A.1. Prior to the enactment of the Insolvency and Bankruptcy Code, 2016 (“Code, 2016”),the state of the bankruptcy process was highly fragmented, that is to say, the powers of the creditors and debtors under insolvency were provided in separate legislations. Thus, separate codification of rights inevitably lead to low chances of consistency and efficiency in the resolution process. It must be noted that the desire to have an effective legal regime on insolvency is not novel. In 1964, the first committee report which recommended the consolidation of extant two personal insolvency laws into one was the 26thReport of Law Commission on Insolvency Laws. However, it took more than fifty years for the legislature to enact a unified law, the Code, 2016, for matters relating to insolvency, bankruptcy and liquidation for corporate persons, individuals and partnership firms. Thus, as it is popularly said “better late than never”, the resolution of insolvency under the Code, 2016 is a holistic, wholesome, equitable remedy which takes care of the interest of all creditors.
A.2. The foundational principle underlying the provisions of the Code, 2016 is “creditors in control”, that is to say, it shall be the decision of 75 percent consent of financial creditors in value which will decide whether a resolution plan can be made for the revival of the corporate debtor or whether the assets and liabilities of the borrower must be liquidated by means of a liquidation process.
A.3. At the very outset, it must be understood that the Code, 2016 must not be read in isolation. It is imperative to know that the legislature in its wisdom has not only enacted the Code, 2016 but has simultaneously introduced amendments to various laws, namely, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation, Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act, 2002), Companies Act, 2013 read with the allied rules, the Payment of Wages Act, 1936 and the Benami Transactions (Prohibition) Act, 1988. Since, the remedy provided by the Code, 2016 is holistic in nature whereas the remedy provided in other laws is in favour of a specific individual creditor who proceeds against the borrower. Thus, the secured creditor must be mindful of the all the mentioned laws before availing any remedy against the corporate debtor.
A.4. The Insolvency Professional shall take over the supervisory management of the corporate debtor, that is to say, the powers of the board of directors shall be vested with the Insolvency Professional. However, there shall be no impediment in the functioning of the executive management and the daily operations of the business shall not be hindered.It must be noted that interpreting the role of the Insolvency Professional otherwise would destructive. In simple terminology, the role of an Insolvency Professional is that of a moderator and facilitator for deciding the fate of the corporate debtor, that is, either decide to revive the company as per the resolution plan or decides to liquidate the assets and liabilities of the corporate debtor.Further, it is incumbent on the Insolvency Professional to constitute the Committee of Creditors and ensure that the resolution plan is drafted in accordance with all the applicable laws.
A.5. Corporate debtor means corporate person who owes a debt to any person.
A.8. No, since these entities are registered with the financial regulators like RBI, SEBI, IRDA, etc.
A.9. Any person to whom financial debt is owed.
A.10. The Code consolidates and amends the laws relating to the reorganization and insolvency of corporations, partnerships and individuals. It may be noted that existing judicial proceedings under the Companies Act will be transferred from CLB to NCLT for all cases and from High Court to NCLT in specific cases. Also, all proceedings under SICA will abate, with the option for the company to make a reference to NCLT within 180 days of the commencement of the Code.Further, on declaration of moratorium, all actions under the SARFAESI Act will be prohibited till the insolvency resolution process under the Code.Besides, there are numerous matters (such as sale of part ofan organization and carve-out of business) that may need the approval of shareholders as per constitutional documents,shareholder agreements and other similar documents. The resolution plan will take effect notwithstanding such approval.However, the Code and regulations are silent on whether such actions contemplated in the resolution plans (or otherwise) can be completed without specific approval as required under the Companies Act.
A.11. The Code provides a moratorium during the CIRP that protects the borrower from any suits or recovery actions during that period. Besides, a resolution plan approved by the NCLT during CIRP would be binding on all parties.
A.12. The Code does not make a distinction between domestic and foreign creditors. Any creditor, operational or Financial could exercise the right given under the Code in so far as the application for insolvency is made within India and under the Code.
A.13. 75% of the financial creditors (secured or unsecured) would vote on the resolution plan. In the resolution plan, payment to operational creditor and dissenting financial creditors must be provided for their liquidation value — i.e., to the extent to what they would receive in a liquidation scenario. The liquidation value due to operational creditors should be paid within 30 days of the date of approval of the resolution plan by NCLT. Operational creditors and shareholders do not have any voting rights in the plan. However, where there are no financial creditors or the financial creditors are related parties, the CoC should be formed by the operational creditors. Also, the Code does not restrict any class of creditors or shareholders to propose a resolution plan.
A.14. As per Section 18 of the Code, one of the key responsibilities of the IP is to take control and custody of the assets of the borrower. However, the IP cannot take control over the assets of a subsidiary of the borrower. With respect to the subsidiary, the IP can only act in the capacity of a shareholder (i.e., step in to the shoes of the borrower).
A.15. According to Chapter V of Part IV of the Code, 2016 such person can carry out the business of information utility who has obtained the registration certification in this regard. The information utilities shall collect, classify, store and distribute all possible relevant data pertaining to debtors, including without limitation the data on financial default of the corporate debtor. The Code, 2016 seeks to achieve a robust infrastructure of information utilities for the purpose of making information and data in relation to the corporate debtor readily available for an Adjudicating Authority.