INSOLVENCY AND BANKRUPTCY

The laws relating to insolvency and bankruptcy in the earlier centuries were framed for penalizing the defaulting debtors. Over the Years there has been improvising change in the global regulatory framework towards corporate insolvency. The principal focus of modern insolvency legislation is not liquidation and elimination of insolvent entities but on the renovation of the financial and organizational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of their business. If the rehabilitation is not possible it enables effective winding up of companies in time bound manner through single regulator i.e. “National Company Law Tribunal”.

Meaning of Insolvency

Insolvency is a term for when an individual or company can no longer meet their financial obligations to lenders as debts become due. Before an insolvent company or person gets involved in insolvency proceedings, they will likely be involved in informal arrangements with creditors, such as setting up alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in cash inflow, or an increase in expenses.

Meaning of Bankruptcy

Bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All of the debtor’s assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.

Difference Between Insolvency and Bankruptcy

Insolvency refers to a situation, whereas bankruptcy refers to a legal state.
If you’re insolvent you’re simply not in the state to pay off your debts.
Whereas, if you are declared bankrupt, then you have to pay off your debts by either selling off your assets, or by restructuring payment processes with governments’ help.

Insolvency is a state of being. Bankruptcy is the conclusion.
A bankrupt can become insolvent; but not all insolvencies lead to the declaration of bankruptcy.

While both the situations refer to the state of being unable to pay off debts, they are two contrasting scenarios. If untreated, insolvencies can lead to bankruptcies.

EVOLUTION OF INSOLVENCY AND BANKRUPTCY CODE, 2016

The Insolvency and Bankruptcy Code, 2016 (IBC) is the law of India which seeks to consolidate the existing framework by creating a single law for Insolvency and Bankruptcy. The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5th May 2016. The Code received the assent of the President of India on 28th May 2016.

The ecosystem of the Code is dependent on four pillars namely, the Insolvency and Bankruptcy Board of India (IBBI), Information Utilities (IUs), Insolvency Professional Agencies (IPAs) and Insolvency Professionals (IPs).

Objectives:

The Insolvency and Bankruptcy Code, 2016 (IBC) replaces a fragmented legal framework and a broken institutional set-up that has been delivering poor outcomes for years for creditors and distressed businesses. Almost all of these are now eligible to be initiated as new cases under the Insolvency and Bankruptcy Code (IBC).

The Insolvency and Bankruptcy Code (IBC) offers a time-bound resolution process aimed at maximizing the value of a distressed business. This will benefit not just the creditor and debtor companies, but also the overall economy because capital and productive resources will get redeployed relatively quickly.

The main objective of the new law is to promote entrepreneurship, availability of credit and balance the interests of all stakeholders by consolidating and amending the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, proprietorship firms, personal guarantors and individuals in a time-bound manner and for maximization the value of assets of such persons.

NOW INSOLVENCY LAW IN INDIA IS BROADLY CATAGORISED IN BELOW MENTIONED PROCESSESCORPORATE RESOLUTION PROCESS

Filing of an Application to the Authority for the commencement of Corporate Resolution Process
Acting as an Interim Resolution Professional and Resolution Professional
Forensic Audit(s) and other Audit
Appearance before National Company Law Tribunal
Acting as Authorized Representative
Any other related Work

FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

Filing of an Application to the Authority for the commencement of Corporate Resolution Process
Acting as an Interim Resolution Professional and Resolution Professional
Forensic Audit(s) and other Audit
Appearance before National Company Law Tribunal
Acting as Authorized

Representative PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS

Filing of an Application to the Authority for the commencement of Corporate Resolution Process
Acting as an Interim Resolution Professional and Resolution Professional
Appearance before National Company Law Tribunal
Forensic Audit(s) and other Audit
Any other related Work

Our Partner Mr. Jitesh Gupta is a Registered Insolvency Professional with Insolvency and Bankruptcy Board of India. Mr. Jitesh Gupta is also on the Panel of Experts as Mediators & Conciliators established by Ministry of Corporate Affairs. He is the member of various core committees of ICSI and NIRC of ICSI and is on the panel of Peer Reviewers of ICSI. He was formerly the Board member of Auditing Standards of ICSI and was also a former member of Expert Advisory Board of ICSI.

He is also Member of Corporate Governance Committee of PHD Chamber of Commerce. He is been working under Insolvency laws from the Enactment of this act . With his vast experience in all above mentioned sectors, above mentioned insolvency process will be a smooth operation for him.

