Insolvency and Bankcruptvy

2. INSOLVENCY AND
BANKRUPTCY CODE, 2016
- Latest Developments in 2018
A Presentation by:-
K.SENTHIL KUMAR
M.Com.,M.A.,M.Phil.,M.B.A.,M.L.,FCMA.,ACS

3.  Existing Mechanism – Inadequate &
Ineffective :
 No single Law dealing with IB in
India;
 overlapping jurisdiction
 Painfully Slow Pace – Min 5 Yrs
 Recovery rate is so less
 More NPAs lying in Banks
 High Process Cost of Insolvency
 No Chance of Ease of Doing
Business and Easy Exit
136
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5
13
27
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20
40
60
80
100
120
140
160
Insolvency Resolution
World
Bank
Ranking

4.  Promote Entrepreneurship
 Improve Credit Availability
 Avoid Prolonging Time
 Interest of all Stakeholders
 Minimize the Role of Adjudicating
Authority
 Lesser Compliance mechanism
 Avoid Combination and Complication of many Laws

5. JOURNEY OF THE IBC
 21.12.2015- IBC Bill of 2015 -introduced in LS
 23.12.2015 - IBC Bill of 2015 - Referred to Joint
Committee of both Houses of Parliament
 28.04.2016- IBC Bill of 2015 -Joint Committee
placed its Report to both Houses of Parliament
 05.05.2016- IBC Bill of 2015 -passed by LS
11.05.2016- IBC Bill of 2015 -passed by RS
 28.05.2016- IBC, 2016 -Assented by President of
India & Notified

6. APPLICABILITY OF IBC,2016
 Any Company incorporated under the Companies Act, 2013
or under any provisions of previous Acts
 Any other Company governed by any Special Act
 Any LLP incorporated under the LLP Act, 2008
 Any other body, as notified by the Central Government
 Partnership Firms
 Individuals

7. OBJECTS OF THE CODE
• Creditor in control regime
• Consolidates existing insolvency laws and amends other legislations
• Overriding effect on all other laws inconsistent with the provisions of the
Code
• Time bound resolutions for evaluation and viability determinations of
companies referred for CIRP
• Clearly defined order of priority ( *waterfall mechanism)
• Investigation of antecedent transactions in case of illegal diversion of
assets of company
• Establishment of IBBI as an independent monitoring body for
administration and governance of the insolvency and bankruptcy law

8. BASIC TERMS
• Creditor
• Debtor
• Insolvency
• Bankruptcy
• Winding up
• Liquidation
• Dissolution

9. WHO CAN INVOKE?
Corporate Debtor (Sec.10)
- A corporate person who owes a debt to any person
Operational Creditor (Sec.9)
- A person to whom an operational debt is owed &
- Includes any person to whom such debt legally assigned or transferred
Financial Creditor (Sec.7)
- Any person to whom a financial debt is owed &
- Includes a person to whom such debt legally assigned or transferred

10. DEFAULT
In case of Co. & LLP In case of Partnership & Individual
Minimum amount of ` 1 lakh Minimum amount of ` 1 thousand
Minimum amount of ` 1 lakh & ` 1 thousand can be increased upto ` 1 Cr & ` 1
lakh respectively by CG
Where any Company or LLP commits-
A default in paying its
Financial debt Operational debt
Then a financial creditor/ operational creditor/ Company & LLP itself
May file an application, for initiating corporate insolvency resolution process with
the Adjudicating Authority.

11. SCHEME UNDER THE CODE

12.  NCLT
- Deal with insolvency matters of Co. & LLP
- Appeal to NCLAT
 Debt Recovery Tribunal
- Deal with insolvency matters of individual & Partnership firm
- Appeal as to DRAT
Adjudicating Authority within 14 days of receipt of application, by an order -
Admit the application Reject the application
If it is complete
If it is
incomplete
Adjudicating Authority shall before rejecting application, give notice to
applicant to rectify defects in application within 7 days from the date of
receipt of such notice
Default
occurred
Default not
occurred

13. 180 days
45 days
(One time)
270 days
Adjudicating Authority after admission of application shall, by an order
Declare a
Moratorium
Cause a Public
Announcement
Appoint Interim
Resolution Professional
FAST TRACK :
90 days
90 days
(Maximum)
135 days
TIME BOUND

14.  Adjudicating Authority shall by order prohibit the
following:
 Institution/continuation/proceedings of suits including
execution of any judgment, decree or order in any Court
 Transferring, encumbering, alienating or disposing of
assets/legal right/beneficial interest
 Any action to Foreclosure, Recover or enforce any
security interest created including any action under
SARFAESI Act, 2002
 Recovery of any property by owner or lessor where such
property is occupied
MORATORIUM EFFECT
[Sec.14 (1) (A) – (D)]

