Who is Insolvency Professional?
Insolvency professional is a person certified by Insolvency Professional Agency and Insolvency and Bankruptcy Board of India. The appointment of Insolvency professional is done by regulator while creditors will approve the appointment. Once the Insolvency professional is appointed he will have all the powers to run the company, the powers of the Board of Directors of the company will be suspended while he will take over the powers. During the moratorium period (180 days, can be extended up to 270 days) which will be decided by the adjudicating authority (NCLT in case of companies) no action can be taken against the company or the assets of the company. The key focus will be on running the company, during this period the Insolvency professional will come out with a resolution plan which needs to be approved by 75 per cent of creditors to implement. If creditors approve the plan, it will be implemented otherwise the company will go for the liquidation process.
The Insolvency professional may act as a liquidator and exercise all the powers of the board of directors of the company. The Creditors committee can opt for voluntary liquidation with the special resolution in the general meeting. Once the company goes for liquidation the dues will be settled in this order:
Insolvency and Bankruptcy Board of India
Establishment of Insolvency and Bankruptcy board is done under the IBC 2016 as an independent body for the administration and governance of Insolvency & Bankruptcy Law. It is chaired by MS Sahoo and comprised of 10 members, one of which is from RBI and nine others are government nominated from different fields. For better understanding take a look at a chart given below: