Professional Documents
Culture Documents
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IBC, 2016
2
INSOLVENCY AND BANKRUPTCY CODE, 2016
Ongoing
Closed by Liquidation
Insolvency and
6.39
Closed on Withdrawal/appeal
Bankruptcy
%
Closed on Resolution
15.29%
Code, 2016
35.47
%
24.42%
RBI Prudential Debt
Framework for • SARFAESI 2002
Recovery • RDDBFI 1993
Resolution of
Regulations • Code of Civil Procedure 1908
Stressed Asset
(07 Jun 2019) In India Other Insolvency & restructuring related laws
• Sick Industrial Companies (Special provisions) Act (BIFR) [Repealed by IBC]
• Presidency Towns Insolvency Act 1909 (proposed to be repealed in IBC)
• Provincial Insolvency Act 1920 (proposed to be repealed in IBC)
• Companies Act, 2013 (omitted relief and rehabilitation provisions)
3%
2%
Provider (E.g. Banks/ NBFCs) except
NBFC-SI
10% 41%
Creditor driven process
Distribution waterfalls
Manufacturing Hotels & Restaurants
Overrides all other laws in India Real Estate Electricity & Others
Construction Transport, Storage &
Involves Liquidation framework
Wholesale & Retail Trade Communications
including Voluntary Liquidation
Others *Source – IBBI Newsletter June 2020
5
An Overview of IBC, 2016
IBC – Overview of the Code
7
Overview of INSOLVENCY AND BANKRUPTCY CODE
Part II – consists of VII chapters deals with Insolvency Resolution and Liquidation of Corporate Persons.
CHAPTER
CHAPTER II – IV – Fast
CHAPTER
CHAPTER I – Corporate Track
III –
Preliminary Insolvency Corporate
Liquidation
Definitions Resolution Insolvency
Process
Procress Resolution
Process
CHAPTER VI
CHAPTER V
–
– Voluntary CHAPTER
Adjudicating
Liquidation VII –
Authority
of Offences &
for
Corporate Penalties
Corporate
Persons
Persons
Section 4: Default in Payment of due of atleast 1 lakhs now made 1 crore due to Covid 19
8
Sailent Features of Insolvency and Bankruptcy Code
To whom Financial debt is owed and includes a To whom Financial debt is owed and includes a The member / partner of CD who is incharge of
person to whom such debt is legally assigned person to whom such debt is legally assigned managing operations and resources and has
or transferred to or transferred to control and supervision over financial affairs of
• Financial creditor himself/ jointly with other • It includes claims in respect of provision of the CD
creditors may file an application goods or services; also includes employment • Should contain special resolution passed by
• Application in FORM 1 of Insolvency and or a debt in respect of the repayment of dues the shareholders of the corporate debtor with
Bankruptcy (Application to Adjudicating arising under any law for the time being in not less than 3/4th of the votes in the favour
Authority Rules, 2016) to filled along with the force and payable to CG/ SG or any local of the resolution.
application fees of Rs. 25,000.00. authority. • Application in FORM 6 to be filled before
• Nominee to be selected in case of joint • Application in FORM 5 of Insolvency and Hon’ble NCLT by the corporate debtor himself
application Bankruptcy (Application to Adjudicating declaring the insolvency of the company.
• Written communication from IP proposed to Authority Rules, 2016) to filled along with the • It should also contain the details of the IP
be appointed as IRP is to be filled in application fees of Rs. 2,000.00. proposed to be appointed as IRP.
accordance with FOM 2 of the Adjudicating
Authority Rules.
