INSOLVENCY AND BANKRUPTCY CODE, 2016 AND BLANKET SUSPENSION, 2020
Nov. 19, 2020 • Suryasikha Ray
Profile of the Author: Akshat Dahate, student of ILS law college, Pune pursuing B.A.LL.B (Hons.). His areas of interest are corporate and commercial law.
INTRODUCTION
Bankruptcy and repudiation are the spring – boards from which much of our civilization vaults and turns its somersets, but the savage stands on the inelastic plank of famine. The term insolvency articulates its segments towards the state of being unable to pay debts or facing uncertain financial difficulties and slope of non – performance can lead to bankruptcy or corporate insolvency. In general here assets are less than liabilities, and bankruptcy is a process where corporate liquidation begins. It’s certainly notable that you can be Insolvent without being bankrupt, But you can’t be bankrupt without being Insolvent. Insolvency is the process of resolution where we try to revive the entity in a time bound manner.
5 PILLARS OF THE CODE
- The most certain feature of this code is comprehensive nature and a unit code, stands no multiplicities of laws. This code thoroughly believe in high key activity and functions are specified. To treat the process of insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship and to create balance in availability of credit therein we can say the code acts in low time resolution and points on one window clearance mechanism.
- The court harmonize it’s adjudicating authority with two main broad bodies National Company Law Tribunal a quasi – judicial body in India that adjudicates issues relating to companies at large which intake companies, Limited Liability Partnership, Personal guarantees related to corporate debtors, here the appellate body is National Company Law Appellate Tribunal and Supreme court. And the second authority standing is Debts Recovery Tribunals and appeals in Debts Recovery Appellate Tribunals. This particular tribunal intakes individual and Partnership firms. The code establishes an insolvency bankruptcy board of India (IBBI), and matters connected therewith or incidental thereto. The IBBI is an executive and regulatory functioning body that proposes its functions from Insolvency professionals through agencies and collects information utilities as certain features.
- Corporate insolvency resolution process is one the certain purpose of this code is to empower the creditors to retain dues through the corporate insolvency resolution process or we say through liquidation of defaulting debtors entity. The gradual allowance to initiate corporate insolvency resolution is given to financial creditors, operational creditors and corporate debtors itself. The Insolvency and bankruptcy code section 7 points on initiation of corporate insolvency resolution process by financial creditors individually or jointly. When default occurs on account of the entity, an application can be filed by financial creditors. With record of default and name of professional to resolution of Corporate insolvency. Accordingly in the light of default pointing section 9 and 10 operational creditors and corporate debtors can approach for corporate insolvency resolution process.
- The Insolvency and bankruptcy code 2016 priorities workmen and employees also hold power to initiate moratorium. Moratorium prominently means temporary pause on activities in accordance with the entity. Section 14 of the code mainly deals with moratorium, on Insolvency commencement date adjudicating authority shall by order declare Moratorium for prohibiting suits, dealings pointing corporate debtors assess or any legal rights or beneficial interest with respect to any security interest created (SARFAESI). And recovery of any property by owner or lessor where such property is occupied by a corporate debtor. This pointed provision on moratorium shall not apply to such transactions or agreements notified by central government in context layering financial sectors regulator or any other authority also in case of surety in contract of guarantee to a corporate debtor and supply of essential goods and services are not affected or applicable in sense. The time period of moratorium is till the flow of completion of the corporate Insolvency Resolution Process. The relief or end of moratorium period is when a resolution plan gets approved by adjudicating authority (section 31) and Liquidation order is passed stated under section 33 of this particular code.
- All this complex Insolvency Resolution process and proceedings acts in order to bankruptcy or liquidation then this the concluding part of an entity. The certain conditions for failure of an entity is when adjudicating authority does not receive a resolution plan approved by committee of creditors before an expiry of insolvency resolution process. In case conditions are stated but there any non – compliance of requirements then adjudicating authority can reject the plan. The asking percentage to the committee of creditors to decide for liquidation is 66% by voting. In liquidation assets are closed and power is given to the liquidator as giving access to database and system information in utility. The commencement takes within 30 days and after verification of clams and proofs the liquidator admits or rejects thereafter states value.
The Insolvency and Bankruptcy Code (Amendment) Bill (IBC), 2020:
The Insolvency and Bankruptcy Code, was brought was brought into effect on 28th May 2016.The initial aim of the Code was to brings all legal aspects in relation to reorganization and insolvency resolution of corporations under a singular umbrella in a timely manner. Since its inspection, the most recent amendment to the Code was promulgated on the 5Th of June, 2020. IBC (Amendment) Ordinance, 2020 was enacted in light of the economic burden imposed as a consequence of the 2020 COVID-19 pandemic which has led to disruption in the ordinary course of business operation. In essence, the ordinance imposed a suspension of cases under the Code, for a period of six months, which may extend up to a year.
Post declaration of lockdown, a series of relaxation measures, leading to the ordinances were announced over a period of the course of these four months 24th March, 2020. The Ministry of Corporate Affairs, by way of notification, raised the threshold of default for filing an application for initiation of Corporate Insolvency Resolution. Process (CIRP) mentioned under Section 4 of the Code, from rupees one lakh to rupees one crore. The introduction of Regulation 40C to Insolvency and Bankruptcy Board of India(Insolvency Resolution Process for Corporate Persons) Regulations, 2016 was done by the Insolvency and Bankruptcy Board of India (IBBI) by way of notification.
SPECIAL ATTENTION:
Section 4. For the purposes of this section, it is hereby clarified that nothing in this section shall prevent a corporate debtor referred to in clauses (a) to (d) from initiating corporate insolvency resolution process against another corporate debtor.
Section 10A. Suspension of initiation of corporate insolvency resolution process. Despite anything contained in areas 7, 9 and 10, no application for inception of corporate indebtedness goal cycle of a corporate borrower will be recorded, for any default emerging on or after 25th March, 2020 for a time of a half year or such further period, not surpassing one year from such date, as might be notified for this sake. Given that no application will actually be petitioned for commencement of corporate indebtedness goal cycle of a corporate account holder for the said default happening during the said period given for the expulsion of questions, it is thus explained that the arrangements of this part will not have any significant bearing to any default submitted under the said segments before 25th March, 2020.
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.
Section 66 certainly focuses on fraudulent trading or wrongful trading and compound its working on due diligence. Sub clause (2)of the Section empowers the Resolution Professional to file an application during CIRP to the Adjudicating Authority to direct a corporate debtor to be liable for contribution to the assets. However, the introduction of sub clause (3), disallows any such application made under sub clause (2).
THE END:
It is no doubt that the Ordinance may be used as an obvious scapegoat for corporations, and financial creditors such as banks which already face a three month moratorium will face a major drawback. The silver lining here may save struggling companies and give them time to recover, and not force creditors to accept merge funds. However, the financial strain has been so devastative that corporate entities may eventually be out of business and the saving period of the Ordinance may not be good enough to keep such entities alive. Lastly, where wealth is health, bankruptcy is death.
Frequently asked questions (FAQ):
Q. Application in respect of which corporate debtors point to the insolvency resolution process and time limit?
A. Intake of application to small company, startup and unlisted company assets and time bound to resolution is 180 but extension can go up to 90 days.
Q. Is this code IBC 2016 applicable to Jammu and Kashmir?
A. Yes, it is applicable to Jammu and Kashmir pointing to part 3 of code.
REFERENCES:
https://www.goodreads.com/quotes/tag/bankruptcy
https://www.ibbi.gov.in/legal-framework/act
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