15. • Order of Moratorium made by Adjudicating
Authority;
- Start from Date of Admission of
Application;
• Cease to effect
– Date of Approval of Resolution Plan or
Liquidation Order
MORATORIUM
PERIOD
[sec 14(1)]
• Objective
 Maximizing value of the Entity to Continue Operation
 No additional stress on Business
- Supply of essential goods or services to the Corporate Debtor as may be
specified shall not be terminated or suspended or interrupted
- Central Government in consultation with any financial regulator may specify such
transactions.
MORATORIUM EFFECT
[Sec.14 (1) (A) – (D)]

16. PUBLIC ANNOUNCEMENT
 Public announcement contain following information:
 Name & address of defaulted Corp. Debtor
 Name of Registrar with which Corp. Debtor is
incorporated or registered
• Last date for submission of Claims
• Details of Interim Resolution Professional
- Management of Corporate Debtors
- Responsible for Receiving claims
• Penalties for False or Misleading Claims
• Date on which the Insolvency Resolution Process close
(i.e. 180 days from the date of admission of application)
 Public Announcement shall be made in such manner as may be
specified

17. APPOINTMENT:
Appointment by Adjudicating Authority within 14 days from
Admission of Application
Shall not exceed 30 days from date of Appointment
Once IRP is appointed :
Management of
affairs of Corp.
Debtor shall
vest with IRP
Powers of BOD/
Partners (LLP) shall
stand suspended &
will be exercised by
IRP
Officers &
Managers of
Corp. Debtor
shall report to
IRP
FI maintaining
accounts of
Corp. Debtor
shall follow
instructions of
IRP
TENURE:
INTERIM RESOLUTION PROFESSIONALS

18.  Appointment by Committee of Creditors may in their first
meeting
 within 7 (Seven) days of Constitution of Committee
 Resolve to appoint the Interim Resolution Professional as a
Resolution Professional (OR)
 Replace the Interim Resolution Professional by another
Resolution Professional.
 Resolution Professional shall conduct the entire Insolvency
Resolution Process and manage the operations of the company
during the corporate Insolvency Resolution Process Period.
 Resolution Professional shall exercise all such powers and duties
as are vested on the Interim Resolution Professional.
 All Meetings of the Committee of Creditors shall be conducted by
the Resolution Professional

19. MEETING OF THE COMMITTEE OF CREDITORS
• Convene & attend all meetings
• Present all resolution plans at the meetings
DOCUMENTS
• Maintain an updated list of claims
• Prepare the information memorandum
RIGHTS
• Take immediate custody and control of all the assets including business
records of the company/LLP
• Represent and act on behalf of the company/LLP with third parties
DUTIES OF RESOLUTION PROFESSIONALS

20.  CoC to replace the Resolution Professional any time
during the pendency of IRP.
 CoC may forward name of another Insolvency
Professional to the Adjudicating Authority
 The Adjudicating Authority shall forward name of
proposed Resolution Professional to the Board for
confirmation
 On confirmation being received from the Board,
appoint him as Resolution Professional
REPLACEMENT OF RESOLUTION PROFESSIONALS

21. The Interim Resolution Professional shall -
Collate all claims Determine of financial position
Constitute a Committee of Creditors– comprising of all Financial Creditors
AND
All decisions of Committee taken by vote of not less than 75%
• Related Party:
• If no Financial Creditor, CoC shall exercise with functions.
• Shall not have any Right of Representation, Participation or
voting
• Position of Financial Creditor- Consortium Agreement :
- Each Financial Creditor shall be the part of Committee.
- Voting shares shall be on the basis of Financial Debts.

22.  Position of Financial Creditor when he is an Operational Creditor:
 shall be considered Financial Creditor to the extent of
Financial Debts;
 Voting Shares to the extent of Financial Debts;
 Operational Creditor to the extent of Operational Debt;
 Assignment of Operational Debt
 If an Operational Creditor has assigned or legally transferred
any Operational Debt to a Financial Creditor, the Assignee of
Transferee shall be considered as an Operational Creditor to
the extent of such assignment or legal transfer.
 Determination of Voting Share by Financial Creditor
 IBC Board may specify the manner of determining of voting
share.
COMMITTEE OF CREDITORS

23.  Preparation of Information Memorandum for formulating a Resolution Plan
 Providing to Resolution Applicant access to all relevant information
 Resolution Applicant will submit a Resolution Plan to the Resolution
Professional prepared as per Information Memorandum
 Examination of Resolution Plan
 Presentation of RP to CoC for Approval
 Submitting Resolution Plan to Adjudicating Authority
 Adjudicating Authority may by order approve the Resolution Plan;
 Moratorium Period ends
 R P will be binding on the Corp. Debtor, its Employees, Members, Creditors,
Guarantors & other Stakeholders
 If Resolution Plan not approved or
- Not ready within 180 days or
- Adjudicating Authority rejects the Resolution Plan
 It will pass a Liquidation Order.
 R P will act as a Liquidator and all the powers of the Board of Directors will

