What is Insolvency and Bankruptcy Board of India(IBBI)? Insolvency and (IBBI) (Important) (Download PDF)

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Insolvency and Bankruptcy Board of India (IBBI) amended its Corporate Insolvency Resolution Process Regulations to ensure that as part of due diligence to approve a Resolution Plan, the antecedents, credit worthiness and credibility of a Resolution Applicant, including promoters, are taken into account by the Committee of Creditors.

Image of Framework of The Code

Image of Framework of The Code

Image of Framework of The Code

In the latest development, government promulgated an ordinance to bar promoters of companies facing insolvency proceedings from bidding for the ailing entities.

What is an NPA?

  • A continuous loan default for 90 days forces banks to classify a borrower as an NPA.

  • When a company becomes an NPA, banks can start the bankruptcy proceedings against it.

What is Insolvency and Bankruptcy Board of India (IBBI)?

  • The Insolvency and Bankruptcy Board of India (IBBI) provides institutional arrangement for the new insolvency and bankruptcy regime.

  • Created as the refereeing institution with multiple tasks including creation of regulations and control of agencies and professionals involved in the insolvency and bankruptcy business.

  • Established on October 1, 2016 in accordance with the provisions of the ‘Insolvency and Bankruptcy Code, 2016’. It was constituted as a Technical Committee under the IBBI regulations 2017.

  • The IBBI is assisted by two advisory panels for providing inputs on various issues.

Responsibility of IBBI

Timely creation and amendment of laws relating to reorganization as well as insolvency resolution of corporate persons, partnership firms, and individuals. IBBI has produced three sets of regulations:

  • Regulations for Insolvency Professionals

  • Insolvency Agencies and Model Byelaws

  • Governing Board of Insolvency Professional Agencies.

    Create a framework for the voluntary liquidation of any corporate person- any company incorporated under the Companies Act and includes limited liability partnership or any other person incorporated with limited liability but does not include any financial service provider, which specify the procedure for:

  • Public announcement

  • Receipt and verification of claims of stakeholders

  • Reports and registers to be maintained and submitted by the liquidator

  • Realization of assets and distribution of proceeds to stakeholders

  • Distribution of residual assets

  • Finally dissolution of corporate person.

Insolvency Professionals

  • Insolvency professionals include advocates, chartered accountants, company secretaries and cost accountants meeting conditions set by IBBI.

  • Regarding Insolvency Professional Agencies, not-for-profit companies with a turnover of at least Rs. 10 crore can apply for Agency license.

Powers and Functions of IBBI

IBBI has powers for administering the insolvency and bankruptcy regime in the country including:

  • Registration of insolvency agencies and professionals

  • Levying fees from them

  • Specifying the regulations and standards for agencies and professionals

  • Monitoring and carrying out inspections and investigations on these entities

Structure of IBBI

  • The IBBI has a ten-member board including a Chairman. Following is the structure of the IBBI.

  • One Chairperson- MS Sahoo was appointed as the first Chairman of IBBI

  • Three members from Central Government officers not below the rank of Joint Secretary or equivalent.

  • One nominated member from the RBI.

  • Five members nominated by the Central Government; of these, three shall be whole-time members.

  • More than half of the directors of its board have to be independent directors.

Need for New Regulation on Bankruptcy

  • India’s corporate regulatory system for the resolution or reconstruction of falling companies and their liquidation were done with the aid of some fragmented laws.

  • Absence of a well-tailored corporate insolvency and bankruptcy regulation made remaking of failing companies difficult- adversely affecting the interest of the both creditors and the corporate.

  • To change this situation, the government enacted Insolvency and Bankruptcy Code 2016.

  • IB Code provides basic legal framework to facilitate resolution process of companies this includes:

    • Legal foundation

    • An ecosystem or arrangements including a Bankruptcy Board

    • Insolvency Agencies and Insolvency Professionals etc. needed to make the Code effective

New Regulations in October 2017

  • Amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Resolution Process, 2016 impose a greater responsibility on the Resolution Professionals and the Committee of Creditors in discharging their duties.

  • Now prior to approval of a Resolution Plan, the Resolution Applicants, including promoters, will be put to a stringent test with respect to their credit worthiness and credibility

  • Resolution Professionals must ensure that the Resolution Plan presented to the Committee of Creditors contains relevant details to assess the credibility of the Resolution Applicants.

  • Resolution Professionals must include details on Resolution Applicant in terms of:

    • Convictions

    • Disqualifications

    • Criminal proceedings

    • Categorization as willful defaulter as per RBI guidelines

    • Debarment imposed by SEBI, if any

    • Transaction, if any, with the Corporate Debtor in the last two years.

    • Transactions observed or determined, if any, covered under Section 43 (Preferential Transactions); Section 45 (Undervalued Transactions); Section 50 (Extortionate Credit Transactions); Section 66 (Fraudulent Transactions) under Insolvency and Bankruptcy Code, 2016

November 2017 Amendments

  • Tainted promoter in control of an entity that has been a ‘non-performing asset’ to be disqualified from bidding the ailing entities for a “prescribed period”

  • Disqualifies a tainted promoter in control of an entity that has been a ‘non-performing asset’ for a “prescribed period”, which may be fixed at one year.

  • The government amended the law in less than a year to prevent promoters from acquiring the company at a steep discount, leaving banks with the pile of loans.

  • The ordinance also gives more powers to the Insolvency and Bankruptcy Board of India to prescribe eligibility norms for prospective bidders or resolution applicants in accordance with complexity and scale of operations of business of the ailing company.

Advantages of New Regulations

  • Resolution Applicants, including promoters, are put to a stringent test with respect to their credit worthiness and credibility.

  • Imposes greater responsibility on the Resolution Professionals and the Committee of Creditors in discharging their duties.

- Published/Last Modified on: December 1, 2017

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