Governance & Intelligence / Crisis & Insolvency Management / Corporate Insolvency & Bankruptcy Advisory

Corporate Insolvency and Bankruptcy Management

 Insolvency and restructuring matters are primarily regulated by the Insolvency and Bankruptcy Code, 2016, which came into force on 1 December 2016. The Insolvency and Bankruptcy Code governs insolvency and liquidation proceedings for all limited liability entities, except financial services entities (eg, banks, insurers, and pension funds). The code also governs insolvency and bankruptcy proceedings for individuals and partnerships; however, these provisions have not yet been notified. The government recently notified certain provisions of the code relating to personal guarantors of corporate debtors, which came into effect on 1 December 2019.

The Companies Act, 2013 deals with voluntary schemes of arrangement and compromise between a company and its creditors (in respect of company debts).

In addition, India's central banking regulator, the Reserve Bank of India (RBI), issues circulars and notifications to banks and non-banking finance companies from time to time under the Banking (Regulation Act), 1948, setting out directions for the resolution or restructuring of distressed loans outside the framework of the Insolvency and Bankruptcy Code.

 

What is insolvency?

An entity – individual, or a company becomes insolvent when they are unable to pay back their debts. When a person, a group, or an organization cannot repay lenders back on time, they’re called insolvent. It is either due to their cash flow or due to the balance sheet.

When their cash flow makes it impossible for them to pay debts, or when they don’t have financial liquidation on their balance sheets, they are unable to repay their creditors, and hence, become insolvent.

Insolvency is a state of being that might prompt an entity to file for bankruptcy.

 

What is bankruptcy?

This is a legal declaration of one’s inability to pay their debts. When bankruptcy is filed, one is obligated to pay off whatever is owed, with the government’s help

 

 Laws Applicable for Corporate Insolvency 

  • Insolvency and Bankruptcy code, 2016
  • Companies Act 2013
  • Companies winding-up rules

 

Insolvency and Bankruptcy Code 2016

  1. Provisions of Insolvency and Bankruptcy Code (IBC) 2016 are applicable on Corporate Debtors where the minimum amount of default is 1 lakh rupees.
  2. Before this code there was no single code that deals with Insolvency and Bankruptcy. This code consolidates three laws to bring them under one umbrella. 

 

The overall scheme of the Insolvency and Bankruptcy Code

An Insolvency and Bankruptcy Board of India (IBBI) will be established. This Board (IBBI) will oversee the work of insolvency and bankruptcy of corporate persons, firms, and individuals. [The Board (IBBI) has been established on 1-10-2016, vide Notification No. 3110(E) dated 1-10-2016].

Actual work relating to insolvency and bankruptcy will be handled mostly by ‘Insolvency Professionals’ (IP). They will be members of the ‘Insolvency Professional Agency’ (IPA) which will ensure that the members have sufficient knowledge and expertise in these matters. IPA will also regulate the profession of IP.

The basic idea of the Insolvency Code is that when an enterprise (individual, firm, or corporation) defaults in payment of its dues, the control shifts to the Committee of Creditors (CoC) of financial creditors. Actual work is handled by IP. There are specified time limits to evaluate proposals for resuscitating (rehabilitating) the enterprise or taking it to liquidation. IP has control over the debtor under the supervision of CoC.

Decisions are required to be taken in a time-bound manner so that there are greater chances that the enterprise is saved as a going concern and productive resources of the economy can be put to best use.

 

 Persons to whom the Insolvency Code applies

The provisions of the Insolvency and Bankruptcy Code (Insolvency Code, 2016) apply to the following, in relation to insolvency, liquidation, voluntary liquidation, or bankruptcy, as the case may be (section 2 of Insolvency Code, 2016).

