Insolvency and Bankruptcy Code

The Ministry of Corporate Affairs (MCA) has proposed sweeping changes to the Insolvency and Bankruptcy Code. The Ministry aims to bring more technology, transparency, and speediness to the corporate insolvency resolution process.

Proposed changes –

• The Ministry of Corporate Affairs (MCA) has proposed sweeping changes to the Insolvency and Bankruptcy Code.
• The draft proposal gives the following powers to the IBBI —
  • Allows mandatory admission of insolvency applications filed by financial creditors (FCs),
  • Seeks specialised framework for real estate providing major relief to allottees, and
  • Looks at expanding the scope of pre-packaged insolvency scheme beyond MSMEs.
• The proposal also aims to boost the power of the Insolvency and Bankruptcy Board of India to issue a show cause notice without inspection or investigation, if sufficient material is available on record.

About Insolvency and Bankruptcy Code –

• The IBC 2016 applies to companies and individuals. It provides for a time-bound process to resolve insolvency.
• When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency within a 180-day period.
• To ensure an uninterrupted resolution process, the Code also provides immunity to debtors from resolution claims of creditors during this period.
• The Code also consolidates provisions of the current legislative framework to form a common forum for debtors and creditors of all classes to resolve insolvency.
• National Company Law Tribunal (NCLT) – The adjudicating authority (AA), has jurisdiction over companies, other limited liability entities.
• Debt Recovery Tribunal (DRT) has jurisdiction over individuals and partnership firms other than Limited Liability Partnerships.
• The Insolvency and Bankruptcy Board of India (IBBI) – It is the apex body for promoting transparency & governance in the administration of the IBC; will be involved in setting up the infrastructure and accrediting IPs (Insolvency Professionals (IPs) & IUs (Information Utilities). It has 10 members from Ministry of Finance, Law, and RBI.
• Timeline —
  • • Companies have to complete the entire insolvency exercise within 180 days under the IBC.
    • The deadline may be extended if the creditors do not raise objections on the extension.
    • For smaller companies including startups with an annual turnover of Rs 1 crore, the whole exercise of insolvency must be completed within 90 days.