1. AAA Insolvency Professionals LLP
Insolvency & Bankruptcy Code, 2016 and SARFAESI Act
AAA Insolvency Professionals LLP
New Delhi
E-10A, LGF, Greater Kailash, New Delhi, E:

2. 4
Journey of the Code

3. Need for bankruptcy law reforms AND5
Need for bankruptcy law reforms
AND
the Bankruptcy law reforms committee & its reports

4. Insolvency regime in India6
Insolvency regime in India
Various laws and various forum regarding bankruptcy in India
No proper remedy available
The Insolvency resolution framework for individuals was not very appropriate and dull since 100 years
▫ Earlier the insolvency of individuals ,partnerships and associations of individuals was covered under the Presidency Towns Insolvency Act, 1909
The 1861 Indian High Courts Act prompted to the setting up of the High Court framework set up of the Presidency towns Supreme Courts, which likewise has jurisdiction over bankruptcy
The Provincial Insolvency Act, 1920, is the insolvency law for people in zones other than the Presidency towns, manages bankruptcy of people, including people as proprietors
Framework for resolution of Corporate bankruptcy is vegetating too
The Companies Act, 1956, winding up provisions, unaltered for almost 6 decades;
Limited Liability partnerships are enlisted under the Limited Liability Partnership Act, 2008
The Micro, Small and Medium Enterprise Development Act, 2006, registers MSMEs however does not have arrangement for insolvency

5. Insolvency regime in India7
Insolvency regime in India
Different Laws in Place :
The SARFAESI Act, 2002
Authorization of security interests by banks or creditors depends on a "might is correct" standard;
Interests of partners other than banks or creditors get stifled
The RDDBFI Act, 1993
Special rights have been given to banks for recovery of debts
SICA
▫ It is applicable to industrial companies only
▫ Moratorium arrangements of SICA were broadly utilized by defaulters to avoid creditors‟ activity
▫ Amendments according to SARFAESI made SICA for all intents and purposes insignificant
Informal framework (prominently based on RBI Guidelines)
▫ Corporate Debt Restructuring
▫ Joint Lenders Forum
▫ Strategic Debt Restructuring
▫ Scheme for Sustainable Structuring of Stressed Assets

6. Committees on bankruptcy reforms8
Committees on bankruptcy reforms
in india (1/2)
26th Report of Law Commission on Insolvency Laws
Recommended consolidation of extant two personal insolvency laws into one.
1964
Tiwari Committee
Led to enactment of SICA
1981
Narasimham Committee I
Led to enactment of the RDDBFI Act, 1993
1991
Narasimham Committee II
Led to enactment of the SARFAESI Act, 2002
1998
Justice Eradi Committee
Companies (Amendment) Act, 2002, proposed setting up of NCLT, provided for revival and rehabilitation of sick companies -Never enforced
1999

7. Committees on bankruptcy reforms in india (2/2)9
Committees on bankruptcy reforms in
india (2/2)
L. N. Mitra Committee
2001
Proposed a Comprehensive bankruptcy code
Irani Committee
Amendments to RDDBFI and SARFAESI
2005
Financial Sector Legislative Reforms Commission
Draft Indian Financial Code includes a “Resolution Corporation‟ for resolving distressed financial firms.
2013
The Bankruptcy Law Reform Committee (BLRC) under the Chairmanship of Mr. T.K. Vishwanathan
The Insolvency and Bankruptcy Bill, 2015
2014

8. Banking law reforms committee (BLRC)10
Banking law reforms committee (BLRC)
Mandate
▫ Set up by the Department of Economic Affairs, Ministry of Finance, by an office order dated August 22, 2014
▫ Chairman: Mr. T.K. Vishwanathan
Objective
▫ To study the “corporate bankruptcy legal framework in India”, and
▫ To submit a report to the Government for reforming the system
Interim Report
▫ Submitted in February, 2015
▫ Intended to serve as an „Approach Paper‟ for the Insolvency Code.
▫ To suggest certain immediate reforms for improving the corporate insolvency regime in India
▫ (
Final Report
▫ Submitted in November 4, 2015
▫ Two Parts: Volume I – Rationale and Design, and Volume II – Draft Insolvency and Bankruptcy Code
▫ Volume I: (
▫ Volume II: (

9. Notified Sections and Regulations11
Notified Sections and Regulations
On May 28, 2016, the Code received President‟s assent
Proviso to section 1 (2) of the Code provides for piecemeal enforcement i.e., different dates may be appointed for different provisions of the Code.
Till date, the Ministry of Corporate Affairs has issued 6 notifications notifying the provisions of the Code
Regulations and Rules notified so far are –
▫ Corporate Persons Regulations
▫ Liquidation Process
▫ Application to Adjudicating Authority Rules
▫ IP Regulation
▫ IPA Regulation
▫ Model-Bye Law Regulation

10. Scenario of laws prior to the Code12
Scenario of laws prior to the Code

11. Scenario of the laws post Code13
Scenario of the laws post Code

12. When entities go into red14
When entities go into red
Informal workout with creditors
Management workout
Formal workout
Liquidation

13. Key objectives in liquidation15
Key objectives in liquidation
Options of resolution
Secured creditors
Unsecured creditors
Individual
remedies
Collective
remedies
Enforcement
of security
Resolution
Monetary
claim
Liquidation

14. Why collective remedies16
Why collective remedies
Individual pursuit by creditors will throw debtor into a
tizzy
▫ He should get a breathing time, so as to focus on business and bring it back to track
Where revival is possible, liquidation must be avoided
Important to ensure business remains a going concern
Even if it comes to liquidation, business gets much better
valuation as a going concern
Creditor remedies work on might-is-right principles, disregarding larger stakes
▫ Insolvency systems work on pari passu principle
Objective of insolvency laws is to ensure equitable distribution

