Insolvency and Bankruptcy code PPT, Study Guides, Projects, Research of Banking Law and Practice

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THE INSOLVENCY AND

BANKRUPTCY ACT, 2015

In depth analysis of the Scope and Objective accompanied by the Comparative Study.



How is the new act categorically changing

the position of the law relating to Insolvency

and Bankruptcy with respect to :-



Corporate insolvency resolution process.



Debt-restructuring mechanism.



Liquidation and distribution of assets.

 Adjudicatory body

Research Questions

Corporate ResolutionCorporate Resolution

Time Bound Process Time Bound Process Insolvency Professionals Insolvency Professionals Information Utilities Information Utilities

PROCEDURE OF RESOLUTION

Public Announcement Interim insolvency resolution professional Determination of the debtor's assets Debtor must submit a resolution plan Adjudicating authority Accept Reject Liquidation

Debt Restructuring

Arrangements

Debtor –creditor Arrangement Inter- Creditor Arrangement Refraining from taking action against each other Protecting rights of the Individual creditors (75% of creditors need to agree for debt- restructuring)

LIQUIDATION AND DISTRIBUTION OF ASSETS  (^) If the adjudicating authority rejects the debtor's resolution plan as part of the corporate insolvency resolution process, it will order the liquidation of the debtor and appoint a liquidator to take charge of the debtor's assets and affairs. The liquidator will form a liquidation trust comprising of all of the debtor's assets and act as the fiduciary trustee of the trust for the benefit of the creditors.

VOLUNTARY LIQUIDATION 

Section 59 specifies certain conditions.

 A declaration from majority of directors.



This declaration should be supported by the documents

mentioned in section 59(3)(b).



Within 4 weeks of declaration, there has to be a special

resolution passed in a general meeting 59(3)(c)(i).

 Company shall approve such resolution within 7 days.

LIQUIDATION PROCESS Rejection of resolution plan under S. 31 Passing of the Liquidation order Issuing of Public Notice

EFFECT OF RE-PRIORITISATION  The code proposes radical changes to the prioritisation of creditors in the liquidation process and is a remarkable shift from the existing regime, under which some of the dues owed to the government and statutory dues take precedence over the dues owed to secured creditors.  The re-prioritisation of creditors in relation to the distribution of the insolvent body's assets is likely to act as a major incentive for investors and creditors alike, since it substantially increases the likelihood of successful debt recovery.

BANKRUPTCY  (^) In the event that the adjudicating authority does not accept an insolvency resolution process or if the debtor fails to adhere to its repayment schedule, the debtor or creditor may jointly or individually apply to have the debtor declared bankrupt before the adjudicating authority.  (^) In this case, a bankruptcy nominee will be appointed, after which the adjudicating authority will pass a bankruptcy order.  (^) A public notice inviting claims from creditors will follow and a list of creditors and claims is prepared.  (^) Once the bankruptcy order is passed, the bankrupt's estate will be vested in the bankruptcy nominee, administered and distributed to the creditors in accordance with Chapter V of the code.  (^) Thereafter, the bankruptcy trustee may apply to the adjudicating authority for a discharge order. However, the discharge order will not affect the rights of secured creditors to enforce their securities, nor will it release sureties of the bankrupt from liability.

OVERRIDING EFFECT OF THE CODE 

Companies Act, 2013: Section 325 – section 327

dealing with the preferential payments in case of

winding up. The new act shall have an

overriding effect in respect to the same.

Section 53 of the new act governs the

distribution of the assets at the time of

liquidation.

 Sick Industrial Companies (Special Provisions)

Act, 1985: Section 20 lays down the procedure

in case of the winding up of the company and

further the distribution of assets which shall now

be governed by this new Act.

 SARFAESI act has been more favourable to the Creditors only as it provides for a situation when the creditor can directly recover money in case of defaults even without the intervention of the courts. Also the act provided for the non- performing assets and its accumulation which are the result of non recovery of debts by the creditors like bans etc.