24. The following debts will be paid in PRIORITY given below:
Insolvency Resolution Cost & Liquidation Cost;
Debts to Secured Creditor (who have relinquished their security interest) &
Workmens’ dues (for 24 months before commencement);
Wages & Unpaid Dues to employees (other than workmen) (for 12 months
before commencement);
Financial Debts to Unsecured Creditors;
Workmen’s Dues for earlier period;
Crown Debts and Debts to Secured Creditor following Enforcement of Security
Interest;
Remaining Debts;
Preference Shareholders;
Equity Shareholders or partners.
WATERFALL MECHANISM UNDER IBC

25. INSOLVENCY &
BANKRUPTCY
BOARD OF INDIA
INSOLVENCY
PROFESSIONAL
AGENCY
INFORMATION
UTILITY
NEW INSTITUTIONS

26. Time bound settlement of
Insolvency.
Banks & Asset reconstruction
companies immediate gainers
Comprehensive coverage-
Companies, LLP, Individuals &
more can be added
Database of Serial Defaulters
Protect workers

27. Not a Magic – Benefits follow after 3-5 years from now.
 To create Large pool of Insolvency Professionals.
 Draft Procedural Rules for
 Insolvency Professionals
 Information Utilities
 Establishment of several new institutional mechanisms.
 High value of Performance Bond
 Order of priority to Distribute Assets
 Secured Creditors – why not upto Collateral Value?
 Unsecured creditors have priority over Trade Creditors?
 Government Dues – after unsecured creditors ?
 Formation of Multiple Information Utilities – Information about a
Company may not be available through a Single IUs
 Insolvency & Bankruptcy Fund- manner of usage of the Fund ?

28.  Interim Resolution Professional
 Resolution Professional
 To prepare Resolution plan
 To Represent
- Financial Creditor;
- Operational Creditor;
- Corporate Debtor
before NCLT- DRT & NCLAT- DRAT
 To represent the Winding Up cases before the
Tribunal
 To prepare scheme & seek approval from Tribunal for
Revival & Rehabilitation of Sick Cos.

29. STATISTICS

31. LANDMARK DECISIONS
Innoventive Industries Ltd. vs. ICICI Bank (Supreme Court Judgment dated 31st August
2017)
• Supremacy of the Code over other laws
• Application by financial creditor will have to be admitted once the debt was proved to
be “due”
• On appointment of a resolution professional, an erstwhile director of the corporate
debtor cannot file a petition on behalf of the company
• Who may prefer an appeal on behalf of the corporate debtor against an order of
admission of an insolvency application?
Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment
Managers LLP (Supreme Court Judgment dated 24th July 2017)
• Inherent powers under Article 142 of the Constitution invoked to permit parties to
withdraw application post settlement

32. Mobilox Innovation Pvt. Ltd. vs. Kirusa
Software Pvt. Ltd. (Supreme Court
Judgment dated 21st September 2017)
• Insolvency Bill of 2015 included the
term “bonafide” in the definition of
dispute, the same was omitted in the
Code
• Scope of “dispute” was inclusive and
not exhaustive
• Once existence of a “real dispute” was
established, the petition will have to be
rejected by the NCLT
Surendra Trading Company vs.
Juggilal Kamalpat Jute Mill Company
Limited & Ors. (Supreme Court
Judgment dated 19th September 2017)
• Held that the time limit of 7 days
for removing defects is directory
[provisos to Sections 7(5) and 9 (5)]

33. Macquarie Bank Limited Vs. Shilpi Cable Technologies Limited (Supreme Court
Judgment dated 15th December 2017)
• Requirement to deliver a demand notice / invoice of unpaid operational debt
mandatory
• Requirement to file an affidavit or certificate from financial institution only
directory
• Procedural hurdles should not be imposed on creditors; domestic and foreign
creditors ought not to be discriminated
• Demand notice can be issued by an advocate

34. IS LIMITATION ACT
APPLICABLE?
Overview of the IBC amendment Ordinance,
2018…
Neelkanth Township and Construction Pvt. Ltd.
vs. Urban Infrastructure Pvt. Ltd. (Supreme
Court Order dated 23rd August 2017)
• The question of limitation was left open
Black Pearl Hotels Pvt. Ltd. vs. Planet M Retail Ltd.
(NCLAT Judgment dated 17th October 2017)
• Right to apply under the Code would accrue only on
1st December, 2016 when the Code came into force

