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Dr. Rajkumar S. Adukia
Chairman
Competent Insolvency Professionals Pvt LtdB. Com. (Hons.), FCA, FCS, FCMA, LL.B., M.B.A,
DIPR, Dip IFRS (UK), Dip LL&LW, dip in criminology, Ph.D.
98200 61049/ [email protected]
[email protected] 14/12/2017 1
Presentation Agenda
• The need for an Insolvency and Bankruptcy ‘Code’ and not an ‘Act’
• Analysis of The IBC, 2016
• Corporate insolvency resolution process-CIRP
• Liquidation process
• Fast track CIRP
• Voluntary Liquidation Process
• Rules & Regulations
• Related amendments to other Enactments
• FRDI Bill
• Recent updates
• Professional opportunities
• How to master the subject?
• How to get work?
• How to pass Limited Insolvency Examination?
[email protected] 14/12/2017 2
Why ‘CODE’ and Not an ‘ACT’ ??
• A code, as per Black’s law dictionary –
• “A Collection or Compendium of Laws”
• Systematic and comprehensive compilation of• Laws,
• Rules and Regulations that are
• Consolidated and classified for
• A particular subject.
[email protected] 14/12/2017 3
The Codes of India..
1. The Indian Penal Code, 1860
2. The Code of Civil Procedure, 1908
3. The Code of Criminal Procedure, 1973
4. The Insolvency and Bankruptcy Code, 2016 (The IBC 2016)
5. Land Revenue Code of various States
[email protected] 14/12/2017 4
The IBC 2016 Applies to…..
Companies
Companies governed by any special Acts
LLPs
Such other body incorporated as notified
Partnerships and Individuals
[email protected] 14/12/2017 5
The Code does not apply to..
• Part III of the Code pertaining to insolvency of Individuals andFirms – does not apply to State of Jammu and Kashmir
• Part II The Code is not applicable to Financial Service Providers.
• DRAFT “FINANCIAL RESOLUTION AND DEPOSIT INSURANCE BILL, 2017” has been referred to a Joint Parliamentary Committee and the Joint Committee invited views and suggestions from various stakeholders.
• www.dicgc.org under DICGC Act 1961 will become regulator
[email protected] 14/12/2017 6
Draft “Financial Resolution and Deposit Insurance Bill, 2017”
▪ The Insolvency and Bankruptcy Code, 2016 is not applicable to financial service providers. Aseparate legislation for financial service providers is in draft stage.
• Status: On June 14, 2017, the Union Cabinet chaired by Prime Minister, Mr. Narendra Modi approved the proposal to introduce the Financial Resolution and Deposit Insurance Bill, 2017.
• On 10th August, 2017, the Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Lok Sabha.
• The Financial Resolution and Deposit Insurance Bill, 2017 has been referred to a Joint Parliamentary Committee and the Joint Committee invited views and suggestions from various stakeholders and public at large on the provisions of the Bill till 29th September, 2017.
▪ The Bill would provide for a comprehensive resolution framework for specified financial sectorentities to deal with bankruptcy situation in banks, insurance companies and financial sectorentities.
▪ It will result in the repealing of the Deposit Insurance and Credit Guarantee Corporation Act, 1961and proposed to amend 21 other Acts.
[email protected] 14/12/2017 7
The IBC 2016 Applies for….
For Company and LLP-
Insolvency Resolution Process
Liquidation Process
Fast Track Insolvency Resolution Process
Voluntary Liquidation Process
[email protected] 14/12/2017 8
The IBC 2016 Applies for….
For Individual & Partnership-
• Fresh Start Process
• Insolvency Resolution Process
• Bankruptcy Order
[email protected] 14/12/2017 9
The IBC 2016 Aims to….
1• To promote entrepreneurship;
2• To make credit available;
3
• To balance the interest of all stakeholders by consolidating and amending the existing laws relating to insolvency and bankruptcy;
4• To reduce the time of resolution for maximizing the value of assets.
[email protected] 14/12/2017 10
Significant Features of the IBC 2016
❖ Single insolvency and bankruptcy framework. It replaces/modifies/amends certain existing laws.
❖Overriding effect on all other laws relating to Insolvency & Bankruptcy. S 238
❖Not applicable to corporate financial service providers like Banks, NBFC, Insurance Co’s etc. there will be separate legislation.
❖ Provides for moratorium period from insolvency commencement date
❖ The Code shifts the focus from “Debtors” in possession to “Creditors in Control”.
❖ The test of insolvency has been shifted from “erosion of net worth” to “payment
default”.
❖ Time bound resolution process at each [email protected] 14/12/2017 11
Significant Features of the IBC 2016 Contd…
❖ Establishment of The Insolvency and Bankruptcy Board of India - a regulator as an independent body.
Section 188 it will be a body corporate
❖ A clearly defined distribution of recovery proceeds.
❖ Insolvency Professional to take over management and control of the Corporate Debtor.
❖ Government dues would rank below the claims of other creditors.-section 53 distribution of assets
53(1)(e) 5th position out of 8 position below financial unsecured creditors
❖ Have provisions to deal with concealment, fraud and /or manipulation leading to fine and/or
imprisonment.
❖ Provide confidence to Lenders and Investors in the debt market.
[email protected] 14/12/2017 12
Insolvency Resolution Framework for Individuals, Firms and AOI
Presidency towns/ Supreme Court
High Courts system
The Presidency Towns Insolvency Act, 1909 (PTIA) –Individuals, Firms and AOP
The Provincial Insolvency Act, 1920 –Insolvency other than PTIA areas
The Insolvency and Bankruptcy Code, 2016
[email protected] 14/12/2017 13
11Enactments Amended by the IBC 2016 (S 245 to 255 ) schedules first to eleventh
1.The Indian Partnership Act,1932
2.The Central Excise Act, 1944
3.The Income-tax Act, 1961
4.The Customs Act,1962
5.The Recovery of Debts due to Banks and Financial Institutions Act, 1993
6.The Finance Act, 1994
7.The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
8.The Sick Industrial Companies (Special Provisions) Repeal Act, 2003
9.The Payment and Settlement Systems Act, 2007
10.The Limited Liability Partnership Act, 2008
11.The Companies Act, 2013
[email protected] 14/12/2017 14
Acts Repealed by the Code
The Presidency Towns Insolvency Act, 1909 (Sec 243)
The Provincial Insolvency Act, 1920 (Sec 243)
[email protected] 14/12/2017 15
Impact of the IBC 2016
BIFR and SICA go off completely;
Corporate resolutions come under NCLT;
Tight timelines under the new law – entire process of resolution to be over in 180 to 270 days;
May lead to greater financial discipline;
Creditors have an upper hand in resolution plans;
Moratorium is not indefinite – limited moratorium;
If revival does not work out, entity to mandatorily go into liquidation;[email protected] 14/12/2017 16
Impact of the IBC 2016
Companies and guarantors can be both brought under a common forum – NCLT/DRT;
While borrowers may file resolution applications seeking moratorium, but borrower will have to face the threat of liquidation/bankruptcy ;
Can debtors under banker-driven restructuring also go for NCLT / DRT resolution –yes. In view of mandatory timelines, the case may reach bankruptcy stage faster;
Accelerating provisioning – faster transition into a case of loss assets.
