1. Insolvency and Bankruptcy code
Dhiraj Dave
June 2017

2. Why Insolvency Code Improve ‘Ease of Doing Business’ ranking for India
High Stress level in Banking System
Release Capital quickly from system for productive re-usage
The average life of cases recommended for restructuring in 2002 was 7 years and the average life of cases recommended for winding up to the court was 6.5 years
Consolidating various regulation under one umbrella
Increasing share on bond in debt market in India
Increasing confidence of international investor in Indian market
Difficult regulation related to enforcement of security by Foreign lender which increase cost of borrowing for Indian borrower

3. Ease of doing business : India’s ranking

4. What has changed?
Insolvency test moved from ‘erosion of net worth’ to ‘payment default’
Single insolvency and bankruptcy framework. Replaces SICA
Time bound resolution process
Advantage Creditor
Shift of control from shareholders and promoters to creditors
Provide confidence to lenders of their rights and their enforcement.
Better symmetry of information flow between creditors and debtors
Government dues would rank below to those of secured creditors and unsecured financial creditors
Insolvency Professional (IP) to take over the management and operations of the borrower during the CIRP
Focus to get back fraudulent diversion of assets, personal contribution can be sought; imprisonment possible

5. Insolvency and Bankruptcy Code Infrastructure
NCLT
Information Utility
Insolvency Professional
Insolvent Entity
Committee of Creditor
Insolvency and Bankruptcy Board
Insolvency Agency

6. Corporate Insolvency Resolution Process
Default
Appointment of a resolution professional
Formation of committee of Creditors
Moratorium period
(180/270 days)
Goes into Liquidation
Implementation of Resolution plan
75% of the creditor to approve
Yes No

7. Corporate Resolution Timeline
No of Days
-ve 14
Admission of Application, Moratorium Declared 14 21 16
30-44 37 51
180 65
150
170
NCLT Appoint Interim RP
Public
announcement
Appoint 2 Valuer to calculate liquidation value
IRP to constitute CoC and submit report
Creditor to submit claims
First CoC meeting
Preparation of IM
Submission of plan
Coc’s approval of resolution plan
Application for NCLT approval
Initiation of Liquidation
Filing of application to NCLT

8. Corporate Liquidation : Priority of claims
Insolvency resolution process and liquidation cost
Insolvency cost include funding cost for running the debtor as going concern
Secured creditor and workman dues (upto 24 months)
Secured creditor can opt for SARFAESI Action, No clarity on right of different class of creditor
Other Employee dues (upto 12 months)
Non Workman/ Contract labour
Financial debt of unsecured Creditors
ECB/ Fixed deposit
Government dues (upto 2 years) and unpaid secured creditor
SARFAESI lender residual claim
Any other remaining debt
Other dues of debtors
Preference shareholder
Having Priority over Equity
Equity shareholder
Least priority class

9. Key Role of Resolution Professional
Appointed Resolution professional IP shall exercise all that power of the board of director of the corporate debtor
Board of Power of corporate debtor are suspended from IP appointment date
Officer and manager of corporate debtor shall report to IRP/RP
IRP/IP shall act and execute in the name and on behalf of corporate debtor all deed, receipts and other documents
Key role of Resolution professional
Form Committee of Creditor
Chair Committee of Creditor
Prepare information memorandum and invite resolution plan
Investigate financial affair of the company
Key role of Liquidator
Receive, verify and value claims of all the creditors, and settle such claims
Take into his custody or control all the assets, and sell the assets
Carry on the business of the corporate debtor for its beneficial liquidation
Apply to the Adjudicating Authority for avoidance of transactions