THE INSOLVENCY AND BANKRUPTCY CODE, 2016
THE INSOLVENCY AND BANKRUPTCY CODE, 2016
Insolvency and Bankruptcy code, 2016(“IBC”) enacted to address the troubling shortcomings in existing staggered insolvency laws in India and to bring them under one umbrella.
By virtue of IBC the voluntary winding up procedure has been shifted from Companies Act to insolvency and bankruptcy code,2016.
The Code applies to companies, limited liability partnerships (LLP), partnership firms, personal guarantors to corporate debtors, other corporate persons, individuals and any other body specified by the Government.
- To empower all creditors; secured,unsecured,domestic, international, financial and operational to trigger resolution.
- To enable the resolution process to start at the earliest sign of a financial distress.
- To provide single forum overseeing all insolvency and liquidation proceedings.
- To enable a calm period where other proceedings do not derail existing ones.
- To replace existing management during insolvency proceedings while keeping the enterprise as a going concern.
- It offers finite time limit within which debtor’s viability can be assessed.
WHO CAN APPEAL:
Any person to whom financial debt is owned and includes a person to whom such debt is legally assigned or transferred.
The Company must have a registered office in India. A legible copy of all the proof(s) of the registered office address must be filed to the ROC during incorporation or within 30 days of the Incorporation to verify the existence of the registered office address. Tenancy/rental agreement, the maintenance bill or the sale deed or a letter or NOC from the landlord with his/her permission to use the office as the company’s registered office can be filed as proofs for the registered office address.
Any person to whom operational debt is owned and includes any person to whom such debt is legally assigned or transferred.
A corporate person who owns a debt to any person.
CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP):
When a corporate debtor commits a default (the default should be of minimum Rupees one crore) a financial creditor, an operational creditor, or the corporate debtor itself may initiate CIRP.
INITIATION OF CIRP UNDER SECTION 7 OF THE CODE
Under Section 7, the Financial Creditor either by itself or jointly with other financial creditors can initiate CIRP for an unpaid Financial Debt against the Corporate Debtor when the default occurred by the corporate debtor. Following are some of the brief points in this regard:
- Financial Creditor can make an application to initiate CIRP under section 7 in Form- 1, accompanied with documents and records required like financial agreement or assignment or like other document related to the application.
- The financial creditor shall send a copy of the application filed before NCLT to the Corporate Debtor at its registered office by speed post or registered post or any other authorized courier.
- That the application under Section 7 must be accompanied with the prescribed fees i.e. Rupees Twenty Five Thousand.
- The Financial Creditor shall furnish the name of the resolution professional proposed to act as an interim resolution professional with the written communication obtain in Form -2, the record of the default recorded with the information utility or such other records or evidence of default and NCLT within 14 days ascertain the existence of a default from the mentioned document.
- The adjudicating authority after being satisfied that the application is proper and complete and default has actually been occurred and there is no punitive proceeding has been pending against the proposed resolution professional, accept the application. If the adjudicating authority does not get satisfied, then it may reject such application.
INITIATION OF CIRP UNDER SECTION 9 OF THE CODE
Under section 9, the Operational Creditor can initiate CIRP for an unpaid Operational Debt against the Corporate Debtor.
Following are some of the brief points in this regard:
- Before initiating CIRP by the Operational Creditor under Section 9 of IBC, on the occurrence of default the Operational Creditor has to send Demand Notice in Form-3 to the Corporate Debtor for demanding payment of outstanding amount accompanied with all the invoices under Form- 4 and emails conversations between Operational Creditor and Corporate Person and any evidences which can be taken on records after initiating CIRP by registered post or speed post, by e-mail to the directors or partners or key managerial persons of the Corporate Persons.
- It is the onus of Corporate Debtor to make reply to the Demand Notice served by the Operational Creditor within 10 days of the receipt of the Demand Notice. And if the Corporate Debtor had make the payment of the Operational Debt, then he must attach the copy of record of encash cheques and record of bank accounts with its reply.
- After the completion of threshold of 10 days from the delivery of the Demand Notice and no reply has been given by the Corporate Debtor on the occurrence of default, the Operational Creditor can file an application to initiate CIRP against the Corporate Debtor under Section 9 of IBC with the prescribed fees
INITIATION OF CIRP UNDER SECTION 10 OF THE CODE
Under section 10, the Corporate Debtor can initiate CIRP against itself after committing a default.
Following are some of the brief points in this regard :
- Before initiating CIRP, a special resolution must be passed by the shareholders of the Corporate Debtor. If Corporate Debtor is a Partnership Firm, then resolution must be passed by at least three-fourth of the total number of partners of Corporate Debtor.
- For initiating CIRP, The Corporate Debtor has to make an application in Form-6 with prescribed fees before the Adjudicating Authority.
- The application must be accompanied with the information relating to its books of accounts, information relating to resolution professional proposed to be appointed as an interim resolution professional, the aforementioned resolution passed and any other information.
- Within 14 days of the receipt of the application, the Adjudicating Authority shall admit or reject the application. If the application is rejected, time period of 7 days must be given by the Adjudicating Authority to rectify or amend the application.
- Once the application is admitted, CIRP will initiate immediately.