[email protected] 14/12/2017 17
The Insolvency and Bankruptcy Code, 2016
5 Parts- 7 chapters in each Part II,III,IV
255 Sections
11 Schedules (Sections 245 to 255)
[email protected] 14/12/2017 18
IBC, 2016 – Analysing the Parts I to V
Part I
PRELIMINARY - 1 Chapter - Section 1 -3
Part II applies to corporate persons other
than financial service providers
Part – III applies to individuals and
partnership firms except those located in
state of Jammu & Kashmir proviso S1(2)
Section 3 definitions
Part II
INSOLVENCY RESOLUTION AND LIQUIDATION FOR
CORPORATE PERSONS -
7 Chapters - Sections 4-77
Section 5 definitions
Part III(not yet notified) INSOLVENCY RESOLUTION FOR INDIVIDUALS AND PARTNERSHIP FIRMS
• 7 Chapters
• Section 78-187
• Section 79 definitions
Part IV
REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND INFORMATION UTILITIES
• 7 Chapters
• Section 188-223
Part V
MISCELLANEOUS
• Section 224-255
• (Section 245-255 enables amendments in other statutes, 11 legislations )
[email protected] 14/12/2017 19
Insolvency Law Committee
• Steps taken by IBBI for betterment of the Code.
• Insolvency Law Committee were constituted on 16.11.2017 for improvement in the process prescribed in the code.
• The committee is constituted to submit its recommendation for further improvement in the Code within two months from its first meeting.
[email protected] 14/12/2017 21
Notification of Sections of the IBC, 2016
S. No. Date of Notification Sections Notified
1. 5th August, 2016 Sections 188-194
2. 19th August, 2016 Section 3 clause (1),(5),(22),(26),(28),(37)Sections 221, 222, 225, 226, 230, 232, 233,Section 239(1) & (2)(zd)Section 240(1) & (2) (zt)Section 241, 242
3. 1st October, 2016 Insolvency and Bankruptcy Board of India establishedWith Head Office at New DelhiShri M S Sahoo, Chairperson IBBI
4. 1st November, 2016 Section 3 (2) to (4)Section 3 (6) to (21)Section 3 (23) to (25)Section 3 (27)Section 3 (29) to (36)Section to 196,197,223Section 239 (2) (ze) to (zh) & (zl) to (zm)Section 240(2) (a) to (zm) & (zu) to (zzzc)Section 244, 246 to 248, 250, 252
[email protected] 14/12/2017 22
Notification of Sections of the IBC, 2016
S.No Date of Notification Sections Notified
5. 15th November, 2016 Section 199 to 207Section 208 (1)( c ) & (e) & (2)Section 217 to 220)Section 251,253,254,255
6. 1st December, 2016 Section 2(a) to (d)Section 4 to 32Section 60 to 77Section 198, 231Section 236 to 238Section 239 (2) (a) to (f)
7. 15th December, 2016 Sections 33 -54
8.
9.
30th March, 2017
14th June, 2017
Sec 59, 209-215, 216(1), 234 and 235(w.e.f 1st April 2017)
Sections 55-58 (w.e.f 14th June, 2017)
14/12/2017 23
Rules relevant to the IBC 2016 ( S 239)/CA 2013
Events Notification/ Effective Date
1. The Insolvency and Bankruptcy Board of India (Salary, Allowances
and other Terms and Conditions of Service of Chairperson and
members) Rules, 2016.
29th August, 2016 w.e.f. 29th august 2016
2. The Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016.
30th November 2016, w.e.f. 1st December,
2016
3. The Companies (Transfer of Pending Proceedings) Rules, 2016
7th December, 2016, w.e.f. 15th December,
2016, except
Rule 4 which shall come into effect from 1st
April, 2017
4. The National Company Law Tribunal Rules, 2016 21st July, 2016
5. The National Company Law Appellate Tribunal Rules,2016. 21st July, 2016
[email protected] 14/12/2017 24
Regulations under the IBC 2016( S 240)Events Notification/ Effective Date
1. The Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016
21st November, 2016 w.e.f. 22nd November, 2016
2. The Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016
21st November, 2016 w.e.f. 22nd November, 2016
3. The Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016
23rd November, 2016, w.e.f. 29th November, 2016
4. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
5. The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
30th November, 2016, w.e.f. 1st December, 2016
15th December, 2016
14/12/2017 25
7. The Insolvency and Bankruptcy Board of India (Engagement of Research Associates and Consultants) Regulations, 2017
30th January, 2017 w.e.f. 31st January, 2017
8. The Insolvency and Bankruptcy Board of India (Procedure for Governing Board Meetings) Regulations, 2017
30th January, 2017 w.e.f. 31st January, 2017
9.The Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017
30th March 2017 w.e.f 1st April 2017
10.Insolvency and Bankruptcy Board of India(Voluntary Liquidation) Regulations, 2017
11. The Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017
30th March 2017 w.e.f 1st April 2017
12th June, 2017
14/12/2017 26
12. The Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017
14th June, 2017
13. The Insolvency and Bankruptcy Board of India (Employees’ Service) Regulations, 2017
24th August, 2017
14. IBBI (Grievance and Complaint Handling Procedure) Regulations, 2017
6th December, 2017
[email protected] 14/12/2017 27
S. No. Aspects The IBBI (Liquidation Process) Regulations, 2016
The IBBI (Voluntary Liquidation) Regulations,
2017
1. Regulations 46 40
2. Chapter 7 7
3. Schedules 3 2
4. When does it apply? Under Part II - Chapter III onLiquidation Process – Wheretime exceeds as per sec 12 or sec56 or the plan is rejected by theadjudicating authority (AA)then the AA shall pass an orderfor insolvency resolution underChapter III of part II the IBC2016
Section 59 of the IBC 2016 (Notified w.e.f 1st April
2017)
5. Who is the AA? NCLT NCLT (sec 59 is notified w.e.f 1st April 2017)
[email protected] 14/12/2017 28
Amendment in Regulations-
• The IBBI(Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2017- 07 Nov 2017
• The IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2017- 07 Nov 2017
• The IBBI(Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2017- 05 Oct 2017
• The IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2017- 05 Oct 2017
• The Insolvency and Bankruptcy Board of India (Information Utilities) (Amendment) Regulations, 2017-29th September, 2017
• The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2017- 16 Aug 2017
• The Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2017-16 Aug 2017
[email protected] 14/12/2017 29
The Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017- notified on 12th June, 2017
Inspection & Investigation- Part-IV, Chapter VI, S 217 to 220
• 5 Chapters, 14 Regulations & FORM A (submission of claims)
• The IBBI announced the regulations in exercise of its powers conferred by sections 196, 217, 218, 219, 220 read with section 240 of the Insolvency and Bankruptcy Code, 2016.