Disclaimer: [This article has been prepared on the basis of information available till date. But professionals are advised to study the laws and compliance thoroughly before carrying out the insolvency process].

We provide service for Corporate Insolvency Resolution Process, Fast Track Corporate Insolvency Resolution Process, Pre-Packaged Insolvency Resolution Process

A Brief Introduction to the Liquidation Process under the IBC, 2016

Liquidation is the Last stage of any company’s Life, once the Liquidation Process of a Company is Completed, then such company ceased to exist. In India the Liquidation Process is governed by the “Insolvency and Bankruptcy Code, 2016, and Regulation made thereunder, i.e. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The Prime duty of the Liquidator is to maximise the value of the stakeholder(s). The liquidation Process, shall be completed within one year form its commencement date.

Following is table explaining the brief flow of liquidation Process:

Initiation of Liquidation Process:	Where the Adjudicating Authority, -before the expiry of the insolvency resolution process period, does not receive a resolution plan or(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein,Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii), (iii) of clause (b) sub-section (1).In occurrence of any of the above circumstance, the Adjudicating Authority passes liquidation order.
Appointment of liquidator	Eligibility for appointment as liquidator:An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.Where the Adjudicating Authority passes an order for liquidation of the corporate debtor, the resolution professional appointed for the corporate insolvency resolution process shall, subject to submission of his written consent to the Adjudicatory Authority shall act as the liquidator for the purposes of liquidation unless replaced by the Adjudicating Authority.Replacement of the Resolution ProfessionalThe Adjudicating Authority shall by order replace the resolution professional, ifthe resolution plan submitted by the resolution professional was rejected for failure to meet the requirements mentioned in sub-section (2) of section 30; or the Board recommends the replacement of a resolution professional to the Adjudicating Authority for reasons to be recorded, orThe resolution professional fails to submit written consent, In any of the abovementioned events the Adjudicating Authority may direct the Board to propose name of another insolvency professional, to be appointed as a liquidator.
Public Announcement by Liquidator	The liquidator shall make a public announcement in Form B of Schedule II within five days from his appointment, to call upon stakeholders to submit their claims or update their claims submitted during the corporate insolvency resolution process, as on the liquidation commencement date and provide the last date for submission or updation of claims, which shall be thirty days from the liquidation commencement date.]The announcement shall be published-(a) in one English and one regional language newspaper at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the liquidator, the corporate debtor conducts material business operations;(b) on the website, if any, of the corporate debtor; and(c) on the website, if any, designated by the Board for this purpose.
Submission of claim.	A person, who claims to be a stakeholder, shall submit its claim, or update its claim submitted during the corporate insolvency resolution process, including interest, if any, on or before the last date mentioned in the public announcement, in the following forms.01.Claims by operational creditors.Form C02.Claims by financial creditors.Form D03.Claims by workmen and employeesForm E04.Claims by other stakeholdersForm G
Verification of claims	The liquidator shall verify the claims submitted within thirty days from the last date for receipt of claims and may either admit or reject the claim, in whole or in part, as the case may be. The liquidator may call for such other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim.
List of stakeholders	The liquidator shall prepare a list of stakeholders, category-wise, on the basis of proofs of claims submitted and accepted under these Regulations, with-(a) the amounts of claim admitted, if applicable,(b) the extent to which the debts or dues are secured or unsecured, if applicable,(c) the details of the stakeholders, and(d) the proofs admitted or rejected in part, and the proofs wholly rejected.The liquidator shall file the list of stakeholders with the Adjudicating Authority within forty-five days from the last date for receipt of claims, and the filing of the list shall be announced to the public in the manner specified in Regulation 12(3).
Stakeholders’ consultation committee and its meeting.	The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders to advise him on the matters relating to sale of Assets the Corporate Debtor. The liquidator shall convene a meeting of the consultation committee when he considers it necessary and shall convene a meeting of the consultation committee when a request is received from at least fifty-one percent of representatives in the consultation committee
REALISATION OF ASSETS[Sale of Assets].	The liquidator may sell- (a) an asset on a standalone basis; (b) the assets in a slump sale; (c) a set of assets collectively; (d) the assets in parcels; (e) the corporate debtor as a going concern; or (f) the business(s) of the corporate debtor as a going concern:Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate.]
Mode of sale.	The liquidator shall ordinarily sell the assets of the corporate debtor through an auction in the manner specified in Schedule I. The liquidator may sell the assets of the corporate debtor by means of private sale in the manner specified in Schedule I when-(a) the asset is perishable;(b) the asset is likely to deteriorate in value significantly if not sold immediately;(c) the asset is sold at a price higher than the reserve price of a failed auction; or(d) the prior permission of the Adjudicating Authority has been obtained for such sale:
Distribution of unsold assets.	The liquidator may, with the permission of the Adjudicating Authority, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances. The application seeking permission of the Adjudicating Authority shall-identify the asset;provide a value of the asset;detail the efforts made to sell the asset, if any; andprovide reasons for such distribution
Liquidator to realize uncalled capital or unpaid capital contribution.	The liquidator shall realize any amount due from any contributory to the corporate debtor.No distribution shall be made to a contributory, unless he makes his contribution to the uncalled or unpaid capital as required in the constitutional documents of the corporatedebtor.
Proceeds of Liquidation and Distribution of Proceeds	All money to be paid in to bank account. The liquidator shall open a bank account in the name of the corporate debtor followed by the words ‘in liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate debtor.
Distribution	Subject to the provisions of section 53, the liquidator shall not commence distribution before the list of stakeholders and the asset memorandum has been filed with the Adjudicating Authority.(2) The liquidator shall distribute the proceeds from realization within 22[ninety days] from the receipt of the amount to the stakeholders.(3) The insolvency resolution process costs, if any, and the liquidation costs shall be deducted before such distribution is made.
Completion of liquidation.	The liquidator shall liquidate the corporate debtor within a period of one year from the liquidation commencement date. Provided that where the sale is attempted under sub- Regulation (1) of regulation 32A, the liquidation process may take an additional period up to ninety days.]If the liquidator fails to liquidate the corporate debtor within one year, he shall make an application to the Adjudicating Authority to continue such liquidation, along with a report explaining why the liquidation has not been completed and specifying the additional time that shall be required for liquidation.
Final report prior to dissolution	When the corporate debtor is liquidated, the liquidator shall make an account of the liquidation, showing how it has been conducted and how the corporate debtor’s assets have been liquidated.If the liquidation cost exceeds the estimated liquidation cost provided in the Preliminary Report, the liquidator shall explain the reasons for the same.The liquidator shall submit an application along with the final report and the compliance certificate in form H to the Adjudicating Authority for –(a) closure of the liquidation process of the corporate debtor where the corporate debtor is sold as a going concern; or(b) for the dissolution of the corporate debtor, in cases not covered under clause (a).]
Post Dissolution	After filing the Dissolution Application, Once the hon’ble tribunal passed the Dissolution order of the CD, a copy of the order shall be forwarded to authority with which the Corporate Debtor is registered within 7 days, from the receipt of the order.

