What Is Insolvency and Bankruptcy Code (IBC)?
What is IBC?
IBC (Insolvency and Bankruptcy Code) is one of the biggest insolvency reforms that the parliament implemented in November 2016 to bring uniformity to India’s scattered bankruptcy laws. IBC got its Presidential assent in May 2016 and was necessitated due to piling up of non-performing assets of banks and delay in debt resolution.
What does the IBC aim to do?
IBC aims to reorganise and resolve the insolvency of corporations, individuals, and partnerships in a time-bound manner.
The sole intention of the Insolvency and Bankruptcy Code, 2016 is to provide a justified balance between
- the loss that a creditor might face because of the default, and
- the interest of all the stakeholders of the company so that they enjoy credit availability.
What are the objectives of IBC?
- To consolidate all existing insolvency laws in India and make amends if needed.
- To make the process of Insolvency and Bankruptcy Proceedings in India simple and fast
- To protect the interest of creditors, including stakeholders in a company
- To help creditors who have been waiting for the payments for a long time get necessary relief
- To timely revive the company
- To resolve India’s bad debt problem by creating a database of defaulters
- To promote entrepreneurship
- To create a new and timely recovery procedure to be adopted by the financial institutions, banks, or individuals.
- To maximise the value of assets of interested persons
- To set up an Insolvency and Bankruptcy Board of India as a regulatory body for insolvency and bankruptcy law
Who can file an application under IBC?
Financial Creditor, Operational Creditor or Corporate Debtor can file a petition before NCLT (National Company Law Tribunal) to initiate the insolvency process (corporate insolvency Resolution process CIRP).
What is the timeframe for completion of the exercise under the IBC?
Under IBC, companies have up to 180 days to complete the insolvency exercise. However, the deadline can be extended if the creditors do not object to the extension.
Who regulates the IBC proceedings?
The IBC proceedings are regulated by the Insolvency and Bankruptcy Board of India (IBBI). The IBBI has 10 members from the Law Ministry, Finance Ministry and the Reserve Bank of India to oversee the proceedings.
Who adjudicates over the proceedings?
For companies, the National Companies Law Tribunal (NCLT) and for individuals, the Debt Recovery Tribunal (DRT) adjudicate over the proceedings of the resolution process.
What is the procedure to resolve insolvency under the IBC Code?
When a default occurs, the debtor or creditor initiates the resolution process. The insolvency professional is appointed to administer the process. The appointed professional’s task is to provide the debtor’s financial information to the creditor and manage the debtor’s assets. This resolution process lasts for 180 days. During this period, any legal action against the debtor is prohibited.
Conclusion
IBC is a comprehensive legislation with a simple and speedy process to deal with insolvency issues. Since the resolution process under IBC is time-bound, it is a win-win situation for both the creditors and the debtors.