10
SEC.11 Person not entitled to make application
A corporate debtor undergoing CIRP or pre - packaged insolvency resolution process
Who cannot file for initiation of CIRP
A corporate debtor of financial creditor who has violated the terms of resolution plan which
was approved twelve months before making application under this chapter
• Entire process time bound 180 days + 90 days (overall within 330 days including litigation time) (S 12)
• Moratorium Period sets in from date of admission till acceptance of Resolution Plan/ order liquidation (S 14) 11
MODEL CORPORATE INSOLVENCY RESOLUTION PROCESS TIMELINE
Appointment of Resolution
Information Memorandum to Calling and admitting of
Professional by COC and Formation
be prepared by RP claims by Interim Resolution
confirmation by AA of COC
Professional (IRP)
12
Ecosystem of IBC
Corporate Debtor
Information Utility
Resolution Professional
Adjudicating Authority (RP/IRP)
Liquidator
Resolution Applicant
(Also RP)
13
TIMELINE FOR COMPLETION OF CIRP AS PER INSOLVENCY AND BANKRUPTCY CODE, 2016
Sec/ Regulation NORM Description of Activity Latest
Timeline
Regulation 6(1) Public Announcement inviting claims Within 3 days of appointment of IRP T+3
Sec 15(1)(c)/ Reg 5(2) Submission of claims For 14 days from the appointment of IRP T+14
(c) and 12(1)
Sec 21(6A)(b)/ Reg Application for appointment of AR Within 2 days from verification of claims T+23
16A received under Regulation 12(1)
Sec 22(2) Resolution to appoint RP by the CoC In the 1st meeting of CoC
14
TIMELINE FOR COMPLETION OF CIRP AS PER INSOLVENCY AND BANKRUPTCY CODE, 2016
Sec/ Regulation NORM Description of Activity Latest
Timeline
Reg 35(A) RP to form an opinion on preferential and Within 57 days of the commencement T+57
other transactions
RP to make determination on preferential Within 115 days of the commencement T+115
and other transactions
RP to file application with AA for appropriate Within 130 days of the commencement T+130
relief
15
TIMELINE FOR COMPLETION OF CIRP AS PER INSOLVENCY AND BANKRUPTCY CODE, 2016
Sec/ Regulation NORM Description of Activity Latest
Timeline
Reg 36(1) Submission of IM to CoC Within 95 days of commencement T+95
Regulation 36 A Publish FORM G Within 60 days of commencement T+60
Invitation of EOI
Submission of EOI Atleast 15 days from issue of EOI T+75
Provisional list of RA’s by RP Within 10 days from the last day of receipt T+85
of EOI
Submission of objections to provisional list For 5 days from the date of provisional list T+90
Final list of RA’s by RP Within 10 days of the receipt of objection T+100
Regulation 36B Issue of RFRP including EM and IM Within 5 days from the issue of provisional T+105
list
Receipt of Resolution Plans Atleast 30 days from the issue of RFRP T+135
Regulation 39 (4) Submission of CoC approved Resolution Plan As soon as approved by CoC T+165
to AA
Sec 31 (1) Approval of Resolution Plan by AA T+180
16
SECTION 14: MORATORIUM
• IRP shall be appointed by the NCLT on the date of acceptance of the Application u/s 7, 9 or 10
• If no IRP is proposed in Application u/s 9 or disciplinary proceedings are pending against the proposed IRP, then
NCLT will make reference to Board for recommendation of name of IRP
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Section 18 - DUTIES OF IRP
19
Sec 21 – Committee of Creditors
• IRP to form CoC after collating all the claim
Financial Creditor as part of consortium may appoint a single trustee or agent to represent all
Class of Financial Creditor - NCLT can appoint the Insolvency Professional to represent such class in
COC, on the application of IRP
If there are no Financial creditor, then Operational creditor will constitute COC in accordance with Reg 16 of CIRP
Regulations
• 18 largest Operational creditor by value
• Representative of workmen
• Representative of employee
20
Proof of Claims in Reg 7 – 15 of CIRP Regulations
Claim by Relevant Form for filling of claim along with
Regulation documents
Operational Creditor (other Reg 7 FORM B
than workmen and employee)
Workmen and Employees Reg 9 FORM D, FORM E (Single claim for class)
• Claim shall be filed in fourteen days from the date of appointment of IRP
• IRP/RP shall verify every claim within seven days from the last date of the receipt of the claim.
• Where the amount claimed by a creditor is not precise due to any contingency or other reason, the IRP/Rp shall
make the best estimate of the amount of the claim based on the information available with him
21
Section 25 - DUTIES OF RP
NOTE: filing of avoidance application under clause j of sub section 2 of Section 25 by the resolution
professional shall not affect the corporate insolvency resolution process.
22
SEC 28 ACTIONS OF RP REQUIRING PRIOR APPROVAL OF COC
To raise any interim finance in excess of the amount as may be decided by the committee of creditors in their
meeting
Create any security interests over the assets of CD
Undertake any related party transaction
Amend any constitutional documents of CD
Delegates its authority to any other person
To instruct financial institutions maintaining account of CD for a debit transaction in excess of the amount fixed
by CoC.
