Insolvency is a situation where a company is unable to repay its outstanding debt. The Insolvency and Bankruptcy Code (Amendment Bill) (“Bill”), 2017 was introduced on December 28, 2017 amending the Insolvency and Bankruptcy Code, 2016 (“Code”) which replaces an ordinance promulgated in November 2017.
A resolution plan explains the details that how the debt of a defaulting debtor can be restructured. This code defines a resolution in which applicant as a person submitting a resolution plan to insolvency professional. The bill amends to define a resolution applicant as a person submitting a resolution plan after receiving an invite by the insolvency professional to do so.
Eligibility for resolution applicants
The Code specifically defines that an insolvency professional will take control of the defaulting company inviting applicants to submit resolution plans. The Bill states that insolvency professional will only invite those resolution applicants to submit a plan, who fulfill certain criteria laid down by him (with the approval of the committee of creditors), and other conditions which may be specified by the Insolvency and Bankruptcy Board.
Ineligibility to be a resolution applicant
The Bill includes a provision prohibiting certain persons from submitting a resolution plan. A person will be ineligible to submit a plan if:
- he is a not discharged insolvent;
- he is a willful defaulter;
- his account has been identified as a non-performing asset for more than a year and he has not repaid the amount before submitting a plan;
- he has been convicted of an offence punishable with two or more years of imprisonment;
- he has been disqualified as a director under the Companies Act, 2013;
- he has been prohibited from trading in securities by SEBI;
- he is the promoter or in the management of a company which has indulged in undervalued, preferential, or fraudulent transactions;
- he has given guarantee on a liability of the defaulting company undergoing resolution or liquidation and has not honored the guarantee;
- he has indulged in these specified activities abroad ; or
- he is connected to any person mentioned above.
Approving the resolution plan
This Code specifies that the committee of creditors shall approve a resolution plan with 75% majority. The Bill amends this provision to state that the committee will approve this plan by a 75% majority subject to any conditions specified by the Insolvency and Bankruptcy Board. The Bill prohibits the committee of creditors from approving a resolution plan submitted before the promulgation of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the plan has been submitted by a person ineligible to be a resolution applicant.
The Code allows the insolvency professional to sell the movable or immovable property of the debtor in case of liquidation. The Bill prohibits the insolvency professional to sell this property to any person who is ineligible to be a resolution applicant.
The Bill includes a provision to specify that a person contravening any provisions of the Code, for which no penalty has been specified, will be punishable with a fine ranging between one lakh rupees to two crore rupees.
Code provides a time-bound process to resolve insolvency of companies and individuals. In conclusion, the Insolvency and Bankruptcy Code, 2016, is a progressive legislation that is intended to improve the efficiency of insolvency and bankruptcy proceedings in India. The new legislation provides for the early detection of financial distress and a time bound process for resolution. However, many details on the IBC’s implementation need to be worked out in the regulations, and its success will depend to a large extent on how quickly a high quality cadre of insolvency resolution professionals will emerge and on whether the time bound process for insolvency resolution will be adhered to in practice.
If you have any questions or would like to discuss more about the Code, our experts can ensure right business insights and best practices for you.
We can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, and trademark registration, business structuring and advisory services. If you require any assistance in this regard, kindly click her