• These regulations provide the power to conduct inspections of records of service provider, procedure of inspection, investigation of a service provider, procedure for conducting the investigation, submission of an interim and final investigation report, issuance of a show-cause notice and the requirements for a valid show-cause notice.
[email protected] 14/12/2017 30
IBBI (Grievance and Complaint Handling Procedure) Regulations, 2017-notified on 06.12.2017
• 5 Chapters, 8 Regulations, Form A
• A stakeholder may file a complaint in Form A along with a demand draft for two thousand and five hundred rupees or an online acknowledgement of two thousand and five hundred rupees.
• Complaint shall be filed within forty-five days of the occurrence of the cause of action which may be extended for 30 days.
• A grievance or a complaint shall be filed with the Board online at [email protected]
[email protected] 14/12/2017 31
Guidelines issued by IBBI
• Insolvency Professionals to act as Interim Resolution Professionals (Recommendation) Guidelines, 2017-25 May 2017
• Guidelines for Internships with IBBI- 16 Aug 2017
[email protected] 14/12/2017 32
Understanding terminologies-
• Insolvency - inability to pay debts different from solvency
• Liquidation – process of selling assets and paying creditors - used only for corporate persons
• Winding up – larger term includes liquidation & removal of names used only for corporate persons
• Removal of name – like death certificate for individuals
• Bankruptcy – like liquidation and insolvency for corporate persons
[email protected] 14/12/2017 33
THE INSOLVENCY AND BANKRUPTCY CODE(AMENDMENT)ORDINANCE,2017passed on 23rd November 2017
• Insertion of section 29A –persons not eligible to be resolution applicant
a) undischarged insolvent
b) willful defaulter
c) whose account is NPA
d) Convicted for offence for imprisonment for 2 years
e) Disqualified as director
f) SEBI prohibition
g) Has done preferential transaction
[email protected] 14/12/2017 34
Ordinance
h) executed enforceable guarantee
I) connected person
J) any disqualification occurred outside India
[email protected] 14/12/2017 35
Section 3(37) IBC 2016 residuary definitions
As defined in these legislations
• The Indian contract Act, 1872
• The Indian Partnership Act, 1932
• The Securities Contract (Regulation) Act, 1956
• The Securities Exchange Board of India Act, 1992
• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
• The Limited Liability Partnership Act, 2008
• The Companies Act, 2013
[email protected] 14/12/2017 36
Time Limit for Completion of Insolvency Resolution Process
Time Limit
Sec 12 of the IBC 2016 – 180 days may be extended by further period not exceeding 90 days
Sec 56 of IBC – fast track 90 days may be extended by 45 days only once, initiated by a creditor or a corporate debtor
[email protected] 14/12/2017 37
Part II of IBC 2016 ( S 4 to 77)
CORPORATE INSOLVENCY RESOLUTION PROCESS AND LIQUIDATION FOR CORPORATE PERSONS
➢C I Preliminary S 4 & 5
➢C II Corporate Insolvency Resolution Process S 6 to 32
➢C III Liquidation Process S 33 to 54
➢C IV Fast Track Corporate Insolvency Resolution Process S 55 to 58
➢C V Voluntary Liquidation of Corporate Persons S 59
➢C VI Adjudicating Authority for Corporate Persons S 60 to 67
➢C VII Offences and Penalties S 68 to 77
[email protected] 14/12/2017 38
Insolvency resolution process for corporate
An operational creditor send a demand
notice to the corporate debtor. Within the 10
days, if the operational creditor does not
receive payment or notice of dispute, it
applies before NCLT for resolution process.
A defaulting corporate debtor may also file
an application for initiating corporate
insolvency resolution process with the NCLT
the Adjudicating Authority
A corporate commits a default
Within 14 days, the AA accepts the
application if it is complete Else rejects
allowing 7 days time to rectify mistakes
AA declares moratorium for prohibiting certain
things
Makes public announcement for the initiation of
the process, call for the submission of claims.
Appointment of an interim resolution
professional.
Within 14 days of application receipt, if AA is
satisfied about the default and all other
parameters are met it accepts the application.
Else rejects allowing 7 days time to rectify
mistakes
Within 14 days of application receipt, AA
admits the application if default has not been
rectified and if application is complete. Else
rejects allowing 7 days time to rectify
mistakes
Commencement of corporate insolvency resolution process
The financial creditor, individually or jointly with
other financial creditors may files an application
for initiating the insolvency resolution process
against the corporate debtor before NCLT, the
Adjudicating Authority. (AA)
Cont’d…[email protected] 14/12/2017 39
Insolvency Resolution Process for Corporates
ion process for corporate
Corporate debtors goes into Liquidation
Constitute a Committee of Creditors (CoC)
Appointment of the resolution professional (RP) (Either Interim resolution professional can continue or a new
one can be appointed by CoC with backing of 75% majority (in Value terms)
RP prepares Information Memorandum. Resolution Applicant prepares resolution plan and submit to
RP. RP examines all Resolution Plan and presents such plan to CoC which meets the criteria
AA accepts Resolution
plan
AA rejects resolution
plan
CoC accepts one of the Plans CoC rejects all Plans
RP submits Resolution Plan to Adjudicating Authority approves or
rejects the plan
Corporate debtors goes into LiquidationRP implements Resolution plan and handover
management to existing/new promoters
Corporate Debtors doesn’t
comply with resolution plan
[email protected] 14/12/2017 40
Application on default to NCLT
Reject Accept
Interim RP appointment + Moratorium + Public Announcement
Constitute a Committee of Creditors (CoC)
Appointment of RP by CoC
Preparation of Information Memorandum
RP submits resolution plan to CoC
CoC Accepts CoC Rejects
RP submits plan to AA
AA Accepts AA Rejects
RP implements
the plan
Corporate debtor goes into liquidation
RP: Resolution Professional, AA: Adjudicating Authority
Summary of insolvency resolution process for corporate
n p
Debtor doesn’t comply with
resolution plan
[email protected] 14/12/2017 41
Initiation of CIRP by Financial
Creditor (S 7)
Occurrence of
Default by C. Dr.
