INSOLVENCY AND

BANKRUPTCY CODE 2016

ANALYSIS OF NAME
INSOLVENCY – It is the inability of a person or corporation to pay their debts
as and when they become due for repayment .( it is a situation)

BANKRUPTCY- It is the declaration that a person is incapable of paying their

dues and bills .(it is legal terminology)

CODE Code” is a collection of laws, rules or regulations that are systematically

arranged. Code is not only a compilation of already existing statutes, but also of
the unwritten law on any subject composed of materials available from all
sources.
Code is also termed consolidated laws. In making a code, new laws will be
included and existing old laws may be repealed to constitute a complete system.
An Act is a decision passed into law, a code is a collection of already existing
laws
Importance of IBC
Section 238- The provisions of this Code shall have
effect, notwithstanding anything inconsistent
therewith contained in any other law for the time
being in force or any instrument having effect by virtue
of any such law. This means that code has overriding
effect.
JOURNEY OF CODE
FORMATION OF COMMITTEE- 22ND AUG 2014

INTRODUCED IN PARLIAMENT- 21ST DEC 2015

PASSED IN LOK SABHA- 5TH May 2016

PASSED IN RAJYA SABHA – 11TH MAY 2016

PRESIDENT ASSENT- 28TH MAY 2016

CAME INTO FORCE – 1ST DECEMBER 2016

SCHEME OF CODE
TOTAL SECTIONS - 255

TOTAL SCHEDULES -11

DIVIDED IN FIVE PARTS

APPLICABILITY
INDIVIDUAL

PARTNERSHIP FIRM

COMPANIES

LLP

PERSONAL GUARANTOR S TO CORPORATE DEBTORS

ADJUDICATING AUTHORITY
FOR CORPORATE DEBTOR NCLT- NCLAT- SUPREME COURT
FOR INDIVIDUAL AND FIRM DRT- DRAT- SUPREME COURT
SCOPE OF IBC
CIRP

LIQUIDATION

BANKRUPTCY
FOUR PILLARS OF IBC 2016

INSOLVENCY
ADJUDICATIN
PROFESSIONA
G AUTHORTY
L

REGULATOR
INFORMATIO
IBBI
N UTILITIES
IPA
PREAMBLE TO THE CODE
- CONSOLIDATE AND AMEND LAWS RELATING TO
REORGANISATION
INSOLVENCY RESOLUTION OF CORPORATE PERSONS , P
FIRM , INDIVIDUAL IN TIME BOUND MANNER
MAXIMISATION OF VALUE OF ASSETS
PROMOTE ENTREPRENEURSHIP
AVAILABILITY OF CREDIT
BALANCE INTEREST OF ALL STAKEHOLDERS
ALTERATION IN THE ORDER OF PRIORITY OF PAYMENT
OF GOVT DUES
ESTABLISH IBBI
Important definitions /concepts
Financial debt- debt along with
Default-non payment of interest disbursed against the
Financial creditor- person
debt in whole or consideration for time value of
to whom financial debt is
part/instalment-of debt money includes money plus
owed/legally interest/credit facility/note
which is due and payable
assigned/transferred purchase facility /Hire
and has not been paid
purchase/discounting etc

Operational creditor- Operation debt

person to whom Claim in respect of
operational debt is goods/services
due/legally Employment/ arising under
assigned/transferred any law /govt dues
Important definitions/concepts
Insolvency resolution
Insolvency commencement process cost- some of the
Initiation date- the date of
date- date of acceptance by cost which are as
making application
the AA mentioned in act and are
given priority to other cost

Resolution applicant- one Resolution plan – is a plan

who singly or jointly proposed by resolution
submits an application to applicant for insolvency
RP pursuant to the resolution of Cd as a going
invitation concern
PART II- Insolvency Resolution and
Liquidation for corporate person
Minimum amount of default – Rs 1 lakh
Section 4
(w.e.f 24th march 2020- 1 crore)

Application can be filed by

1. Financial creditor- section 7
2. Operational creditor- Section 9
3. Corporate applicant – section 10

Financial creditor can file single or jointly or

by creditor in class (100 in number or 10% of
total number whichever is less
Operational creditor singly after sending
demand notice
APPLICATION TO ADJUDICATING AUTHORITY
RULES

FORM 5 –
FORM 6 –
FORM 1-application application by
application by
by Financial creditor Operational
corporate applicant
– Fees Rs 25000 Creditor Fees Rs
Fees Rs 25000
2000/-

FORM 3 AND 4 –
FORM 2 – Interim
demand notice by
Resolution
the operational
Professional
creditors
PROCESS OF MAKING APPLICATION
DEFAULT DEFAULT Sue moto