Change of capital structure of CD
Change in ownership interest of CD
Change in management of CD or its subsidiary
Disposal of transfer of shares
Transfer rights or financial debts or operational debts under material contracts
Changes in the appointment or terms of contract of such personnel as specified by committee of creditors
Changes in the appointment or terms of contract of statutory auditors or internal auditors of CD
23
IBC 2016 | CIRP | Important Sections
Payment to Operational
Immunity to new management
Section 29A has been enacted Creditor and Dissenting
from past liability (including
in the larger public interest and Financial Creditor (recent
prosecution) of Corporate
to facilitate effective corporate amendment) should be at least
Debtor
governance and prohibit minimum pay-out that they
Assets of Corporate Debtor also
backdoor entry of promoter would have received under
ring fenced from past liability
29A has list of relationship and waterfall with liquidation
(including prosecution) of
some carve-outs of those The amendment overturns,
Corporate Debtor
ineligible to submit Resolution NCLAT ruling in case of Hero
Even prosecution initiated
Plan Fincorp, wherein it was held
during CIRP would be vacated
Relaxation to MSME provided that the dissenting financial
upon approval of Resolution
(240A) creditors cannot be treated
Plan
separately.
24
IBC 2016 | CIRP | Appeals
Supreme Court
Appeal in 45 days*
NCLAT DRAT
(Tribunal) (Tribunal)
For
Individuals/
Proprietor-
For
Appeal in 30 days* ship
Companies
concerns/
/ LLPs
Partnership
DRT Firms
NCLT
(Adjudicating (Adjudicating
Authority) Authority)
Liquidation Proceeds
Assets and Liabilities with such details necessary for ascertaining its value as on date
List of creditors containing the names, amount of claim & security interest and RPT
Contents of
Information Details of the guarantees in respect of the CD’s debt, and specifying RPT guarantor
Memorandum
Details of all material litigation and ongoing proceedings initiated Statutory Authority
Names, Addresses and stake of all members holding at least 1% stake in the CD
Other information can also be provided by RP in consultation with CoC. Quality of information IM dependent on variety of factors
• Deriving the Bid value post assessment of assets and risks of Corporate Debtor
• Source of upfront payments
• Proposed structure for acquisition/ takeover of CD
Financial • Projections to demonstrate viability of proposal along with estimated timelines, post takeover
Qualitative Parameters
Quantitative Parameters (60%)
(40%)
Financial strength of resolution applicant/ group DCFs from lenders equity/ quasi equity
Risk Assessment and Mitigation Plans to protect Fresh Equity Infusion for improving operations
interest of stakeholders, etc. (only if the lenders are continuing)
Compliance with IBC code. Plan to cover mode payment/ settlement with all creditors with timeline.
Plan to be tuned for high ranking basis Evaluation matrix parameters.
Plan should not be contingent and be binding on RA
Dealing with Creditors for essential supplies Possibility of arm twisting post take-over?
31
Commonly used structures
Write-back of unsustainable debt of Corporate Debtor
Tax losses to be
Both unabsorbed c/f even upon Provisions of S.
depn. and loss b/f change of majority 50CA and S. 56(2)
Section 32A of IBC
allowed to be control - Section (x) still applicable
would override S.