Notice to F. Cr. by AA
for rectification of
defects
Ascertainment of
existence/non-existence
of default byAA
Application by F.
Cr(s). toAA
Default exists +
Application complete
+ No disciplinary
proceeding against
proposed IRP?
Admission of
Application
Defects
rectified?
Rejection of
Application
No
No
Yes
Yes
Order
Communicated to
F. Cr.
Order Communicated to
F. Cr. and C. Dr.
Within 7
days of
receipt of
notice
Within 7
daysWithin 7
days
Commencement
of CIR
Within 14
days
28
[email protected] 14/12/2017 42
Initiation of CIRP by
Operational Creditor (S 9)Application by
O. Cr. To AA
Demand
notice by
O.Cr. To C.
Dr.
Occurrence
of Default
by C. Dr.
C. Dr. shows
evidence of
repayment?
C. Dr. shows a
dispute?
Within
10 days
of
receipt
of
demand
notice
Rejectionof
Application
Admission of
Application
Communication
to O.Cr. and
C.Dr.
No
No
action
Yes
Yes
No further Commencementof CIR
Within 14
days
29
Notice to O.
Cr. by AA for
rectification
of defects
Defects
rectifie
d?
No
Application
complete + no
repayment by C. Dr.
+ demand notice
delivered by O.Cr.
+ no dispute notice
received by O.
Cr./no record of
any dispute?
Yes
No
Within 7
days of
receiptof
Yes notice
[email protected] 14/12/2017 43
Initiation of CIRP by Corporate
Applicant
Occurrenceof
Default byC.Dr.
Application by
C.Dr. to AA
Rejection of
Application
Admission of
Application
Communication
by AA to C.Dr.
Within 14days
Commencement of CIR
30
Notice to C.Dr. by AA
for rectification of
defects
Application is
complete
Defects
rectified?
Yes No
[email protected] 14/12/2017 44
Once CIRP commences . . .
Commencement
of CIRP
Public
announcement of
Initiation of CIRP
u/s 15
Declaration of
Moratorium
u/s 13
Call for
submission of
Claims
Appointment of
IRP by AA
u/s 22
Within 14
days of
Insolvency
Commence
m ent Date
Manage
m ent of
affairs of
C.Dr.
Consolidation
of Claims
against C.Dr.1st meetingof
Crs.Committee
Constitutionof
Crs.Committee
Review of
Financial
Position of
C.Dr.
Appointment ofRP for Conduct
ofCIRP
Within 7 days
Max. 30 days tenure for IRP
31
[email protected] 14/12/2017 45
Appointment of resolution
professional
Constitution of Crs.
Committee by IRP
Application to AA
for appointment of
proposed RP
1st meeting of Crs.Committee
Intimation to IRP,
C.Dr., & AA
Propose to
replace the
RP
AA to direct the IRP to
continue as RP until
Board confirms
otherwise
AA forwards the
name to Board
Existing IRP
appointed as
RP?
AA
appoints
RP
NoNo
Yes
Board
confirm
s within
10
days?
Yes
Within 7 days
32
[email protected] 14/12/2017 46
Conduct of CIRP by RP
Preparation of
Information
Memorandum by
RP
Submission of
Resolution Plan
by Resolution
Applicant
Review of
Resolution
Planby RP
Approval of
a Resolution
Plan by Crs.
Committee
Selection of
Resolution Plan(s)
confirming to
specified
conditions
Presentation of
selected
Resolution Plan(s)
to Crs. Committee
Submission of
approved
Resolution Plan
to AA by RP
Review of
Resolution
Plan by AA
Order of
AA
Admit the
Resolution Plan
Reject the
Resolution Plan
33
[email protected] 14/12/2017 47
3 Stages of Corporate Insolvency
Resolution
• Insolvency application accepted, plan not yet sanctioned▫ Moratorium of SARFAESI action, any other action
• Resolution plan sanctioned▫ Creditor action will depend on the resolution plan; resolution
plan mandatory on all
• Liquidation proceedings▫ Secured creditor staying in liquidation process
Security interest relinquished, secured creditor cannot
take enforcement action
▫ Secured creditor stays out of liquidation
Security interest enforcement/SARFAESI permitted
34
[email protected] 14/12/2017 48
Effect of Moratorium Order
• AA shall declare moratorium order on the insolvencycommencement date prohibiting –▫ institution of suits or continuation of pending suits or
proceedings against the C.Dr.including execution of any judgment, decree or order in any court of
law, tribunal, arbitration panel or other authority
any of its▫ transferring, encumbering, alienating or disposing of assets or any legal right or beneficial interest
▫ recovery of any property by an owner or lessor
▫ action to foreclose, recover or enforce any security interest created by the C.Dr. in respect of its propertyincluding any action under the SARFAESI Act, 2002
• Moratorium shall have effect till the completion of the CIR process or liquidation order
35
[email protected] 14/12/2017 49
Effect of Moratorium order on SARFAESI Proceedings36
• Code prohibits SARFAESI proceedings during moratorium period.• Following circumstances might arise –▫ Moratorium starts before sending notice under section 13(2)Notice shall be served after completion of 180 days (or 270 days, if an
extension is granted)
▫ Moratorium starts after sending notice under section 13(2) to the borrowerFresh notice under section 13 (2) shall be served after completion of 180 days
or 270 days, as the case may be.▫ Moratorium starts after sending notice under section 13(2) to the
borrower + repossessing the assetRepossessed asset shall be sold only after completion of 180 days or 270 days,
as the case may be.
