Insolvency and

Bankruptcy
code
Dhiraj Dave
January 2018
Why Insolvency Code

• Improve ‘Ease of Doing Business’ ranking for India

• High Stress level in Banking System
• Release Capital quickly from system for productive re-usage
• The average life of cases recommended for restructuring in 2002 was 7
years and the average life of cases recommended for winding up to the
court was 6.5 years
• Consolidating various regulation under one umbrella
• Increasing share on bond in debt market in India
• Increasing confidence of international investor in Indian market
• Difficult regulation related to enforcement of security by Foreign lender
which increase cost of borrowing for Indian borrower
 Ease of doing business : India’s ranking
Recovery rate 2018
Ranking 100
90
80
140 130 123 70
120 Rank 2018 Rank 2017 60
100 50
78 74
80 40
60 125
100 40 30
40 78 82 20
20 7 8 13
35 2 10
0 7 6 2 13
0
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a
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In Ch Br u A f p n l In Ch Br Af US ap lan
R h ga Fi Ru g Fin
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2018 Time year
2018 Rec Cost
5 4.3 4
4 25 22
3 20 18
1.7 2 2
2 15 12 10
1 1 0.8 0.9 10
9 9
1 6 4 3.5
0 5
a a il ia a UK A e d
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 What has changed?

• Insolvency test moved from ‘erosion of net worth’ to ‘payment default’

• Single insolvency and bankruptcy framework. Replaces SICA
• Time bound resolution process
• Advantage Creditor
- Shift of control from shareholders and promoters to creditors
- Provide confidence to lenders of their rights and their enforcement.
- Better symmetry of information flow between creditors and debtors
- Government dues would rank below to those of secured creditors and unsecured financial
creditors
• Insolvency Professional (IP) to take over the management and
operations of the borrower during the CIRP
• Focus to get back fraudulent diversion of assets, personal
contribution can be sought; imprisonment possible

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 Insolvency and Bankruptcy Code Infrastructure

Insolvency and Bankruptcy Board

Insolvency Agency Information Utility

NCLT

Insolvency Professional

Committee of Creditor

Insolvent Entity

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Corporate Insolvency Resolution Process

Default

Appointment of a resolution
professional

Moratorium period
(180/270 days)

Formation of committee of Creditors

75% of the creditor No

to approve
Yes
Returned to Yes RP Implementation
Management Success
No
Goes into Liquidation
 Corporate Resolution Timeline

IRP to constitute
CoC and submit Submission of plan
report
First CoC Application for
meeting, IP NCLT approval
Admission of Application,
Moratorium Declared, NCLT Appointed
Creditor to
Appoint Interim RP submit claims
No of Days
-ve 14 0 3 7 14 21 23 30 44 150 170 180

Appoint 2 Valuers Acceptance/

Filing of Preparation of IM
Public Rejection of
application to
announcement Resolution plan
NCLT CoC’s approval of
IRP Verify claim by AA,
resolution plan
Liquidation in
process begin

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 Corporate Liquidation : Priority of claims

Insolvency resolution Insolvency cost include funding cost for running the debtor
process and liquidation
cost as going concern
Secured creditor and Secured creditor can opt for SARFAESI Action, No clarity on
workman dues (upto 24
months) right of different class of creditor

Other Employee dues

(upto 12 months) Non Workman/ Contract labour

Financial debt of
unsecured Creditors ECB/ Fixed deposit

Government dues (upto

2 years) and unpaid SARFAESI lender residual claim
secured creditor

Any other remaining

Other dues of debtors
debt

Preference shareholder Having Priority over Equity

Equity shareholder Least priority class

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 IBC: Equity investment perspective
Market Approval
Company Lead Debt CDR SDR capCDR Debt Date
ABG Shipyard ICICI 9,290 Yes Yes 137 9,500 28-03-2014
Alok Industries SBI 22,075 No Yes 563 n.a. n.a.
Amtek Auto Corporation 14,075 No No 745 n.a. n.a.
Bhushan Power and Steel PNB 37,248 No No N.A. n.a. n.a.
Bhushan Steel PNB 44,478 No No 1,572 n.a. n.a.
Elestrosteel Steels SBI 10,274 Yes Yes 1,409 6,800 26-09-2013
Era Infra SBI 10,065 Yes No 50 5,000 18-01-2014
Essar Steel SBI 37,284 No No N.A. n.a. n.a.
Jaypee Infratech IDBI 9,635 No No 3,271 n.a. n.a.
Jyoti Structure SBI 5,165 No Yes 153 n.a. n.a.
Lanco Infratech IDBI 44,365 Yes No 467 7,700 11-12-2013
Monnet Ispat SBI 12,115 No Yes 701 n.a. n.a.
Total 2,53,732 9,068
Debt, Market capitalisation and CDR Debt are in Rs crores.

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 IBC: Recovery record

Synergies Dooray Resolution Plan

Dues to Amount Amount to Recovery Remark
claimed be paid
(Rs Cr) (Rs Cr)

Financial 972.15 54.69 5.63% Payments to be made in

Creditor staggered manner over time,
Additionally, shareholders of the
Operational 00.23 00.01 4.35% corporate debtor got 0.48%
Creditor shares of Synergy Castings
Government 03.89 03.89 100.00% Limited.
and Statutory Liquidation value estimate Rs 8.17
dues Cr
Total 976.27 58.59 6.00%

Source: IBBI Newsletter Jul-Sep 2017

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