Q10. Consider the following statements regarding the Insolvency and Bankruptcy Code, 2016.
i. The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms.
ii. The process has to be initiated by the debtor only.
iii. Insolvency and Bankruptcy Board of India was established to oversee the insolvency proceedings in the country and regulate the entities registered under it.
i) and iii) only
The Insolvency and Bankruptcy Code, 2016 is a major economic reform next only to the adoption of Goods and Services Tax in India. The act came into force from December 2016. This move is aimed at consolidating the existing laws related to the insolvency of partnerships with unlimited liability, entities with limited liabilities (including limited liability partnerships), and individuals into a single legislation in order to rule out the ambiguity in the insolvency resolution process. The law also contains cross-border insolvency provisions.
Procedure for Insolvency resolution under the Insolvency and Bankruptcy Code:
The creditors (financial/operational) are required to submit a plea for insolvency to the adjudicating authority (National Company Law Tribunal in case of corporate). The plea has to be accepted/rejected within 14 days from the filing of the plea. In case of acceptance of the plea, an Insolvency Resolution Professional (IRP) is appointed. The IRP has to draft an insolvency resolution plan within 180 days (can be extended by 90 days in exceptional cases) while the board of directors of the company remain suspended and the promoters do not have a say in the management. However, the IRP is allowed to seek help from the board of directors in carrying on the day to day activities of the business. If the resolution plan is accepted by 75% of the creditors, it will be put into action. In case of rejection of the insolvency resolution plan, the company will be liquidated.
Insolvency and Bankruptcy Code is a systematic and comprehensive reform, the benefits of which are manifold.