▫ Moratorium starts after sending notice under section 13(2) tothe borrower + repossessing the asset + sale of repossessed
assetSuch secured creditor shall rank 5th in the waterfall priority to the extent of
unsecured [email protected] 14/12/2017 50
Implementation of the Resolution Plan
• There is nothing in the Code for implementation▫ Unlike non-corporate resolution, where implementation of
repayment plan is under the aegis of the resolution professional
• Resolution plan is binding [Sec 31 (1) ]▫ On debtor▫ Employees▫ Members▫ Creditors▫ Guarantors▫ Other stakeholders
• What is the effect of non adherence?▫ In case of non corporate persons, failure to implements leads
to bankruptcy
37
[email protected] 14/12/2017 51
Appointment of Resolution Professional• An insolvency professional shall be eligible to be appointed as a resolution
professional -
▫ If he, and all partners and directors of the insolvency professional entity of
which he is a partner or director, are independent of the corporate debtor
• Independent of the corporate debtor shall mean –
▫ Eligible to be appointed as an independent director on the board of the
corporate debtor under Section 149 of the Companies Act, 2013
▫ Is not a related party of the corporate debtor; or
▫ Is not an employee or proprietor or a partner, in the last 3 FY of:
A firm of auditors or PCS or cost auditors of the corporate debtor; or
A legal or a consulting firm, that has or had any transaction with the corporate
debtor amounting to 10% or more of the gross turnover of such firm.
• Whether an insolvency professional needs to be independent of the creditor(s)
filing an application against the corporate debtor?
39
[email protected] 14/12/2017 52
Duties of Resolution Professional• Make disclosure of independence at the time of appointment (Reg 3
(2))• Make a public announcement (in form A) on appointment as an IRP▫ Within 3 days from the date of appointment
• File a report certifying constitution of the committee tothe Adjudicating Authority▫ Within 30 days from the date of appointment
• Circulate the minutes of the meeting to all participants by electronic means▫ Within 48 hours of the said meeting
• A record of the summary of the decision taken on a relevant agenda item shall be circulated▫ Within 24 hours of the conclusion of the voting
• Appoint 2 registered valuers to determine the liquidation value ofthe corporate debtor▫ Within 7 days from the date of appointment
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Duties of Resolution Professional• Submit an information memorandum in electronic form
▫ To each member of the committee and any potential resolution applicant (upon submission of an undertaking)Before 1st meeting – matters listed in paragraphs (a) to (i)
of Reg. 36 (2)
Within 14 days of the 1st meeting - matters listed in paragraphs (j) to (l) of Reg. 36 (2)
• Submit the resolution plan approved by the committeeto the AA with the certification that -▫ the contents of the resolution plan meet all the
requirements of the Code and the Regulations; and
▫ the resolution plan has been approved by the committee
41
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Registered valuer under The Companies (Registered Valuers and Valuation) Rules, 2017-notified on 18th October, 2017
• Registered Valuer- Section 247 under chapter XVII of the Companies Act, 2013
• 6 Chapters, 21 Rules, 4 Annexures, 5 Forms in Annexure II
• Deals with eligibility, qualifications and registration of valuers, recognition of registered valuer organisation, valuation standards, disciplinary proceedings.
• Valuation examination has to be passed to become a registered valuer
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Registered valuers organisation
• Eligibility: member of a registered valuers organisation, passed the
valuation examination
• Registered Valuers Organization: registered under section 25 of the
Companies Act, 1956 or section 8 of the Companies Act, 2013 with the sole
object of dealing with matters relating to regulation of valuers of an asset
class or asset classes and has in its bye laws the requirements; or
• a professional institute established by an Act of Parliament enacted for
the purpose of regulation of a profession;
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Committee of Creditors• Committee of creditors shall be formed with financial creditors
only.
▫ Financial creditors which are related parties of the corporate
debtor shall not form part of committee
• What if the corporate debtor has no financial creditor?
• Where all financial creditors are related parties of the corporate
debtor?
▫ Committee shall be formed with 18 largest O.Cr. By valueIf the number of O.Cr. is less than 18 then all the O.Cr. shall be included
▫ 1 representative elected by all workmenOther than those included in 18 members
▫ 1 representative elected by all employeesOther than those included in 18 members
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Who will bear the stage wise cost?• Expenses of public announcement
▫ Shall be borne by applicant which may be reimbursed by the Committee to the extent ratified
• Cost of proving the debt
▫ Shall be borne by respective creditors
• Cost of IRP/ RP
▫ Any expenses to be incurred or payment to be made to IP – applicant shall borne the expense
▫ As soon as the committee meets – proposal shall be laid before the committee and committee shall
either ratify the expenses or reject the proposal
If committee ratifies the proposal – expenses shall be borne by the committee to the extent they agree to ratify
If committee rejects the proposal – expenses shall be borne by the applicant
▫ Once the resolution plan is approved – the expenses shall be borne by the corporate
debtor and shall rank first as far as priority is concerned (Ref. Reg 38 of IRP for CP)
▫ If the resolution plan is rejected -- the expenses shall be borne by the corporate debtor and shall rank
first as far as priority is concerned (Ref. section 53 of the Code)
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Amendments to the Companies Act, 2013 under IBC
• Section 255 of the Code notified on 15th November, 2016 brought about anumber of amendments to the Companies Act, 2013 under EleventhSchedule
• MCA through its notification dated 07th December, 2016 has notified theprovisions of Chapter XX of the Companies Act, 2013 w.e.f. 15th
December, 2016
Sec 255 of the IBC, 2016
Before 15th
November 2016
Voluntary winding up under Tribunal –Companies Act, 1956
Winding up by Tribunal –
Companies Act, 1956
After 15th NovemberExplained in the next
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Post Notification of Sec 255 (15th Nov, 16)
Winding up on Inability to Pay Debts
Winding up on grounds other than Inability to pay debts
Voluntary Winding up
Section 2(94A) of the Companies Act, 2013 has been amended to define “WindingUp” as “winding up under this Act or liquidation under Insolvency and BankruptcyCode, 2016”
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Winding Up on Inability to Pay Debts• Section 271(1)(a) of the Companies Act, 2013 omitted by Section 255 of the Code
• Section 271(1)(a) deals with Winding up by Tribunal on account of Inability to Pay Debts
• Section 7 to 9 of the Code now deals with it
• Application to AA for initiation of Corporate Insolvency Resolution Process can be made where there is a ‘default’
• ‘Default’ defined in the Code to mean non-repayment of a debt, whether in whole or in part, has become due and payable by a corporate person
• Which means under the Code insolvency resolution can be initiated even against financially solvent company that has defaulted payment
• Once the resolution process is accepted by the Tribunal, Insolvency Professional is appointed to conduct the Corporate Insolvency Resolution Process
• The process to be completed within 180days from the date of admission of the application by the Tribunal
• On failure of which the Tribunal will order for Liquidation of the Corporate Person
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Winding up on grounds other than inability to pay debts
• Section 271 of the Companies Act, 2013 deals with the following
271(a)Passing of special resolution to that effect
271(b)Acting against Sovereignty and Integrity of India, security of state
271(c)Conducting affairs in a fraudulent manner
271(d)Default in filing of financial statements or annual returns with the registrar
• 271(e)On just and equitable ground in the opinion of the Tribunal
• These provisions are notified under Chapter XX w.e.f .15th December 2016, therefore winding up application for the above grounds shall be made to the Tribunal
• Provisions of Companies Act, 2013 shall apply.