reduced for 1 79 of IT Act not 2 on IBC 3 281 of IT Act and 4
computing MAT applicable transactions. CBDT
S. 170 of IT Act
and not lower of has powers to
the two (S. 115JB) (PCIT opportunity relax the same
to be heard)
GST
New process
introduced, Only those input
wherein RP credits in old This ensures
obligated to GSTIN post clean slate to
apply for fresh 1 initiation of CIRP 2 New 3
GSTIN for CD and would be Management for
undertake transferred GST aspects
compliance
35
IBC – Its Interplay with other Regulations – SEBI
Acquisitions pursuant to RP approved u/s 31 of the IBC is exempted from the obligation to
SEBI
make an open offer
Takeover
Acquirer not prohibited to acquire such number of shares as would take the aggregate
Regulations
shareholding above the maximum permissible non-public shareholding i.e. 75% shares
Not applicable where the preferential issue of specified securities (equity shares and
SEBI (ICDR)
convertible securities) is made in terms of a RP approved by NCLT under IBC (except lock-in
Regulations provisions)
Not applicable to any delisting of equity shares made pursuant to a RP approved by NCLT
SEBI
under IBC
Delisting The RP should provide specific procedure to complete the delisting of such shares and an exit
Regulations option to the existing public shareholders at a price specified in the RP
Approval of the shareholder for various matters would no longer be required (material related
SEBI (LODR) party transaction, disposal of shares of material subsidiary, reclassification of promoter as
Regulations public, etc. if the same is in respect of a RP approved by NCLT under IBC
Within 1 day of approval to be disclosed to Stock Exchange
IBC – Its Interplay with other Regulations – Other Acts
37
Key Issues
IBC – FAQs
39
IBC – FAQs
40
Prudential Framework for Resolution of Stressed Asset
Purpose & Applicability
Lenders to have board approved policy for resolution along with the timelines
During the review period, decisions can be made on resolution strategy, nature of RP, approach of implementation, legal
proceedings alternatives
Resolution plan may involve any action/plan/ reorganization, modification in the terms of advances, concessions,
compromising settlements, sale of exposures etc. 41
Restructuring under Resolution Plan
Change in ownership
42
Constitution of Expert Committee
Constitution of Expert Committee under the chairmanship of Shri K.V. Kamath
Key Takeaways
26 Sectors
Recommendations regarding financial 15. Auto
parameters to be included in Resolution Plan 1. Power
Components
under the ‘Resolution Framework for Covid19 - 2. Construction
related Stress’ along with sector specific 16. Hotel,
3. Iron & Steel
benchmark ranges for such parameters Manufacturing
Restaurants,
Tourism
4. Roads
17. Mining
5. Real Estate
18. Plastic Products
Recommendation include aspects related to 6. Trading-
Manufacturing
leverage, liquidity and debt serviceability. Wholesale
The Committee has recommended financial 7. Textiles
19. Automobile
ratios for 26 sectors which could be factored 8. Chemicals
Manufacturing
by lending institutions while finalizing a RP 20. Auto
for a borrower 9. Consumer
Dealership
Durables/FMCG
21. Aviation
10.Non-ferrous
22. Sugar
The Key Financial ratios include Metals
23. Port & Port
• Total Outside Liability/ Adjusted Tangible Net 11.Pharmaceuticals
services
Worth; Manufacturing
24. Shipping
• Total Debt / EBIDTA; 12.Logistics
25. Building
• Current Ratio; 13.Gems &
Materials
• Debt Service Coverage Ratio & Jewellery
26. Corporate
• Average Debt Service Coverage Ratio 14.Cement
Retail Outlets
43
IBC LANDMARK CASES
RELEVANT JUDGEMENTS
MR. ASHUTOSH AGARWALA, RP VS. JOINT COMMISSIONER ANJALI RATHI & ORS VS TODAY HOMES AND
OF STATE TAX & ORS. INFRASTRUCTURE PRIVATE LIMITED & OTHRS;
.
This application was filed by the RP against the orders of the tax The petitioners sought attachment of the personal properties of the
authorities of the State of West Bengal and Maharashtra wherein all promoters of the corporate debtor. The SC while deciding the matter
the bank accounts of the corporate debtor were attached. The RP observed that it would not be appropriate to issue a direction of such
contended that as a moratorium under Section 14 of the Code is in nature, while the resolution plan is still not approved by the NCLT.
force the decision of the tax authorities was in contravention of the Therefore, relying on its judgement in the matter of P. MOHANRAJ
law and to direct the authorities not to issue any further notices/ VS. SHAH BROS. ISPAT (P) LIMITED, it was held that the
seizure/ attaching of assets of the corporate debtor without leave of the moratorium under the Code is only applicable to the corporate debtor
NCLT and to give access of the attached bank accounts to the RP was and not be prevented by the moratorium under Section 14 of the Code
in contravention of the law and requested the NCLT to direct the from initiating proceedings against the promoters. Further, the
authorities not to issue any further notices/ seizure/ attaching of assets petitioner can take recourse to remedies available in law only after
of the corporate debtor without the leave of the NCLT and to give
the resolution plan is approved by the NCLT and subject to the
access of the attached bank account to the RP.. The NCLT while
consequence thereafter.
deciding the matter, observed that Section 14 of the Code, inter alia,
bars any institution of suits, continuation of pending suits or
proceedings against the corporate debtor including execution of any
judgement, decree or order in any court of law, tribunal or arbitration
panel or any other authority. Further, Section 238 of the Code also has
an overriding effect on all other laws which includes State GST Act
and Central GST Act. In addition to this, no notice issued under
Section 79 of the GST Act, 2017 can be acted upon by any Central/
State Authority against the corporate debtor undergoing CIRP.