35. Is Limitation Act applicable to Tribunals?
Ref: M.P. Steel Corporation vs. Commissioner of Central Excise (Supreme Court Judgment
dated 23rd April 2015)
• Bar of limitation applies to suits, appeals and applications before “Courts” and not quasi-
judicial bodies (those that are part of judicial branch of the State)
Post Amendment Ordinance, 2018:
Section 238A: Limitation Act, 1963 applies to proceedings or appeals before AA, NCLAR,
DRT and DRAT

36. HOME BUYERS AS FINANCIAL CREDITORS
KEY OBSERVATIONS OF THE
INSOLVENCY COMMITTTEE:
• “Time value” interpreted to mean
price paid for the length of time for
which the money has been disbursed
• Insolvency Law Committee opined
that monies so raised are a tool for
raising finance for the project
• Homebuyers to be treated on par
with other financial creditors
• Assocham Report - RERA as
growth impetus: does the promise
hold out on the ground?
• RERA regulates and formalizes real
estate sector; IBC restructures or
liquidates the business
• Apex Court steps in to secure
homebuyers’ rights

37. Post Amendment Ordinance, 2018:
Sec. 5(8): Financial debt
……….
(f) any amount raised under any other transaction, including any forward sale or
purchase agreement, having the commercial effect of a borrowing;
Explanation. - For the purposes of this sub-clause,- (i) any amount raised from an
allottee under a real estate project shall be deemed to be an amount having the
commercial effect of a borrowing; and…..”
Sec. 21: Committee of Creditors
……….
(6A) provides for manner of representation for other classes of creditors.
Clarifications required
Whether secured or unsecured creditors?
Whether commercial real estate buyers are included?

38. GUARANTORS UNDER IBC
Alpha & Omega Diagnostics (India)
Ltd. vs. ARCIL (NCLAT Judgment
dated 31st July 2017)
• Moratorium is applicable only on the
assets of the corporate debtor that
are reflected in the balance sheet
• No moratorium can be claimed on
the assets of the guarantor
Post Amendment Ordinance, 2018:
• Section 5(5A): corporate guarantor
defined
• Section 14: moratorium to not
apply to a surety in a contract for
guarantee to a corporate debtor

39. PROMOTERS UNDER IBC
Section 29A of the IBC
(as amended on 18th January, 2018)
(In)Eligibility criteria:
• Layer 1 – the “person” is ineligible (wilful defaulter, disqualified director, etc.)
• Layer 2 – connected person is ineligible (promoter of a company in which
preferential or undervalued transactions have taken place and order made under
Code by Adjudicating Authority, etc.)
• Layer 3 – related party of a connected person
• Layer 4 – person acting jointly / in concert with a person under the above 3 layers
of ineligibility

40. In the matter of Synergies Dooray Automative Limited (Hyderabad NCLT Order dated
2nd Aug. 2017
1st Resolution Plan approved under the Code

41. • In 2005, Synergies Dooray’s (SDAL) lenders approved leasing out of company assets to
Synergies Castings for 4 years
• SDAL declared sick company in 2007 - lenders assigned their debts (93% of borrowings)
to Synergies Castings in 2008 and 2011
• 92.93% of the debts assigned by Synergies Castings to NBFC, two days prior to
Government notifying that SICA would be repealed
• SDAL filed an Application under Sec. 10 of IBC for initiating CIRP
Synergies Castings
Limited
Assigned 92.93% of its
debt holding in SDAL
Millennium Finance
Limited (NBFC)

42. • Post assignment of the debt, NBFC got a seat in the CoC with more than 75%
voting share
• EARC objected to the assignment agreements – questionable
• RP submitted that resolution plan was in accordance with the Code
• Resolution plan was admitted by NCLT with certain conditions
• APPEAL FILED BY EARC PENDING IN THE NCLAT

43. Examples where the bar derailed insolvency process:
• VTB Bank led Numetal (Rewant Ruia, member of
Ruia family of Essar) rendered ineligible to bid for
Essar Steel
• ArcelorMittal ineligible to bid for Essar Steel as
Lakshmi Mittal (since dropped his name as
promoter) was one of the promoters (while not in
management) of KSS Petron and Uttam Galva.
[provided all defaulting accounts of respective NPAs
are regularized before submission of resolution plan]
• Promoter of JSW Steel
related to promoter of
Monnet Ispat, for which
JSW-AION Capital
submitted their bid to take
over the company, which
was approved by the CoC.
[neither JSW not Monnet
invested in each other
companies]

44. Post Amendment Ordinance, 2018:
Section 29A:
• Ineligible to submit resolution plan if at the time of submission of plan
has an NPA
• The clause does not apply to persons who have acquired NPA pursuant
to resolution plan approved under IBC, for a period of 3 years from the
date of such approval
Sec. 5(24A):
• Related party in relation to an ‘”individual” defined

46. THANK YOU!