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Fast Track IRP
• Sections 55 to 58 under chapter IV of Part II (w.e.f. 14th June, 2017)
Applicable to the following categories of corporate debtors:
-a small company, or
-a startup (other than the partnership firm), or
-an unlisted company with total assets, not exceeding Rs.1 crore.
• Default completion time is 90 days from the insolvency
commencement date as against 180 days in other cases.
▫ One-time extension of a maximum of 45 days permissible
▫ Necessity of extension to be determined by AA
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The Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017
• W.e.f 14th June 2017
• The IBBI announced the regulations in exercise of its powers conferred by sections 58, 196 and 208 read with section 240 of the Insolvency and Bankruptcy Code, 2016.
• 10 Chapters, 39 Regulations and Schedules
• Various forms are prescribed under Schedule (Form A to F)
• These regulations provide the process for initiation of insolvency resolution of eligible corporate debtors, conduct of the Fast Track Process, proof of claims, approval of the resolution plan by the Adjudicating Authority.
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Resolution Plan• Contents- details of the resolution applicant and other connected persons
• Details-
• (a) identity;
• (b) conviction for any offence , if any, during the preceding five years;
• (c) criminal proceedings pending, if any;
• (d) disqualification, if any, under Companies Act, 2013, to act as a director;
• (e) identification as a willful defaulter, if any, by any bank or financial institution or consortium thereof in accordance with the guidelines of the Reserve Bank of India;
• (f) debarment, if any, from accessing to, or trading in, securities markets under any order or directions of the Securities and Exchange Board of India,; and
• (g) transactions, if any, with the corporate debtor in the preceding two years.
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Cont…
• ‘connected persons’-
• promoters or in the management or control of the resolution applicant
• will be promoters or in management or control of the business of the corporate debtor during the implementation of the resolution plan
• holding company, subsidiary company, associate company and related party of the above mentioned persons
• (Note: Prescribed under the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2017- notified on 7th Nov. 2017 )
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Voluntary Liquidation
Sec 255 of IBC, 2016 repeals part II of chapter XX -sections 304 to 323 on Voluntary winding up under Companies Act, 2013
Sec 59 of IBC, 2016 (on Voluntary winding up applicable w.e.f 1st
April 2017). The IBBI (Voluntary Liquidation Process) Regulations, 2017 comes into force w.e.f 1st April 2017
As per Sec 468(3) of the Companies Act, 2013, the 1956 Act does not apply anymore given Sec 59 of the IBC, 2016 is notified.
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Voluntary Liquidation
A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings.
Time limit- 12 months from the voluntary liquidation commencement date.
• Steps involved-
• Step – 1: Filing of application
• Step – 2: Commencement of voluntary liquidation
• Step – 3: Appointment of Liquidator and Public Announcement
• Step – 4: Submission of Preliminary Report and Completion of Books of Account
• Step – 5: Appointment of Professionals
• Step – 6 Consultation with Stakeholders
• Step – 7: Claims by creditors
• Step – 8: Determination and Verification of Claims
• Step – 9 Preparation of List of Stakeholders
• Step – 10: Realisation and Distribution
• Step – 11: Submission of Final Report
• Step -12: Dissolution
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Formats Prescribed under IBBI (Voluntary Liquidation Process) Regulations, 2017
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Winding up, liquidation & dissolution
• Sec 2(94A) of the Companies Act, 2013 defines “winding up”-introduced by Sec 255 the Eleventh Schedule of the IBC 2016
• “Winding Up” – ‘winding up under this Act or under Insolvency and Bankruptcy Code, 2016’
Winding up Process
Insolvency and Bankruptcy Code, 2016
Companies Act, 2013
Governed by
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Winding up and Applicable Provisions
CORPORATE INSOLVENCY RESOLUTION PROCESS (INABILITY TO PAY)
• IBC, 2016
• IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
WINDING UP ON GROUNDS OTHER THAN INABILITY TO PAY
• Companies Act, 2013
• Companies Court Rules, 1959
VOLUNTARY WINDING UP
• Section 59 of the IBC, 2016
• The IBBI ( Voluntary Liquidation Process). Regulation, 2017
• (Both w.e.f 1st April 2017)
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Liquidation and distribution of recovery proceeds
of recovery proceedsThe Insolvency and Bankruptcy Board of India has framed new regulations under ‘Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 [the regulation]’ to deal with liquidation process
Liquidation Process
Appointment of Liquidator
To make public announcement - to call upon stakeholders to submit their claims as on liquidation commencement date and to provide last
date for submission of claim (30 days from the liquidation commencement date -Y+30)
Submission of the preliminary record to the Adjudicating Authority (Y+75)
Submission of claims by different stakeholders. Verification of stakeholders’ claims and preparation of final list of stakeholders by the
liquidator.
Asset memorandum by the liquidator and valuation by at least two independent valuers.
Asset sale either by auction or by private sale. Distribution of proceeds (Y+2 yrs)
Liquidation commencement date: means the date on which proceedings for liquidation commence in accordance with section 33 or section 59 of the Code (Y)[email protected] 14/12/2017 74
Liquidation waterfall
Section 53 of the Code deals with distribution of assets sale proceeds along with liquidation waterfall.
Entire insolvency resolution process cost and liquidation cost
Workmen’s dues for the period of twenty-four monthspreceding the liquidation commencement date
Debts owed to a secured creditor in the event such securedcreditor has relinquished security in the manner set out insection 52
+
Wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date
Financial debts owed to unsecured creditors
Any amount due to the Central Government andthe State Government
Debts owed to a secured creditor for any amountunpaid following the enforcement of security interest
+
Any remaining debts and dues
Preference shareholders, if any
Equity shareholders or partners, as the case may [email protected] 14/12/2017 75
Part III (S78-187)
INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUAL AND PARTNERSHIP FIRMS
• C I Preliminary S 78 & 79
• CII Fresh Start Process S 80 to 93
• C III Insolvency Resolution Process S 94 to 120
• C IV Bankruptcy Order for Individuals and Partnership Firms S 121 to 148
• C V Administration and Distribution of the Estate of the Bankrupt S 149 to 178
• C VI Adjudicating Authority for Individuals and Partnership Firms S 179 to 183
• C VII Offences and Penalties S 184 to 187
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Draft Rules and Regulations issued under the Insolvency Resolution Process for Individuals and Firms
(i) Draft Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Individuals and Firms) Rules, 2017, and
(ii) Draft Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Individuals and Firms) Regulations, 2017.