Apart of the aforesaid Liquidation Process, the Liquidator is also required prepare and file several Reports, Applications and Documents, from time to time, into the spam of Liquidation.

Following the table explaining the brief Reporting requirement of the Liquidator and their respective Timeline:

Name of the Report	Content	Timeline
Preliminary report	The liquidator shall submit a Preliminary Report to the Adjudicating Authority date, having the following details-(a) the capital structure of the corporate debtor;(b) the estimates of its assets and liabilities as on the liquidation commencement datebased on the books of the corporate debtor:	within seventy five days from the liquidation commencement
Asset memorandum;	The asset memorandum shall provide the following details in respect of the assets which are intended to be realized by way of sale-(a)value of the asset, (b) intended manner of sale (c) expected amount of realization from sale; and(d) any other information that may be relevant for the sale of the asset	within seventy five days from the liquidation commencement
Progress report(s);	A Progress Report shall provide all information relevant to liquidation for the quarter,including-(a) appointment, tenure of appointment and cessation of appointment of professionals;(b) a statement indicating progress in liquidation, including (i) settlement of list of stakeholders,(ii) details of any property that remain to be sold and realized,(iii) distribution made to the stakeholders, and(iv) distribution of unsold property made to the stakeholders;	(a) first Progress Report within fifteen days after the end of the quarter in whichhe is appointed;(b) subsequent Progress Report(s) within fifteen days after the end of every quarterduring which he acts as liquidator; and
Sale report(s);	Assets Sale report consist the following:the realized value;cost of realization, if any;the manner and mode of sale;if the value realized is less than the value in the asset memorandum, the reasons for the same;the person to whom the sale is made; andany other details of the sale.	On sale of an asset
Final report prior to dissolution	account of the liquidation, showing how it has been conducted and how the corporate debtor’s assetshave been liquidated	Along with the Dissolution Application on the Completion of the Liquidation.

We at JKG Corporate Consultants LLP provides services relating to above mentioned liquidation Procedure.