- August 17, 2016
- Posted by: suvanlaw
- Category: IBBI
- Birth of a New Regulator: Insolvency & Bankruptcy Board
One of the challenges being faced by the Indian economy was that there were multiple laws to deal with insolvency, which led to significant delays in winding up a company. To deal with this, the Government appointed the ‘Bankruptcy Law Reforms Committee’. This Committee submitted a draft of the Insolvency and Bankruptcy Code Bill in November 2015. The enactment of the Insolvency and Bankruptcy Code in May, 2016 was a landmark development and will ensure that there is a system consisting of insolvency professionals, information utilities and a bankruptcy regulator.
This Code provides the framework for creation of an autonomous regulator called Insolvency and Bankruptcy Board of India (IBBI), which will regulate Insolvency Professionals and Information Utilities. Applications to fill the positions of the Chairman and three WTMs of IBBI have been invited by the government recently.
The Code specifies a stipulated time limit of 180 days which can be extended to an additional 90 days in certain circumstances, within which the insolvency resolution process for companies and individuals will have to be completed. In those cases where insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.
The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. An appeal from NCLT will lie directly to NCLAT. It has been clarified that such an appeal is maintainable only when questions of law are involved. With respect to individuals and partnership firms, the Adjudicating Authority is the Debt Recovery Tribunal.
The resolution process will be conducted by licensed insolvency professionals (IPs) who will be members of insolvency professional agencies (IPAs). There are provisions related to the Information Utilities (IUs) which will be established to collect, collate and disseminate financial information to facilitate insolvency resolution.
One of the most important features of the Code is the grant of moratorium during which creditor action will be stayed and the Code also creates an Insolvency and Bankruptcy Fund which can be used at the time of exigency, features like these will help the entities and/ or individuals to a remarkable extent. This is similar to the protection available under Chapter 11 of the US Bankruptcy Code.
- Central Government issues norms for terms and conditions of Chairman of IBBI
While the selection process for Chairman and members of the Insolvency and Bankruptcy Board of India (IBBI) is underway as per Insolvency and Bankruptcy Code, 2016; the Government of India has notified IBBI (Salary, Allowances and other Terms and Conditions of Service of Chairperson and members) Rules, 2016 similar to the rules for SEBI Chairman and Members.
- Constitution of the Insolvency and Bankruptcy Board
Shri MS Sahoo has been appointed as the Chairperson of the Insolvency and Bankruptcy Board of India for 5 years w.e.f. 01.10.2016. Mr. Sahoo is a former member of both, the Competition Commission of India and the Securities and Exchange Board of India. Other members of the IBBI include Ajay Tyagi, additional secretary, department of economic affairs; Amardeep Singh Bhatia, joint secretary, ministry of corporate affairs; G.S. Yadav, joint secretary, department of legal affairs, and Unnikrishnan, legal adviser, RBI.
On the other hand, Ministry of Corporate Affairs (MCA) in its 3rd tranche on 01.11.2016 (Earlier notifications on 05.08.2016 and 19.08.2016) notified certain provisions on the Insolvency and Bankruptcy Code, such as those relating to definitions, powers and functions of the Board, manner of account keeping, rule and regulations making power of the Central Government and the Board, transitional provisions etc.
- Insolvency and Bankruptcy Board of India: Key Developments
- On November 21, 2016 and November 23, 2016, IBBI, in exercise of its powers conferred under section 240 of the Insolvency and Bankruptcy Code, 2016 (Code) notified the Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016and IBBI (Insolvency Professionals) Regulations, 2016, which provides for the registration, regulation and oversight of Insolvency Professional Agencies (IPA) and the Insolvency Professionals (IP) respectively. Salient features of these Regulations are:
- In case of IPAs, at least 51% of the shares of the IPA should lie with Indian residents and there shall be a minimum of seven directors on every IPA governing board.
- A company seeking registration as an IPA must have a minimum net worth of Rs 10 Crore and paid-up share capital of Rs 5 Crore.
- It is the duty of IPAs to ensure compliance with the regulations and guidelines issued under the Bankruptcy Code. The rules require the agency to promote expertise of insolvency professionals registered with the IPA under the code.
- The transitional and provisional registration regime provided for in the draft regulations has been replaced by the in-principle registrations (temporary registrations) for a year.