Therefore, the decision of the State tax authorities was in
contravention to the provisions of law.
45
GHANASHYAM MISHRA AND SONS PRIVATE LIMITED VS. ANJALI RATHI & ORS VS TODAY HOMES AND
EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED INFRASTRUCTURE PRIVATE LIMITED & OTHRS;
& ORS.
11
October 2018
1 6
June 2017 February 2018
01 Pursuant to RBI Direction, banks 06 Numetal and ArcelorMittal submit 11 ArcelorMittal clears the NPA and makes
a resubmission of its bid
take Essar Steel to court under IBC bids for Essar Steel
202 707 12
July 2017 March 2018 October 2018
Essar Steel files Writ Petition in
Gujrat HC against RBI direction
RP rejects bids for both Applicants
citing 29A as wilful defaulters
12 Negotiated Plan of ArcelorMittal
approved by 92.24% of CoC
303 808 13
August 2017 NCLT approves RP with direction to CoC
Gujrat HC quashes Essar’s petition,
Both Applicants approach the
NCLT against the move of the RP, 13 to give benefit to OC and StanChat.
thus resuming IBC Proceedings Revised RP is submitted
which rules against them
404 909
July 2019
14
October 2017 September 2018
RP invites EoIs from Interested NCLAT upholds the NCLT order,
which is challenged in SC
14 OCs and StanChat appeals before NCLAT,
which rules in their favour
parties. Received bid from
Promoters
505 10 15
November 2017 October 2018 November 2019
IBC ordinance introduced to insert
Section 29A – Connected person
10 SC asks both parties to clear their 15 SC set aside the NCLAT order and give
upper hands of FC
dues and then make a fresh bid
not eligible
Essar Steel Resolution – FCs vs OCs
View by the NCLT
Disputed Facts
• Distribution among Secured FCs was made based on value • Courts have no jurisdiction to scrutinize the
and quality of security held. Specific for StanChat – Pledged commercial wisdom of the CoC
share FMV was ₹25cr against loan granted of ₹3487cr • Since the treatment to OCs seems prima facie
• Original RP - Operational Creditors were paid 100% upto unfair, CoC must look into the method of
₹1cr and notional amount of ₹1 for claim more than ₹1cr apportionment of amount by giving haircut to FCs
Distribution of ArcelorMittal’s ₹42000cr Bid Revised RP – INR 1,000 cr was allocated to OC and approved of CoC
Sr. No. Particulars CoC/NCLT/SC NCLAT NCLAT Judgement
• FCs cannot be discriminated as secured or unsecured
A Workmen & Employees 100% 100%
for distribution, giving StanChat equal share in the
B Secured Financial Creditors application bid amount
B1 Other Secured Creditors 92% • Since OCs are required to be paid minimum liquidation
60.7% value doesn’t mean that they shouldn’t be paid more.
B2 StanChat 1.74%
• OCs are treated at par with FCs
C Unsecured Financial Creditors
Supreme Court Verdict
C1 with admitted claims <₹10lakh 100% 100% • Discrimination between FCs and OCs
C2 with admitted claims >₹10lakh 4.08% 60.7% is made by the Code itself, giving the
D Operational Creditors discretion to accept Resolution Plans
to the FCs
D1 with admitted claims <₹1cr 100% 100% • If equitable distribution is adopted,
D2 with admitted claims >₹1cr 20.50% 60.7% FCs would vote for Liquidation as
they would receive higher value
defeating the purpose of the Code
Essar Steel Resolution – Key Aspects of the SC Judgement
Jurisdiction of NCLT / NCLAT Role of CoC is to determine with their commercial
is limited to review and not trespassing the business decision of wisdom and negotiation, how and in what manner the
the CoC and if certain factors in view of the Tribunal have not CIRP is to take place
been given due consideration by the CoC, it may send back the
plan for consideration of the same
Claims cannot suddenly be
included as the RA should
have the complete
knowledge of exact amount
Delegation of the Powers to the CoC of claims for making the bid
and the CoC alone must take the
decisions under the Code, however,
this does not bar the CoC from
appointing sub-committees for Distributionn of Profits made during the
negotiating with RAs CIRP will not go towards the payment of
debts of any creditor