GLIMPSE OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016

The Insolvency and Bankruptcy Code, 2016 is single unified  umbrella of insolvency law which 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 value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy board of India, and for matters connected therewith or incidental thereto.

Before the Insolvency and Bankruptcy Code, 2016 there was no single law in India that dealt with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies could be found in the in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies act, 2013. These statutes provided for creation of multiple fora such as Board of Industrial and financial Reconstruction (BIFR), Debt Recover Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of Companies were handled by the High Courts. Individual Bankruptcy and insolvency was dealt with under Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 and was dealt with by the Courts.

NCLT and DRT are the adjudicating authorities for corporate persons, firms and individuals respectively for the resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects.

Insolvency and Bankruptcy Board of India (Board), insolvency professional agencies and information utilities have been established under the Code. Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, Insolvency professionals assists in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities collect, collate, authenticate and disseminate financial information to facilitate such proceedings.

The code ensures:
1) the assessment of viability of the enterprise at a very early stage;
2) symmetry of information between creditors and debtors;
3) a time-bound process to better preserve economic value and collective process;
4) impartiality to the type of creditor in counting their weight in the vote on the final solution in resolving insolvency;
5) when the negotiations fail to establish viability, the outcome of bankruptcy becomes binding;
6) clarity of priority, and that the rights of all stakeholders are upheld in resolving bankruptcy.

The essential idea of the Code is that when a corporate debtor defaults on its financial debt, control shifts from the shareholders / promoters to a Committee of Creditors, who have 180 days in which to evaluate proposals from various players about resuscitating the company or taking it into liquidation. When decisions are taken in a time-bound manner, there is a greater chance that the corporate debtor can be saved as a going concern, and the productive resources of the economy (the labour and the capital) can be put to the best use. This is in complete departure with the experience under the SICA regime where there were delays leading to destruction of the value of the firm. 

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