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Fresh Start: Eligibility Conditions
Maximum Gross Annual Income of
Rs. 60000
Maximum aggregate value of assets Rs.
20000
Maximum aggregate value of qualifying debts Rs. 35000
No dwelling unitNot an
undischarged bankrupt
No Fresh Start Process/Insolvency Process/Bankruptcy
process subsisting
No Fresh Start Order in the last 12 months prior to the date of application
86
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Fresh Start
Process[Phase I: Admission of Debtor’s
Application]
Admission
Debtor unable to pay
debts
Application to
AA supported
by an
Affidavit
Appointment
of RP
Filed
personally
Order of AA
RP examines application.
Submits Report to AA
recommending
acceptance/rejection. Sends
copy of the report to debtor
Rejection
Filed
throughRP
Eligibility
forFSO
Copy of order + copy of
application to creditors
State the amounts accepted as
Qualifying debts/other amounts
eligible for discharge for Fresh
Start
Challenge by
debtor/creditor;
application to AA
AA to pass
such orders as
deemedfit
Investigation,
acceptance/rejection
by RP
Objection, by
application to RP
Board may take
action against RP
Application
acceptedOrderof
AAApplicatio
nrejected
Order
forwarded
to Board
Within 10 days
Within 14 days
Within 7 days
Within 10 days of receipt
of copy of order
Within 10 days
Within 10 days
Within 14 days
87
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Fresh Start
Process
[Phase II: Discharge Order]
Submissionof
the list
Dischargeorder
byAA
Moratorium
ends
ToBoard
Admission of Debtor‟s
Application
Moratorium commences in
respect of all debts
RP prepares final list of
qualifying debts
At least 7 days prior to
end of moratorium
period180 days
88
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Insolvency Resolution Process
• Application to AA
▫ By debtor committing the default
Personally or through RP
In respect of a partnership firm, all or majority of the partners shall jointly apply; single partner is not eligible.
Only in respect of debts which are not excluded debts.
An undischarged bankrupt, or a debtor already undergoing FSP, IRP or Bankruptcy order not eligible to apply.Also, if there is an existing IRP, admitted during 12 months preceding the date of submission of application.
▫ Bycreditor
Personally, or jointly with other creditors, or through RP.
Against the firm or any one or more partners of the firm.
Copy of application to the debtor.
• Manner of appointment of RP
▫ Same as that in FSP
• Effect of filing application
▫ Commencement of interim-moratorium
To end on admission of such application
89
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Insolvency Resolution Process: Phase I
Application to AA
RejectionApproval
Appointment of RP
RP examines application
Submission of report with
recommendations
Interim-
moratorium
commences
Treatment of application as
FSP Copy of Report to Debtor/Creditor
Within
10
days
Admission of Application
Order of AA
Creditor entitled to file for bankruptcy
order
Rejection ofApplication
Within
14
days
Copy of order + Report of RP + Application to
creditors
Within
7
days
90
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Insolvency Resolution Process: Phase II
Order of Admission of Application
Creditors register claims with RP within last date
specified in notice
Preparation of list by RP
Public notice by AA inviting claims from creditors
Within
10 days
Moratorium commences in respect ofall debts
Within
30
days
Submission of repayment plan by RP to AA
alongwith his own report on the plan
Preparation of repayment plan by debtor in
consultation with RP
Within 21
days from
last date
for filing
claims
Meeting of creditors (if
called)
Order of AA, on the basis of report
Copy of Report to creditors, debtor, AA
Report on the meeting by RP
Approval Rejection
Both debtor and creditor entitled
to file for bankruptcy
order
Binding on creditor
and debtor
To Board
To IPA for releasing performance security
91
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Insolvency Resolution Process: Phase III
Approval of
repaymentplan
Implementationof
resolution plan
Completion
of repayment
plan?
Report by RP to
AA
Premature end of
repaymentplan
Supervision
by RP
Within 14
days,
extendable
to max. 7
days
Order byAA
Dr./Cr. whose claims
not satisfied, eligible
to apply for a
bankruptcy order
Application for
discharge order by
RP toAA
Before
completion of
repaymentplan
After completion
of repayment
plan
Discharge
order byAA
To the Board and
the IPA for
releasing
performance
security
Yes
Notice of completion and
report by RP to all
persons bound by
repaymentplan
No
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Application for bankruptcy order
• ToAA• By a creditor, individually or jointly with other creditors• By debtor▫ In case of a firm, application may be filed by any of its partners
• Within 3 months of the order passed by AA under Section 100(4), or115(2), or 118(3), asthe casemay be (refer succeeding slide)
• Applicant may propose an insolvency professional to act asbankruptcy trustee
• Application shall not be withdrawn without the leave of AA• Interim moratorium commences once application is filed▫ Terminates on bankruptcy commencement date▫ Such interim-moratorium provisions not to apply to transactions notified by
the Central Government in consultationwith any financial sector regulator
93
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Bankruptcy Order – When can be applied
for?
Bankruptcy Order by
AA
Application for IRP is rejected by AA
under Section 100(4)
Order by AArecording rejection of repayment plan
by meeting of creditors (Section
115(2))
Order of AA on premature endingof the repayment
plan under Section 118(3)
Creditor
entitled to file
application
Both debtor and
creditor entitled to
apply
The debtor or the
creditor, whose
claims have not
been fully satisfied
entitled to apply
94
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Appointment of bankruptcy trustee
Proposed Trustee
appointed as
bankruptcy trustee
Board
confirms?
Boardnominates
a trustee
Appointment of
nominated trustee as
bankruptcy trustee
AA seeks
confirmation
from the
Board
Name of
trustee
proposed in
application?
Within
7 days
Within
10
days
Within
10
days
Within
7 daysNo
Nominate
another trustee
as replacement
No
Yes
Yes
AA directs the Board
to nominate a trustee
Name of
trustee
proposed in the
icatiapplthe
on?
