Centre extends Insolvency and Bankruptcy Code (IBC) till March , 2021

The Central government recently decided to extend the suspension of Insolvency and Bankruptcy Code (IBC) for a full year.

The Insolvency and Bankruptcy Code (IBC) was initially suspended for six months from March 25, which was later extended by another three months ending December 24. The Central Government
has extended various deadlines and eased compliance requirements to ensure companies were not stressed during the pandemic.

Out of the over 4,000 bankruptcy cases admitted to tribunals so far under IBC, turnaround plans have been cleared in the case of 277 and liquidation proceedings are on in over 1,000 cases at the end of September.

What is Insolvency and Bankruptcy Code (IBC) 2016?

Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament. It got Presidential assent in May 2016.

The law was necessitated due to huge pile-up of non-performing loans of banks and delay in debt resolution. Insolvency resolution in India took 4.3 years on an average against other countries such as United Kingdom (1 year) and United States of America (1.5 years), which is sought to be reduced besides facilitating the resolution of big-ticket loan accounts.

What does the IBC aim to do?

IBC applies to companies, partnerships and individuals. It provides for a time-bound process to resolve insolvency. When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency. Under IBC debtor and creditor both can start 'recovery' proceedings against each other.

What is the timeframe for completion of the exercise under the Code?

Companies have to complete the entire insolvency exercise within 180 days under IBC. The deadline may be extended if the creditors do not raise objections on the extension. For smaller companies including startups with an annual turnover of Rs 1 crore, the whole exercise of insolvency must be completed in 90 days and the deadline can be extended by 45 days. If debt resolution doesn't happen the company goes for liquidation.

Who regulates the IBC proceedings?

Insolvency and Bankruptcy Board of India has been appointed as a regulator and it can oversee these proceedings. IBBI has 10 members; from Finance Ministry and Law Ministry the Reserve Bank of India.

Who facilitates the insolvency resolution?

A licensed professional administer the resolution process, manage the assets of the debtor, and provide information for creditors to assist them in decision making.

Who adjudicates over the proceedings?

The proceedings of the resolution process will be adjudicated by the National Companies Law Tribunal (NCLT), for companies and the Debt Recovery Tribunal (DRT) for individuals. The courts approve initiating the resolution process, appointing the insolvency professional and giving nod to the final decision of creditors. The Insolvency and Bankruptcy Board regulates insolvency professionals, insolvency professional agencies and information utilities set up under the Code.

What is the procedure to resolve insolvency under the Code?

When a default occurs, the resolution process may be initiated by the debtor or creditor. The insolvency professional administers the process. The professional provides financial information of the debtor from the information utilities to the creditor and manage the debtor’s assets. This process lasts for 180 days and any legal action against the debtor is prohibited during this period.

What does the committee of creditors do?

A committee consisting of the financial creditors who lent money to the debtor is formed by the insolvency professional. The creditors' committee decides the future of the outstanding debt owed to them. They may choose to revive the debt owed to them by changing the repayment schedule or selling the assets of the debtor to get their dues back. If a decision is not taken in 180 days, the debtor’s assets go into liquidation.

What happens under liquidation?

If the debtor goes into liquidation, an insolvency professional administers the liquidation process. Proceeds from the sale of the debtor’s assets are distributed in the following order of order: First insolvency resolution costs, including the remuneration to the insolvency professional, second secured creditors, whose loans are backed by collateral and third dues to workers, other employees, forth unsecured creditors.