FINANCIAL OPERATIONA CORPORATE

CREDITOR L CREDITOR APPLICANT

APPLICATION DEMAND APPLICATION

TO NCLT NOTICE TO NCLT
CIRP PROCESS
MANAGEMENT AND COMMITTEE OF CREDITROS
CONTROL OF CD BY IRP/RP (Section21) and first meeting
APPLICATION TO NCLT
INVITATION AND within 7 days . Appointment of
COLLATION OF CLAIMS RP

NAME OF IRP ( MUST IN MORATORIUM AND PUBLIC PREPARATION OF INFO

CASE OF FC AND CA ANNOUNCEMENT MEMORANDUM AND
OPTIONAL FOR OC) IN THE APPOINTMENT OF IRP INVITING RESOLUTION
APPLICATION (SECTION 13-16) APPLICATION

SUBMISSION AND
CONSIDERATION OF
ACCEPTANCE THE PROCESS TO BE
RESOLUTION PLAN BY COC
/MODIFICATION/REJECTION COMPLETED IN 180 +90 DAYS
AND SUBMISSION OF THE
BY NCLT IN 14 DAYS SECTION 12
SAME TO NCLT FOR
APPROVAL (SCETION 30-31)
Section 14- supply of essential goods or
services to CD not to be stopped

Electricity water

Essential supplies – to
the extent they are
not direct input to
output

Telecommunication services IT services

Some important sections

Section 29A- ineligibility of certain Section 21 – committee of creditors

person to act as resolution applicant

CIRP

Section 11- certain person not

entitled to make application (CD
SECTION 31- approval of resolution undergoing process/Cd completed
plans by AA to be binding on all process in last 12 months/Cd who
violated terms of resolution plan
Mandatory contents of resolution Plan
1. OC to be paid in priority to FC
2. Dissenting FC to be paid
3. Statement how interest of all stakeholders dealt with
4. any failure by RA in some other plan implementation
5. term of plan and implementation schedule and
management of business
6. it addresses cause of default, is viable, can be
implemented effectively, approvals/time lines and
capability of RA to implement the plan
IMPORTANTS FORM UNDER CIRP
REGULATIONS (SCH 1)
Form AA- consent to act as Resolution Professional
Form AB- consent of Insolvency professional to act as authorised representative
of creditors
Form A- public announcement within 3 days of appointment of IRP in two
newspapers.
Form B- claim by operation creditors
Form C- claim by Financial creditors
Form CA- claim by creditors in class
Form D- claim by workman and employees
Form E- Claim by workmen and employees ( class representation )
Form F- Claim by others
Form FA- withdrawal of CIRP process
Form G- Invitation of expression of interest
Form H- Compliance certificate
CIPR REGULATIONS (OVERVIEW)
Committee of creditors with only Operational creditors
18 largest Operational creditors
- One representative of workmen( not included above)
- One representative of employees (not included above
Quorum of Meeting of creditors shall be 33%of voting rights
present in person or proxy.
The Resolution Professional shall act as chairperson of the
meeting.
The committee shall fix the expenses to be incurred on or by
the resolution professional and the expenses shall constitute
insolvency resolution process costs
Liquidation
When resolution plan is not made within time

When resolution plan is not accepted by NCLT

When COC decided to liquidate the company

Where the Resolution plan approved by AA is contravened

by the corporate debtor
Transaction
Preferential prohibited under code
Undervalued

Section 43 Section 47

Special pref by Under valued

CD in relevant transactions
time during relevant
period
Relevant time 1 Relevant time 1
year for year for
unrelated party unrelated party
2 year for 2 year for
related party related party
from ICD from ICD

AA may
required
independent
expert to assess
the value
Distribution of assets (Section 53)
1. IRP cost
2. Following shall be paripassu
- workmen dues -2 4 months
- secured creditor who relinquished security
3. Wages and dues to employees- 12 months
4. Financial debt to unsecured creditors
5. Following shall rank equally
- govt dues
- dues to secured creditor left after realising security
6. Other debts and dues
7. Pref shareholders if any
8. Equity shareholders
LIQUIDATION REGULATIONS
OVERVIEW
Important Forms
Form A schedule II- consultation with stakeholders
Form B schedule II- advertisement(in 5 days of appointment of liquidator)
Form C sch II- claim by operational creditors
Form D sch II– claim by financial creditor
Form E Sch II- claim by workmen and employees
Form F- claim by workmen or employees in class
Form G- claim by other stakeholders
Important timelines
Public announcement- within 5 days of appointment of liquidator
Preliminary report to Adjudicating authority by the liquidator- 75 days from liquidation
commencement date
Progress report- within 15 days from end of quarter
Submission of claims – before the last date mentioned in the advertisement
Verification of claim- within 30 days from the last date of submission
List of stakeholder to be filed with Adjudicating authority- within 45days from last date of claim.
Liquidation to be completed in – 12 months
For determining the relevant period for extortionate, undervalued and preferential transactions-
related party 2 years, unrelated party 1 year
VALUATION UNDER CIRP
Regulation 27 and regulation 35 of CIRP regulations deal with the provisions relating to
appointment of valuers and valuation in the said process.
 
