Introduction
There are some ways within which one can make money but when it involves returning the same as a corporation to the stakeholders or maybe as a partnership firm or an individual, it becomes difficult. There must be a process for recovering cash from these entities and persons. The Insolvency and Bankruptcy Code, 2016 describes the procedure for recovering the money when corporate, individuals, and partnership firms aren’t any longer able to continue with their business because of lack of capital or the other reason in a time-bound manner for maximization of the worth of assets of such person.
Aim
The Insolvency and Bankruptcy Code, 2016 came with the target of merging the prevailing laws of bankruptcy and insolvency. It came up with solving the problems of corporate persons, partnership firms, and individuals associated with reorganization and insolvency resolution during a time-bound manner. As per the Act, the dues of the workmen are going to be paid first and then the dues of state.
The Adjudicating Authority associated with the fresh start process, insolvency, and bankruptcy of individuals and partnership firms are going to be Debt Recovery Tribunal. The resolution professional is that the one who is appointed as an insolvency professional for conducting the fresh start process or insolvency resolution process.
Fresh Start Process
A debtor who is unable to pay his debt shall be entitled to form an application for a fresh start for the discharge of his qualifying debt, provided he qualifies the essentials for filing the same.
The circumstances that a debtor may apply, either personally or through a resolution professional, for a fresh start of his qualifying debts to the Debt Recovery Tribunal are:
(a) The Gross Annual Income of the debtor should be less than Rs. 60,000.
(b) the aggregate value of the assets of the debtor should be less than Rs. 20,000.
(c) the aggregate value of the qualifying debts shouldn’t exceed Rs. 35,000.
(d) The debtor shouldn’t be an undischarged bankrupt.
(e) The debtor shouldn’t own a dwelling unit, no matter whether it’s encumbered or not.
(f) The fresh start process, insolvency resolution process, or bankruptcy process shouldn’t be subsisting against the debtor.
When an application is filed for the method of a fresh start, then an Interim Moratorium is going to be started on the date of filing of the said application about all debts. In simple terms, moratorium means a legal authorization to debtors to postpone payment.
Interim Moratorium
During the Interim Moratorium period:
(a) If there’s any legal action or legal proceedings that are pending against the debtor, then that debts shall be deemed to have been stayed.
(b) Hence, any legal proceedings or actions in respect of such debt shall not be initiated by the creditor.
The application of fresh start process will contain the subsequent details:
(a) The record of all the debts owed by the debtor.
(b) The interest is payable on the debts.
(c) The list of security held in respect of any of the debts.
(d) The financial information of the debtor and his immediate family up to two years before the date of the application.
(e) The particulars of the debtor’s details.
(f) The reasons for making the application.
(g) The details of any legal proceedings initiated against the debtor.
(h) Lastly, the confirmation that no previous fresh start has been made in respect of the qualifying debts of the debtor within the preceding 12 months of the date of the application.
Know-How
Where the application for a fresh start process is filed by the resolution professional, then the DRT will direct the Insolvency and Bankruptcy Board within seven days that there aren’t any disciplinary proceedings against the resolution professional who has applied. The Board will either reject or confirm the appointment of resolution professionals for the fresh start process.
Where the application is filed by the debtor himself and not by the resolution professional, the DRT shall direct the Board to recommend a resolution professional for the fresh start process within seven days then the resolution professional shall examine the application within ten days and submit a report back to the DRT for recommending either to simply accept or reject the application.
Presumption
The resolution professional shall presume that the debtor is unable to pay the debt if:
(a) Firstly, he feels that the information given by the debtor of inadequacy to pay the debts isn’t incorrect or incomplete.
(b) or, he feels that there’s no change within the financial circumstances of the debtor from the time of applying.
The resolution professional will reject the application if:
(a) Firstly, he feels that the debts disclosed by the debtor within the application aren’t qualifying debts.
(b) or, he feels that the debtor has deliberately made a false representation or omission within the application.
Moreover, the resolution professional will record the explanations for accepting or rejecting the application to DRT.
Insolvency Resolution Process
A debtor who commits default can commence the insolvency resolution process either personally or through a resolution professional by giving an application to Debt Recovery Tribunal. Where the debtor is a partner in a firm, he cannot apply unless all or the majority of the partners of the firm apply jointly.
A debtor won’t be able to apply if:
(a) he’s an undischarged bankrupt.
(b) he’s undergoing a fresh start process.
(c) he’s undergoing an insolvency resolution process.
(d) he’s undergoing a bankruptcy process.
A creditor can even seek to apply either by himself or jointly with other creditors or through resolution professionals by the DRT for initiating an insolvency resolution process. A creditor can even apply for a sum owed to anyone partner or more partners of the firm or the firm itself for initiating an insolvency process.
The following details will have to be supplemented with the application filed by the creditor:
(a) The debts owed by the debtor to the creditor at the date of application.
(b) After the notice of demand, there’s a failure by the debtor to pay the debt within 14 days.
(c) Evidence to proof default or non-repayment of debt.
However, The appointment of Interim Moratorium and resolution professional for the insolvency resolution process is the same as that of the fresh start process.
Bankruptcy Order for Individuals and Partnership Firms
The following people may make an application for the bankruptcy of a debtor:
(a) A creditor, individually or jointly with other creditors.
(b) A debtor.
To the Adjudicating Authority, within the following cases:
(a) Where under sub-section 4 of section 100, the Adjudicating Authority passes an order. Or,
(b) Where under sub-section 2 of section 115, Adjudicating Authority passes an order. Or,
(c) Where under sub-section 3 of section 118, Adjudicating Authority passes an order.
Any of the partners can file an application filed within three months from the date of the order passed that are mentioned above. Where the debtor is a firm, the application may be filed by any of its partners.
After the submission process
When a debtor applies, the application will go along with:
(a) Firstly, the records of the insolvency resolution process.
(b) Secondly, the statement of affairs of the debtor.
(c) And, a replica of the order passed by the Adjudicating Authority permitting the debtor to use for bankruptcy.
The debtor also will recommend an insolvency professional as the bankruptcy trustee within the application. The debtor’s application for bankruptcy won’t be withdrawn without the leave of the Adjudicating Authority.
When a creditor applies, it’ll go along with:
(a) Firstly, the records of the insolvency resolution process.
(b) Secondly, a replica of the order passed by the Adjudicating Authority permitting the debtor to apply for bankruptcy.
(c) Thirdly, records of the debts owed by the debtor to the creditor.
(d) Also, the other required information.
The appointment and functioning of bankruptcy trustee shall be the same as that of resolution professional. Moreover, After the orders of bankruptcy have been passed, the Adjudicating Authority will provide a replica of the application of bankruptcy and a replica of the bankruptcy order to the bankrupt, creditors, and the bankruptcy trustee.
The effect of bankruptcy order will remain till the debtor is discharged under section 138.