3 2 1 Recent Developments in INSOLVENCY & BANKRUPTCY CODE - - PowerPoint PPT Presentation

3 2 1

Recent Developments in INSOLVENCY & BANKRUPTCY CODE -2016

CA Ramubhai S Patel Insolvency Professional R.S.Patel & Co. Chartered Accountants

INSOLVENCY & BANKRUPTCY CODE -2016

(A) Present Position

• Ease of Doing Business 2017 India is at 100th out of 209

countries

• Enforcing contract – India is at 172
• Other parameters of “Resolving Insolvency” at 136

(B) Fastest Recovery through the Act. (C) It is a paradigm shift from “Debtors in Possession to Creditors in Control” regime. Contd…

INSOLVENCY & BANKRUPTCY CODE -2016

(D)IBC – 2016 will improve India’s status on globe. (E) UNCITRAL – United Nations Commission on International Trade Laws. (F) Act is borrowed from UK, Australia & Singapore

• They are developed countries – We are Developing country
• We are in infancy stage – enormous challenges to educate

stakeholders.

INSOLVENCY BANKRUPTCY

Is a financial state that is reached when you are unable to pay your debts on time - There are two types of Insolvency –

• Cash Flow Insolvencies
• Balance Sheet Insolvency

Is a legal process that serves the purpose of resolving the issue of insolvency.

INSOLVENCY AND BANKRUPTCY CODE - 2016

Balance Sheet Insolvency – When a person or company does not have enough assets to pay all their debts. Negotiation can often be able to resolve the situation. Also known as “Actual Insolvency / “Technical

• Insolvency. Insolvency is not a synonym of Bankruptcy

Process of Bankruptcy as per Provisions

• f IBC-2016

Discussion on Act & Regulation Cash Flow Insolvency When a person or company has enough assets to pay what is

• wed, but does not have the

appropriate form of payments Business Turnaround OR Corporate Restructuring –

• Keep & Restructure
• Sale as a going concern or wind down & exit

Bankruptcy

Object of the Code

• Consolidate & Amend Existing laws relating to reorganization

& Insolvency resolution.

• Time bound process
• Maximization of value of assets
• Promote entrepreneurship & availability of credit
• Resolution is the aim & not recovery

Glittering gold of IBC

• Debtors in position to Creditors in control - paradigm

shift.

• Management control with the RP – immediate restriction
• n siphoning of funds.
• Infusion of new capital – top priority in payment
• Capital bond market
• Section 53 – waterfall mechanism – priority of

government dues shifted after unsecured financial creditors

• Prosecution and penalties - S. 67 to 78

IBC- One Way entry

• Operational creditor till now – No Teeth of

Recovery in Law

• Operational Creditor by press of one button

can trigger Insolvency

• The Comparison of Insolvency and resolution

process can be done with Shani Maharaj and Yamraj – 7 and half years of panauti is equivalent to first Six months of Resolution Process

• Lucky one can come out if resolution plan is

approved

• If resolution plan fails – Goes into

Liquidation – Handed over to Yamraj i.e. Liquidator

Four pillars of Insolvency and Bankruptcy Code

Pillars of IBC

Insolvency and Bankruptcy Board of India Adjudicating Authority Insolvency Professionals Information Utilities

INFORMATION UTILITY

IU: Established by Canara Bank, ICICI, BoB, Axis, Karnataka Bank and other Banks with 55% stake balance from LIC and other insurance Companies – no stake of Govt. Name of IU “ National E-Governance Services Ltd. (NeSL)” established on 25th Sept. 2017 An independent and neutral entity How different than other info depository which holds info in CIC company- CIBIL(2000) Equifax-US(2010) Highmark(2005)- (Mumbai)-Experian-Forbus(2014)

Under the Act data has evidentiary value in law

Information Act – 2013 any person placing data has to authenticate and verify with digital sign before placing the data to IU Contd…

• Info can not be shared to other than not related with party as
• n the date.
• Shall submit the info to IU – it is compulsory for FC-

S.215(2) whereas for OC no such compulsion. S.215(3) of IBC

• RBI has notified that all FC’S n ARC’S must notify the info

to IU

• Operational creditors can register data when default takes

place

• IP registering info with IU – no authentication required –

such info shall not be available to CD POSER:- 1. Where info taken from IU – FC who has not filed claim whether to be included in CoC?.

INFORMATION UTILITY

IP is like a surgeon in operation theater 1. Has limited time in OT 2. Object to revive patient only 3. Hospital staff with specialized attention and skill to attend the patient 24x7 Moratorium order is like ICU in hospital 1) IP requires reasonable knowledge of all laws of Different professionals as he has to deal with various professionals. Therefore, IP is Professional of Professionals. 2) Payment of Fees to IP in personal capacity and not to Firm- circular dated 16.01.2018

• Circular in Conflict with PartnershipAct

3) IP not to outsource his responsibilities circular dated 03.01.2018

Agreement to run unit as going concern – agent of RP – Liability of RP doesn’t Cease

Insolvency Professional (IP) & Challenges

1) Disclosure by IP for relationship with Professionals, CD and other stakeholders - Pecuniary or Personal – Circular dated 16.01.2018 2) IP to use Registration number and Registered address Circular dated 03.01.2018 3) RP to face unscrupulous complaint for disciplinary actions in IBBI – harassment by CD 4) Risk of kidnapping cases, Mumbai & Kolkata-Dealing with nasty borrowers renders job of IP vulnerable

Insolvency Professional (IP) & Challenges

1. Section 29A inserted dated 19.01.2018

a) The corporate Debtor who is-

I. Willful defaulter II. Whose accounts classified as NPA

• III. Where period of one year or more has lapsed
• IV. Convicted for any offense punishable with imprisonment

for two years of more V. Disqualified to act as Director

• VI. Prohibited by SEBI from Trading in Securities
• VII. Violated Section 43, 45, 49 and 50

b) Pros and cons-MSME-(Micro Small and Medium Enterprise)

Continued…..

Recent Amendments

• Under the Income Tax Act, 1961 IN Section 115B , exemption

is given to companies under IBC from payment of Minimum Alternate Tax (MAT) – Circular dated 08.01.2018

• Section 235 newly inserted provides penalty for offences not

included in the Act- Penalty of Rs. 1 Lakh to Rs. 2 Crore

Recent Amendments

• Applicability of Limitation Act to IBC
• NCLAT in Neelkanth township Construction Company -

held Limitation act does not apply

• IBC Act is not an act of Recovery
• NCLT in Case of B.K. Educational Services Ltd vs. Parag

gupta & Associates Dated 10.01.2018- held Limitation Act not Applicable

• Appeal filed in SC – Stayed the proceedings on the grounds of Section

60 (6)

• For the purpose of limitation Act…. The period during which

moratorium is in place shall be excluded

• The Order stayed on 08.01.2018

Recent Judgements of courts NCLT / NCLAT / SC