Clauses (a) to (d) of section 2 except with regard to voluntary liquidation or bankruptcy, were notified and brought into effect on 15-12-2016. Clauses (a) to (d) of section 2 with regard to voluntary liquidation have been brought into effect on 1-4-2017. However, provisions have been made applicable to all persons notified in clauses (a) to (g) w.e.f. 23-11-2017:

 

  1. Companies incorporated under the Companies Act
  2. Companies governed under special Act (so far as of Insolvency Code, 2016 is consistent with those special Acts i.e. provisions of Special Act will prevail over of Insolvency Code, 2016)
  3. Limited Liability Partnership (LLP)
  4. Other body corporates as may be notified by Central Government
  5. personal guarantors to corporate debtors
  6. partnership firms and proprietorship firms; and
  7. individuals, other than persons referred to in clause (e).

 

Insolvency Code not applicable to financial service providers unless specifically notified

The Code is not applicable to corporations in the finance sector. Section 3(7) of the Insolvency Code, 2016 states that “Corporate person” shall not include any financial service provider.

Thus, the Code does not cover banks, Financial Institutions, NBFC, Insurance companies, Asset Reconstruction Companies, Mutual Funds, Collective Investment Schemes, or Pension Funds.

“Financial service provider” means a person engaged in the business of providing financial services in terms of authorization issued or registration granted by a financial sector regulator – section 3(17) of Insolvency Code, 2016.

  • Government can notify financial service providers for purpose of insolvency and liquidation proceedings – Central Government can notify financial service providers for purpose of insolvency and liquidation proceedings, which may be conducted under the Insolvency Code, in consultation with appropriate financial sector regulator – section 227 of Insolvency Code, notified and effective from 1-5-2018.
  • Insolvency Code made applicable to NBFC (including housing finance companies) with assets Rs. 500 Crore or more – The provisions of the Insolvency Code have been made applicable to NBFC (which includes housing finance companies) with an asset size of Rs. 500 crore or more as per last audited balance sheet, videNotification No. S.O. 4139(E) dated 18-11-2019. RBI will be the ‘Appropriate Financial Regulator’ for this purpose.

 The objective behind Insolvency and Bankruptcy Code, 2016

  • To consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals.
  • To fix time periods for the execution of the law in a time-bound settlement of insolvency (i.e., 180 days).
  • To maximize the value of assets of interested persons.
  • To promote entrepreneurship
  • To increase the availability of credit.
  • To balance all stakeholder’s interests (including alteration). Balance to be done in the order of priority of payment of Government dues.
  • To establish an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy law.
  • To establish higher levels of debt financing across a wide variety of debt instruments.
  • To provide a painless revival mechanism for entities.
  • To deal with cross-border insolvency.
  • To resolve India’s bad debt problem by creating a database of defaulters.

 

Who can Initiate Insolvency Resolution Process (CIRP)

  1. Financial Creditor
  2. An Operational Creditor or
  3. The Corporate Debtor itself (Voluntary)

 

How White Code Legal Help?

  • Insolvency Management.
  • Provide Service to Creditors and Stakeholders to act as IRP
  • Corporate Insolvency Resolution Process
  • Legal Assistance in Insolvency Proceeding
  • Appointment of Insolvency Resolution Professional 
  • Appointing Liquidator
  • Insolvency Advisory 
  • Management of liquidation proceedings.
  • Searching Prospective Resolution Applicants, Investors, Lenders.

 

Service Delivery Process followed by White Code Legal:

  1. The Client has to register themselves on our website.
  2. Once the Client is registered, we raise a Service Request.
  3. The Client receives a proforma invoice with an option to confirm and pay now or pay later.
  4. Once the Client confirms, our dedicated relationship manager liaisons with our experts, and clients share a list of client information required to deliver the service.
  5. Once we receive the information, we take the required steps to deliver the service and the service request is closed.

 

Service Inclusions

  • Professional Fees

 

Service Exclusions

  • GST, Government Fee, and other Additional Taxes

 

Why White Code Legal? 

At White Code Legal we prioritize and always strive to deliver excellence. Keeping a focus on maintaining affordable prices and delivering 100% client satisfaction we aim to make worth every penny our clients spend with us and build a lasting relationship with them.