Insolvency & Bankruptcy Code (IBC) in India -
economy
News:
The
Finance Minister has proposed to set up an integrated technology
platform to improve the outcomes under the Insolvency &
Bankruptcy Code (IBC).
What’s
in the news?
- The Union Minister also proposed
the establishment of additional tribunals out of which,
some will be notified to decide cases exclusively under the Companies Act.
- It is also proposed that steps for reforming
and strengthening debt recovery tribunals be taken and additional
tribunals be established to speed up the recovery.
Insolvency
- In a growing economy like India,
a healthy credit flow and generation of new capital are essential.
- When a company or business
turns insolvent or “sick”, it begins to default
on its loans.
- In order for credit to not get stuck
in the system or turn into bad loans, it is important that banks or
creditors are able to recover as much as possible from the
defaulter and as quickly as they can.
- The business can either get a chance,
if still viable, to start afresh with new owners, or its assets
can be liquidated or sold off in a timely manner.
This
way fresh credit can be pumped into the system and the value
degeneration of assets can be minimised.
Need
for the IBC
- In 2016, India’s Non-Performing
Assets and debt defaults were piling
up, and older loan recovery mechanisms such as the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act (SARFAESI), Lok Adalats, and Debt Recovery Tribunals
were seen to be performing badly, the Insolvency and Bankruptcy
Code (IBC) code was introduced.
- It was introduced to overhaul
the corporate distress resolution regime in and consolidate
previously available laws to create a time-bound
mechanism.
- When insolvency is triggered under
the IBC, there can be two outcomes: resolution or liquidation; all
attempts are made to resolve the insolvency by either coming up with a
restructuring or new ownership plan and if resolution attempts fail, the
company’s assets are liquidated.
Insolvency
and Bankruptcy Code (IBC)
- Objective: The
primary objective of the IBC is to promote entrepreneurship, availability
of credit, and balance the interests of all stakeholders by providing for
a time-bound process to resolve insolvency.
- Applicability: The
IBC applies to companies, limited liability partnerships (LLPs),
partnership firms, and individuals. It provides a framework for both
corporate and personal insolvency.
- Modus Operandi: When
a corporate debtor (CD), or a company defaults on its loan
repayment, either the creditor or the debtor can apply
for the initiation of a Corporate Insolvency Resolution Process
(CIRP) under Section 6 of the IBC.
- The minimum amount of default
is ₹1 crore.
- To apply for insolvency, one has to
approach a stipulated adjudicating authority (AA) under
the IBC— the various benches of the National Company Law Tribunal (NCLT)
across India are the designated AAs.
- Insolvency Resolution Process (IRP): The
IBC provides for a structured insolvency resolution process overseen by
licensed insolvency professionals (IPs).
- Adjudicating Authority: The
National Company Law Tribunal (NCLT) is the adjudicating authority for
corporate insolvency resolution processes (CIRP) for companies and LLPs.
- For individuals and partnership
firms, the Debt Recovery Tribunal (DRT) handles the process.
- Insolvency Professionals: IPs
are licensed professionals who play a crucial role in managing the
insolvency resolution process.
- They act as intermediaries between
the debtor and creditors and manage the affairs of the debtor during the
insolvency process.
- Time-bound Process: The
IBC mandates strict timelines for various processes involved in insolvency
resolution to ensure timely resolution and prevent undue delays.
- Liquidation: If
a resolution plan is not approved or implemented within the specified time
frame, the corporate debtor may be liquidated to distribute the proceeds
to creditors.
- Cross-border Insolvency: The
IBC provides a framework for dealing with cross-border insolvency through
cooperation and reciprocal arrangements with other countries.
Source:
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2035585