IBC

Question 1

IBC framework

Answer 1

1. Regulator:
   IBBI –> IPA, IRP and IU
2. Adjudicator:

NCLT: Corporate entities like Companies, LLP etc.
DRT: Individuals and DRT

3. Full Forms: Insolvency and bankruptcy board of India, Insolvency professional agencies, Insolvency Resolution Professionals, Information Utility, National Company Law tribunal, Debt Recovery Tribunal

Question 2

Data

Answer 2

1. Time take to resolve Bankruptcy: India: 4.3 Years, China: 1.7: US: 1.5
2. Process cost: -9%
3. Recovery Ratio: India - 25%, US > 80%

Question 3

Process

Answer 3

1. On Day 1 of the default, a creditor or a borrower can approach NCLT/DBT to initiate insolvency proceedings, teh NCLT/DBT has to accept or reject the plea within 14 days
2. Once the case is admitted, lenders will constitute committee of creditors (CoC), appoint an IRP which will run the borrowers’ company in the interim period. Important Role Players = Financial Creditors
3. 180+90 days: Within 180 days, the CoC has to decide on a debt recast plan.
   Lenders will be given additional 90 days to arrive at a final resolution plan
4. If the lenders agree (by voting), the CoC would go ahead with debt restructuring. Otherwise, after 180 days, the company’s/borrower’s assets will be liquidated

Question 4

Problems with IBC

Answer 4

1. One of the main objective was to enable banks to pressurize borrowers for recovery, but it is operational lenders who are using it more. Out of 543 cases
   admitted till now, only 1/3 is from Financial lenders

2 Focus is more on recovery of dues than revival of the company, thus collective resolution is hit

Question 5

Recent Amendment

Answer 5

1. Proposal to treat Home Buyers as Financial Creditors
   a. But they lack financial and economic knowledge
   b. It would be difficult to secure majority consensus => Decrease in value of asset under liquidation
   c. RERA treats them as consumers and hence makes strict provision to protect them

2 Related party now defined in relation to the individual as well, in addition of the company only previously, to bar it from bidding under the resolution process

3. Vote share changes: CoC to decide on extension of insolvency process beyond 180 days to 270 days and for appointment of IP by 66% vote share (from earlier 75%) other decisions can be taken by 51% vote (it was 75% earlier). The process can be withdrawn altogether by 90% vote share
4. Promotors and guarantors of the MSMEs are exempted from disqualification from bidding, it further empowers the Centre to allow further exemptions or modifications will the MSME sector
5. If a financial creditor or its authorised representative is a related party to the company facing insolvency, it shall not have any participation or voting during a meeting of the Coc
6. A company can file an insolvency application provided it seeks shareholders approval and at least three fourth of the stakeholders approve the proposal

Question 6

Terms

Answer 6

Insolvency: Inability of an entity to pay its bills as and when they become due and payable

Bankruptcy: Situation when an entity is declared incapable of paying their due and payable bills

Liquidation: Process of winding up a corporation or an incorporated entity.

Code: Code consolidates various laws, regulation, rules etc=> IBC is more than a law, it is code