The Insolvency and Bankruptcy Code, 2016 provides creditors a procedural contrivance to initiate an insolvency resolution process when a debtor is unable to pay his debts. The said code categorizes the creditors into two i.e. financial creditors and operational creditors. The former is the one where a creditor has a relationship of a pure financial contract. However, the later is when a creditor provides goods or services to a debtor including central or state governments.
Also, a debtor company may resort to the Code if it wants to avail of the mechanism of revival or liquidation. In the event of inability to pay creditors, a company may go for voluntary insolvency resolution process–a measure by which the company can itself approach the NCLT for revival or liquidation.
Fast Track Resolution
Also, the new code provides for Fast Track Resolution which depends on the corporate debtor’s assets, income, and nature of creditors or quantum of debt. The standards/ thresholds for invoking Fast Track Resolution have been provided in the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017. The Regulations cover the process from initiation of insolvency. This continues till the approval of the resolution by the NCLT, which concludes the process. The completion of the process is within 90 days. However, the NCLT may, if satisfied, extend the period of 90 days by another 45 days.
Liquidation
Under the Code, the liquidator shall create an estate. Estate is a corpus of all assets of the corporate debtor which can be utilized and distributed subsequent to liquidation. The liquidator is then required to receive or collect all claims from the creditors within a period of thirty days from the date of commencement of the liquidation process. Pursuant to a recent amendment, a new methodology for the realization of assets can be adopted by the liquidator. This is “to sell the corporate debtor as a going concern.”
Winding Up
The Code also provides for voluntary winding up by a corporate person who has not committed any default. However, it needs to fulfill certain conditions according to the code. After the sale of the assets of the debtor, the Liquidator would make an application to the NCLT for its dissolution. The NCLT would then make an order for dissolution of the debtor. Also, it shall order the same to be communicated to the authority with which the corporate debtor is registered.
The Government of India is making efforts in making the business operations easy in the country. The legislature, RBI, SEBI, and the judiciary have presented a unified front. India had not seen such move until now. The machinery is tackling any apparent loopholes at the earliest. To sum up, the law is evolving with an enormous rate of development. In 2019, India had already secured its position in the top 30 developing countries for retail investment worldwide. Also, that insolvency resolution in India has become a more streamlined, consolidated and expeditious affair.
By Abhishek Khare,
An Associate in Law Offices of Kr. Vivek Tanwar Advocates and Associates