Insolvency and Bankruptcy Code

 History

Before the Insolvency and Bankruptcy Code, 2016 there was no law that dealt with how a company or an individual
could declare bankruptcy or being insolvent. In essence there was no scenario for being insolvent but merely
bankrupt. The only way was if a court would declare the person/entity bankrupt in a proceeding. Not having a
specific law dealing with the same meant there was no scope for revival and for the lenders they had to resort to
different laws for recovery of their debts like sarfaesi, companies act, RDDBFI act etc.

Hence the code was enacted in 2016 and was rolled out in phases.

 Objectives

To consolidate the laws on the said matter, promote ease of doing business, provide a way for revival of business
rather than closing it altogether, protection of interests of investors and creditors.

 Administrative Set-up

At the helm of affairs is a board called IBBI whose job is to train the professionals, ensure transparency in working
and advice the government for amendments. The IBBI trains IR professionals who are selected by the creditors to
act as manager for the process of insolvency or act as liquidator. NCLT, NCLAT and DRT, DRAT act as courts to
finally adjudicate on matters.

 Process

The creditor or the debtor itself may initiate the proceedings as per the threshold limit. In case of company they
make an application to the NCLT and if accepted then NCLT appoints an IR professional who overtakes the Board
of directors and compiles all the debts and convenes a meeting of the creditors called COC. In this meeting then a
final IR professional is appointed whose job is to assist COC in deciding what to do with the company. This whole
process has to be completed within 180 days and for these 180 days, a moratorium is applied that means no court
case can be filed by any person against the company. At the end of these 180 days either a resolution plan is decided
by which the company works or it is decided to liquidate the company.

 Amendments

Amendment of 2018 – By this amendment a major change was bought in. Now real estate was bought under the
purview of IBC. This amendment was made on the recommendation of a committee that stated that in a real estate
project, a person pays to the builder in advance for the construction of his property and this has all the characteristics
of a loan that fits into the definition of IBC. After this amendment now if 100 property buyers decide they can move
against the developer under IBC. We have seen some high profile cases like Amrapali group and Jaypee group real
estate projects being benefited by move to IBC.

Insertion of section 29A – Now this is also a big amendment. Well previously, any person could have made a bid for
the company during the liquidation process or even the resolution process itself and in a few cases this person turned
out to be the very same person who had run the company into problems i.e. the previous owner. Therefore section
29A makes such persons and few other persons ineligible to bid and in the process closes the backdoor entry for
them.
The covid amendments – In the current pandemic situation everyone including the companies are finding it hard to
survive and therefore in order to avoid a scenario where a company may be pushed into insolvency by the creditors
during this temporary period of hardship the latest amendment was made by which section 10A was inserted which
said that any default that happened on or after 25 th march then no insolvency proceedings to be initiated for the next
6 month or for such date as the govt notifies.

Read this https://theleaflet.in/ibc-amendment-ordinance-2020-a-pandemic-of-bad-drafting/#:~:text=Based%20upon

%20practical%20experience%2C%20the,the%20ongoing%20COVID%2D19%20pandemic.