Insolvency and bankruptcy code, 2016

Insolvency and bankruptcy code, 2016 is a Code having a collection of laws. Code has 255 sections divided into 5 Parts and received the assent of the President of India on May 28, 2016. The Code will bring amendment in the following 11 legislations:

1.    The Indian Partnership Act 1932

2.    The Central Excise Act 1944

3.    The Income Tax Act 1961

4.    The Customs Act. 1962

5.    Recovery of Debts Due to Banks and Financial Institutions Act, 1993

6.    The Finance Act 1994

7. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002

8.    Sick Industrial Companies (Special Provisions) Repeal Act, 2003

9.    The payment and Settlement Systems Act 2007

10. The Limited Liability Partnership Act 2008

11. The Companies Act, 2013

Code also seeks to repeal the two Insolvency Acts of 1909 and 1920 and amend many of the existing statutes that govern insolvency proceedings. All proceedings pending under these acts are continued to be heard and disposed of by the concerned court and tribunals. Any prosecution instituted under the repealed enactments and pending immediately before the commencement of this Code before any court or tribunal will be governed by this code and shall continue to be heard and disposed of by the concerned court or tribunal.

Key features:

ü  Applicable to Insolvency of individuals, unlimited liability partnerships, Limited Liability partnerships (LLPs) and companies.

ü  Establishes:

1.    The Insolvency and Bankruptcy Board of India (IBBI) as the regulator to provide oversight over insolvency professionals, Insolvency Professional Agencies and Information Utilities.

2.    the National Company Law Tribunal (NCLT) as an adjudicating authority for company and Limited Liability Partnerships, and

3.    Debt Recovery Tribunal(DRT) as adjudicating authorities for individuals and partnership firms.

ü  Quick identification of financial distress and a 180-270 day plan to revive a company.

ü  Fresh start provisions apply only to debtors below the specified income/ asset/ debt threshold.

ü  If any financial creditor is not paid any amount, i.e. even for minor default, a creditor can apply for winding up of a Company to NCLT under Bankruptcy Code.

ü  An insolvency resolution plan prepared by the resolution professional has to be approved by a majority of 75% of voting share of the financial creditors. Once the plan is approved, it would require sanction of the Adjudicating Authority. If an insolvency resolution plan is rejected, the Adjudicating Authority will make an order for the liquidation.

ü  The Code proposes for a fast track insolvency resolution process for companies with smaller operations and completion period.

ü  All cases pending before Company Law Board shall be transferred to NCLT.

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