15. Highlights of the Code - corporate
insolvency
Default made the basis of corporate insolvency resolution, not inability to pay
First moratorium starts on admission
▫ 180 days + 90 days
▫ Stays SARFAESI proceedings also
Creditors’ committee has an upper hand in resolution plan
Affairs of the company comes under control of the Resolution professional
▫ Though entity remains a going
concern
Preparation of resolution plan and approval by creditors with 75% voting share
Liquidation proceedings
commence on rejection of resolution plan, or failure to submit it
Moratorium on liquidation order
Liquidation estate
Avoidance of certain transactions
Secured creditor may either relinquish security interest, or may enforce it
Priority of distribution
▫ Financial creditors given priority
▫ Government claims recede to
item 5
Dissolution

16. Highlights of the Code – voluntary liquidation18
Highlights of the Code – voluntary liquidation
Voluntary liquidation procedure removed from Companies Act and shifted to the Code
Distinction between members’ voluntary and creditors’ voluntary winding up removed
▫ Creditors’ approval required in all voluntary winding up – 2/3rds in value
Voluntary winding up proceedings start from the date of passing of resolution
Liquidator steps-in, powers of board of directors cease
Code not applicable to financial
sector entities
▫ So, section 271 of the Companies Act will have to be used in such cases
All monies go into a separate bank account – section 350
Money remainining undistributed for 6 months to go into Company Liquidation and Undistributed Assets account – sec 352
▫ After 15 years, money goes to central Government – 352 (7)
Once the affairs are completely wound up, application for dissolution
Dissolution order

17. Highlights of the Code – non corporate debtors19
Highlights of the Code – non corporate debtors
Fresh start order •
Secured creditor may either stay out, or join the resolution plan, fully or partly
Implementation of resolution
plan and discharge
If resolution plan application or resolution are not accepted to creditors, bankruptcy application may be filed
First moratorium starts on making of application
Second moratorium starts on admission of application
Claims from creditors and
proof
Assets get vested in trustee
Distribution and discharge
▫ Gives a complete discharge in case of insolvency; small amount of unsecured debt, small assets
Insolvency process
▫ Application based on failure to pay on demand notice
▫ Self-filed or creditor-filed
First Moratorium starts on application itself
Second moratorium starts on admission of application
Repayment plan to be prepared by resolution professional, approved by 3/4th in value majority

18. Applicability and commencement20
Applicability and commencement
Applies to whole of India
▫ Part III relating to insolvency and bankruptcy of individuals and partnerships is not applicable in J&K
To Commence as on the date as notified by the Central Government in the
Official Gazette -
▫ Piecemeal commencement possible.
▫ 24 sections notified till date.
Persons covered
▫ Companies incorporated under the Companies Act, 2013 or previous company law;
▫ Companies governed by any special Act, to the extent the provisions are consistent with that Act;
▫ LLPs
▫ Any other body corporate, incorporated under any Act for the time being in force, as the Central Government may specify;
▫ Partnership firms
▫ Individuals
Extent
▫ The Code shall be applicable only to the extent of insolvency, liquidation or bankruptcy.

19. Duties of Resolution Professional41
Duties of Resolution Professional
Submit an information memorandum in electronic form
▫ To each member of the committee and any potential resolution applicant (upon submission of an undertaking)
Before 1st meeting – matters listed in paragraphs (a) to (i) of Reg. 36 (2)
Within 14 days of the 1st meeting - matters listed in paragraphs (j) to (l) of Reg. 36 (2)
Submit the resolution plan approved by the committee
to the AA with the certification that -
▫ the contents of the resolution plan meet all the
requirements of the Code and the Regulations; and
▫ the resolution plan has been approved by the committee

20. Committee of Creditors42
Committee of Creditors
Committee of creditors shall be formed with financial creditors
only.
▫ Financial creditors which are related parties of the corporate debtor shall not form part of committee
What if the corporate debtor has no financial creditor?
Where all financial creditors are related parties of the corporate debtor?
▫ Committee shall be formed with 18 largest O.Cr. By value
If the number of O.Cr. is less than 18 then all the O.Cr. shall be included
▫ 1 representative elected by all workmen
Other than those included in 18 members
▫ 1 representative elected by all employees

21. Who will bear the stage wise cost?43
Who will bear the stage wise cost?
Expenses of public announcement
▫ Shall be borne by applicant which may be reimbursed by the Committee to the extent ratified
Cost of proving the debt
▫ Shall be borne by respective creditors
Cost of IRP/ RP
▫ Any expenses to be incurred or payment to be made to IP – applicant shall borne the expense
▫ As soon as the committee meets – proposal shall be laid before the committee and committee shall either ratify the expenses or reject the proposal
If committee ratifies the proposal – expenses shall be borne by the committee to the extent they agree to ratify
If committee rejects the proposal – expenses shall be borne by the applicant
▫ Once the resolution plan is approved – the expenses shall be borne by the corporate
debtor and shall rank first as far as priority is concerned (Ref. Reg 38 of IRP for CP)
▫ If the resolution plan is rejected -- the expenses shall be borne by the corporate debtor and shall rank first as far as priority is concerned (Ref. section 53 of the Code)

22. Fast Track IRP Meant for small corporate debtors –44
Fast Track IRP
Meant for small corporate debtors –
▫ Those with assets and income below a level as may be notified by the Central Government
▫ Those with such class of creditors or such amount of debt as may
be notified by the Central Government
▫ Other category as may be notified by the Central Government.
Default completion time is 90 days from the insolvency commencement date
▫ One-time extension of a maximum of 45 days permissible
▫ Necessity of extension to be determined by AA