- In case of IPs, one very important feature is the eligibility norms which have been laid down pursuant to which, IPs wanting to get registered, in addition to fit the eligibility criterion specified in the Regulations, will have to pass examination(s) held by the Board.
- Limited liability partnerships/ companies can be recognized as Insolvency Professional Entities (IPEs) if majority of the partners or directors of such IPEs are registered as IPs.
- On November 21, 2016, the Insolvency and Bankruptcy Board of India (IBBI) notified the IBBI (Model Bye- Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016.
- MCA also notified the IBBI (Salary, Allowances and other Terms and Conditions of Service of Chairperson and members) Rules, 2016on November 30, 2016.
- On November 30, 2016, the Ministry of Corporate Affairs (MCA) published a Notificationto notify commencement of sections related to Corporate Insolvency of the Insolvency and Bankruptcy Code, 2016 from December 1, 2016.
- By an Orderdated December 1, 2016, MCA has appointed ex-officio members of the Board, which includes Additional Secretary, Department of Economic Affairs; Joint Secretary, Ministry of Corporate Affairs; Joint Secretary, Ministry of Law and Justice and Legal Advisor, Reserve Bank of India.
- IBBI, on November 30, 2016, notified IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, specifying, inter alia, the procedure for determining proof of claims by various entities, the conduct of corporate insolvency resolution process and the cost to be incurred during the resolution process.
- IBBI Updates
The era of the new insolvency regime has fully begun with the National Company Law Tribunal (NCLT), admitting the first case for corporate insolvency in terms of the Code. ICICI Bank Ltd has filed an application in the National Company Law Tribunal (NCLT) against Innoventive Industries Ltd to initiate a corporate insolvency process under section 7 of the Insolvency and Bankruptcy Code, 2016 r/w Rule 4 of the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016. Meanwhile, Innoventive Industries Ltd. on January 18, 2017, has filed a writ petition in the High Court of Bombay (WP/143/2017), challenging the constitutional validity of Section 7 of the Code. The said provision enables any ‘financial creditor’ either by itself or jointly with other financial creditors to initiate the corporate insolvency resolution process.
- New Regulations by IBBI
- Furthermore, on January 30, 2017, IBBI has issued the Insolvency and Bankruptcy Board of India (Engagement of Research Associates and Consultants) Regulations, 2017, Insolvency and Bankruptcy Board of India (Procedure for Governing Board Meetings) Regulations, 2017and Insolvency and Bankruptcy Board of India (Advisory Committee) Regulations, 2017 with a view to fasten the process of making the Code fully operational in the coming short time.
- Draft Regulations on Insolvency and Bankruptcy Board of India (Voluntary Liquidation) Regulations, 2017
IBBI has issued draft regulations on voluntary liquidation of corporate persons called Insolvency and Bankruptcy Board of India (Voluntary Liquidation) Regulations, 2017 (“the Regulations”), vide notification dated February 15, 2017. These Regulations will apply to the voluntary liquidation of corporate persons under Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016. Following are the noteworthy points proposed in the Regulations:
Procedure of voluntary liquidation
- Appointment and remuneration of liquidator
- Powers and functions of liquidator
- Manner of handling claims
- Liquidation and distribution of proceeds and realization of assets
- Various forms to submit above details.
IBBI has invited public comments on the draft regulations till March 8, 2017.
- Draft Bill concerning insolvency of financial institutions issued by FinMin
The Finance Ministry has issued the Financial Resolution and Deposit Insurance Bill, 2016. The Draft proposes setting up of a Resolution Corporation to expeditiously deal with issues concerning insolvency of financial institutions, including banks and insurers. The proposed Board of the Resolution Corporation will comprise of representatives from financial sector regulators like RBI, SEBI, IRDAI and PFRDA, representatives of the Central Government and two independent members. Once the Resolution Corporation is satisfied that liquidation is the most appropriate tool for resolution, then it shall make an application to the National Company Law Tribunal (NCLT) for an order of liquidation, subsequent to which the NCLT may pass an order of liquidation, appointing the Corporation as a liquidator. A separate option to deal with Cross-Border insolvency issues has been suggested, which can be done by entering into MoUs with other countries.