In the wave of the following era’s grounds realities, was introduced in the Lok Sabha on December 21, 2015. As there were verbal opinions in the corner around that whole India which should be looking to make rapid strides towards introducing comprehensive individuals insolvency regime now. A reference was made to the standing committee and gave its reference on April 28, 2016. The insolvency and bankruptcy code was introduced in the country on May 28, 2016, becoming the preferred debt default resolution route, and the legal needs of lenders and insolvent companies changed.
The firm quickly retrained, hired, and positioned people to run the show, and also upgraded the staid interiors to a more modern look. It was considered to be one of the biggest economic reforms introduced in India and is assumed to play a significant role in limiting the risks of credit. Many law firms across the territory, the large audit and accounting firms, as well as investment bankers and consultants, made similar moves to work on the new insolvency regime.
The 2016 Code highlights the following two main objectives, namely, first- equal, expeditious, and economic distribution of assets of the debtor, and
Second is the liberation of the person from the demands of the creditor. The 2016 code focuses on the two main purposes namely, the first equal, expeditious, and economic distribution of assets of the debtor and the second the liberation of the humans from the demands of the creditor after the code came into force. Ever since it was instituted, being a completely new system, the insolvency and bankruptcy code has faced its shares of challenges. As a result, a raw jurisprudence has emerged in the new times
STEP BY STEP PROCESS OF INSOLVENCY CODE
Initiation – the first step is initiation. When a condition occurs in which either of the parties fails to fulfill an obligation on time, either of the two parties, i.e. the debtor or the creditor may initiate the process of resolution. The person who is the insolvency professional supervises this process. The main duty of the said professional is that he supplies the financial information about the debtor from the information utilities to the creditor and administers the debtor’s assets. The said process of initiation goes on for a time period of 180 days and during this period, any kind of legal action against the debtor is prohibited.
The decision to resolve insolvency – the second step to resolve insolvency is that a decision should be made. A committee is formed which consists of all the financial creditors who lent money to the debtor. This committee will be formed by the same insolvency professional. Now, this committee is called the creditor’s committee which will take the decision in order to set the future of the outstanding debt owed to them. The creditor’s committee has two options regarding the outstanding debt, either they choose to revive the debt owed to them by bringing changes to the schedule of repayment, or liquidation of the assets i.e., selling the assets of the debtor to repay the debts owed to them. This decision is also to be taken in 180 days and if a decision is not taken, then the debtor’s assets go into liquidation.
Liquidation – the last step of the process of resolving insolvency is the process of liquidation. When the debtor chooses to go into the process of liquidation, the insolvency professional administers the process. The revenue earned by the sale of the assets of the debtor are distributed in the below-given order of priority, i.e.,:-
i) Insolvency resolution cost: this includes the remuneration or salary to the insolvency professional.
ii) Secured creditors: Those whose loans are covered by collateral, the dues to workers, and other employees.
iii) Unsecured creditors.
iv) The dues to the government.
v) Priority shareholders
vi) Equity shareholders
The process of initiation of liquidation comes under Section 33 of the Insolvency and bankruptcy code under which when the Adjudicating Authority either does not receive the Resolution Plan under Section 30(6) of the code or the maximum period authorized for the corporate insolvency resolution process i.e., 180 days, expires or in some cases when the Adjudicating Authority rejects the said resolution plan under Section 31 of the Code. Moreover, the Committee of Creditors may also, with a minimum of 66% votes, decide to liquidate the Corporate Debtor under Section 33(2), any time before the approval of the resolution plan, and because of that the resolution professional intimates the adjudicating authority of such decision. If the corporate debtor does not comply with any terms of the already approved resolution plan, any person whose interest is prejudicially affected by such contravention may apply for liquidation of the corporate debtor.
All the powers of the Board of Directors, Key Managerial Personnel, and the partners of the corporate debtor, as in accordance with the case, shall stop getting an effect and shall entrust to the Liquidator.
In addition, an order of liquidation shall be passed for the notice of discharge to all the employees of the corporate debtor. However, they may be brought back when the business of the corporate debtor is said to be continued at the time of liquidation procedure.
All the persons such as Officers, Directors, Partners, Auditors, and Resolution Professional as well as those holding the properties of corporate debtor have a duty to assist and cooperate with the Liquidator in managing the affairs of the corporate debtor.
While passing the order of liquidation, the Adjudicating authority is required to name an Insolvency Professional as Liquidator. In case, if any insolvency professional is already appointed as Resolution Professional for Corporate Insolvency Resolution Process beforehand, he then may be continued or another insolvency professional can be appointed. The insolvency professional can also be replaced according to certain circumstances as mentioned under Section 34(4) of the Code.
The fee payable to the insolvency professional shall be decided by the committee of creditors under Regulation 39D of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, in which they don’t agree to the resolution plan. In that, financial creditors are also required to advance sums required for liquidation cost over liquid assets available, which would be then refunded with interest out of money earned from liquidation.
A liquidator is needed to supervise the whole process of liquidation, right from the liquidation order to the dissolution of the corporate debtor. He has to take custody of all the assets, evaluate them in a proper manner and dispose of them in an unambiguous manner taking in mind the goals of the Code. Meanwhile, he has to maintain and safeguard them. He has to invite claims and check them for consolidation. Subsequently, he may acknowledge or reject the claims. He has to protect any suit, prosecution, or other legal proceedings, civil or criminal, in the name and on behalf of the corporate debtor.
A creditor may appeal to the adjudicating authority, he can be against the decision of the liquidator, accepting or rejecting the claims within fourteen days of the receipt of such decision.
The liquidator has the ability to get any professional assistance from any person or select any professional, in the discharge of his duties, obligations, and responsibilities. Moreover, in case any clarification is required, adjudicating authority’s direction can be obtained.
DISTINCT FEATURES AND ASSESS OF THE NEW CODE
There are the following keys of the new code Comprehensive Law: Insolvency code is a comprehensive law that describes and regulates the process of insolvency and bankruptcy of all persons including corporate, partnership, LLPs, and individuals.
No multiplicity of law: The code has multiple laws covering the retrieve of debt and insolvency and liquidation process and presents a singular platform for all the relief’s relating to recovery of debts and insolvency.
Low time resolution: The code provides a limited time resolution and defines fixed time frames for insolvency resolution of companies and individuals
One window clearance: It has been designed to provide one window consent to the applicant whereby he gets the suitable relief at the same authority unlike the earlier position of law wherein the case of a company is not able to revive the procedure for closing up and liquidation has to be initiated under separate law governed by separate authorities.
2016 has definitely been the year of new rules and reforms (GST & IBC). India has been plagued with greater in extending with NPAs, for quite a few time, and from the above study, it is concluded that the IBC Code 2016 has established a framework for established deadlines resolution in India. The advancements of the ‘Make in India’ campaign will only outshine if the lows of entrepreneurs and financiers are lifted and seem prudently on time. The smooth functioning of a credit market in an economy will ensure that all the stakeholders are collectively contributing to the success of the entrepreneurial growth of a country.IBC Code is one step in this direction.