Regulation 27- Appointment of Registered Valuers
 
The resolution professional shall within [ seven days of his appointment, but not later
than forty-seventh day from the insolvency commencement date], appoint two
registered valuers to determine the fair value and the liquidation value of the
corporate debtor in accordance with regulation
 Provided that the following persons shall not be appointed as registered valuers, namely:
(a) a relative of the resolution professional;
(b) a related party of the corporate debtor;
(c) an auditor of the corporate debtor at any time during the five years preceding the
insolvency commencement date; or
 (d) a partner or director of the insolvency professional entity of which the
resolution professional is a partner or director.
DETERMINATION OF VALUE REG 35
Fair value and liquidation value shall be determined in the following manner:-

 (a) the two registered valuers appointed under regulation 27 shall submit to
the resolution professional an estimate of the fair value and of the liquidation
value computed in accordance with internationally accepted valuation
standards, after physical verification of the inventory and fixed assets of the
corporate debtor;

 (b) if in the opinion of the resolution professional, the two estimates of a value
are significantly different, he may appoint another registered valuer who
shall submit an estimate of the value computed in the same manner; and

 (c) the average of the two closest estimates of a value shall be considered
the fair value or the liquidation value, as the case may be
VALUATION IN LIQUIDATION PROCESS
2) [In cases not covered under sub-regulation (1) or where the liquidator is of the
opinion that fresh valuation is required under the circumstances, he shall within
seven days] of the liquidation commencement date, appoint two registered
valuers to determine the realisable value of the assets or businesses under clauses (a)
to (f) of regulation 32 of the corporate debtor:

Provided that the following persons shall not be appointed as registered valuers,
namely: -
(a) a relative of the liquidator;
(b) a related party of the corporate debtor;
(c) an auditor of the corporate debtor at any time during the five years preceding
the insolvency commencement date; or
(d) a partner or director of the insolvency professional entity of which the
liquidator is a partner or director.
VOLUNTARY LIQUIDATION
Voluntary Liquidation of Company
 
A company which intends to liquidate voluntarily and has not committed any default and can pay
off its debts fully from proceeds of liquidation of its assets may initiate voluntary liquidation
proceedings under the provisions of Chapter V of the Insolvency and Bankruptcy Code, 2016.
The voluntary liquidation requires the following conditions to be met
 
Declaration from the Directors:
 A declaration from majority of the directors of the company verified by an affidavit stating that –
they have made a full inquiry into the affairs of the company and they have formed an opinion that
either the company has no debt or that it will be able to pay its debts in full from the proceeds of
assets to be sold in the voluntary liquidation; and
the company is not being liquidated to defraud any person.
The declaration must be accompanied with the following documents:
audited financial statements and record of business operations of the company for the
previous two years or for the period since its incorporation, whichever is later;
a report of the valuation of the assets of the company, if any prepared by a registered value
V L PROCESS
LIQUIDATION OF ASSETS APPLICATION TO BOARD
DECLARATION BY
AND WINDING UP OF AND ROC FOR
DIRECTORS
THE COMPANY DISSOLUTION

COMMENCEMENT OF
VOLUNARTY
MEETING OF MEMBERS
LIQUIDATION.
AND PASSING OF
COMMENCEMENT DATE
RESOLUTION
BE THE DATE OF
RESOLUTION

IN CASE OF DEBTS, NOTICE TO ROC AND

APPROVAL FROM BOARD WIHTIN 7 DAYS
CREDITORS HODLING 2/3 OF RESOLUTION OR
DEBT IN 7 DAYS CREDITORS APPROVAL
OVERVIEW OF REGULATIONS
Important Forms in CIRP/Volentry Liqudation
Form A Sch I- Public announcement within 3 days of appointment
Form B Sch I- claim by operational creditors
Form C sch I – Claim By Financial Creditor
Form D Sch I- claim by workmen and employees
Form E Sch I- Claim by workmen and employees in class
Form F Sch I- claim by others
Important Timelines
Public advertisement -within 5 days of appointment of liquidator
Submission of claims- within 30 days from liquidation commencement date
Verification of claim- within 30 days from last date of submission of claims
List of stakeholders- within 45 days from last date of submission of claims
Preliminary report to CD- within 5 days of liquidation commencement date