95
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Bankruptcy Order
• By AA, within 14 days of nomination of bankruptcy trustee
• Effective till discharge of the bankrupt
• Effects▫ the estate of the bankrupt to vest in the bankruptcy trustee
▫ the estate of the bankrupt to be divided among his creditors
▫ bar on a creditor to commence proceedings in respect of a debt claimed as bankruptcy debt
▫ right of a secured creditor to realize or otherwise deal with hissecurity interest not affectedNo entitlement to any interest in respect of debt after the
bankruptcy commencement date if no steps are taken to realise thesecurity within 30 days from the said date.
• Modification or recall of bankruptcy order is possible under Section 142
96
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Bankruptcy Order
Application for
bankruptcy order
Nomination of
bankruptcy trustee
Bankruptcy
Order byAA
Notice/Public notice by
AA inviting claims from
creditors
Within
14
daysBankruptcy
commencement
date
Within
10
days
Bankrupt to submit statement of
financial position to the
bankruptcy trustee if the
application was filed by a
creditor within 7 days
Creditors to register
claims with bankruptcy
trustee
Within7
days
Preparation of list
of creditors by
trustee
Completion of administration and
distribution of the estate of bankrupt
Approval of trustee‟s
report by Crs. Committee
and determination of
whether bankruptcy
trustee shall be released
Notice to summon
meeting of creditors
Meeting of
creditors
Within 14 days of
bankruptcy
commencementdate
Within 21 days of
bankruptcy
commencement
date
Report of the administration
by trustee
To be
presented in
Within7
days
Interim-
moratori
um
97
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The Estate of the Bankrupt
• Vesting▫ In the bankruptcy trustee immediately from the date of his appointment
▫ Effective without any conveyance, assignment or transfer
• Inclusions in the estate▫ All property belonging to or vested in the bankrupt at the bankruptcy commencement
date
▫ Capacity to exercise powers over such property (or capacity to initiate proceedings
for exercising such powers) existing at the bankruptcy commencement date or before
the date of discharge order
▫ Property, which by virtue of this law, is comprised in the estate
• Exclusions from the estate▫ Excluded assets
▫ Property held on trust
▫ Assets as notified by the Central Government in consultation with financial regulator
98
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Discharge order
• Application by bankruptcy trustee to AA• Earlier of –▫ Expiry of 1 year from the bankruptcy commencement date
▫ Within 7 days of the approval of the committee of creditors of the completion of administration of estate of the bankrupt, if the said approval is accorded before the expiry of 1 year from the bankruptcy commencement date
• Effects▫ Bankrupt is released from all bankruptcy debts▫ In case the application for discharge is filed within 7 days of the creditors' approval,
the discharge does not affectfunctions of the bankruptcy trusteethe operation of the provisions of Chapters IV and V of Part III
• These remainunaffected▫ Right of the secured creditor to enforce his security for the payment of a debt from
which the bankrupt is discharged
▫ Bankrupt is not released in respect of debts incurred by means of fraud or breach of trust to which he was a party
▫ Bankrupt is not released from any excluded debt
99
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Proof of debt
• Bankruptcy trustee to give notice to every creditor
▫ Within 14 days from days of preparing list of creditors
• Copy of decree – valid proof
• Interest on debt - provable as part of the debt
▫ Except in so far as owed in respect of period after
bankruptcy commencement date
• Proof of debt by secured creditors-
▫ Realises his security, produce proof of the balance due to
him;
▫ Surrenders security to the bankruptcy trustee for the general
benefit of the creditorsMay produce proof of his whole claim
100
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Priority of payment
and expenses incurred by the bankruptcyThe coststrustee
Secondly, The workmen's dues for the period of 24 months preceding the
bankruptcy commencement date; and
Debts owed to secured creditors;
Wages and any unpaid dues owed to employees, other thanworkmen, of the bankrupt for the period of 12 monthspreceding the bankruptcy commencement date
Central Government and the State Government dues
All other debts and dues owed by the bankrupt includingunsecured debts
101
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Preferential transactions
• Sec 43- Corporates & Sec 165 – Individuals• Examples-▫ payment or set-off of debts not yet due;▫ performance of acts - no obligation to perform;▫ granting of a security interest to secure existing unsecured debts;▫ unusual methods of payment;▫ payment of a debt of considerable size in comparison to the
assets of the debtor;▫ payment of debts in response to extreme pressure from a creditor
• Defences available▫ transaction as consistent with normal commercial practice▫ ordinary course of business▫ new credit & newvalue▫ counterparty proves that it was unaware of a preference▫ no knowledge of the debtor's insolvency
• Creation of an escrow in favour of certain payees was held to be voidable preference in Re Lewis’ of Leicester Ltd(1995)
56
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Undervalued transaction
• Sec 45 – Corporate & Sec 164 – Individuals
▫ What is not an arm‟s length transaction is an undervalued
transaction
▫ Imply unequal exchange
• What constitutes an "undervalued transaction"?
▫ Gift
▫ Significantly less value
• Not of "proportionate value" but "ordinary course of
business" – Is it covered under undervalued transaction?
• In Hill vs Spread Trustee Co Limited, creation of security
interest has been regarded as undervalued transaction.
57
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Transactions defrauding creditors
• Sec 49- Corporate
▫ the transaction is an undervalued transaction under sub-
section (2) of section 45;
▫ such transaction was deliberately entered into by the
corporate debtor;
▫ the transaction was entered into:
(a) for keeping assets of the corporate debtor beyond
the
reach of any person who is entitled to make a claim
(b) to adversely affect the interests of such a person in
relation to the claim.
58
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Extortionate Credit Transactions
• Sec 50 – Corporate & Sec 167 – Individuals
• What constitutes "extortionate"?
• Cannot presume that every regulated financial
services provider will necessarily be compliant with
either the law, or self-framed fair lending code
59
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• Broad description of the transaction to be avoided
▫ Any transfer made to a certain creditor, surety or guarantor.
So as to put the recipient in a beneficial position in relation to
other creditors
▫ Gifts or transfer of property at a value significantly lower
than the consideration paid by the debtor.
▫ Any transaction deliberately intended.
to put the assets of entity beyond the reach
adversely affect the interest to any claim
▫ Any financial or operating debt on exorbitant terms.
60
Power of the RP or liquidator to seek avoidance and
reversal of transactions
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Distribution of Assets: Order of Priority• Insolvency resolution process costs and the liquidation costs paid in full• debts which shall rank equally▫ debts owed to a secured creditor in the event such secured creditor has relinquished
security▫ workmen‟s dues for the period of 24 months preceding the liquidation commencement
date• wages and any unpaid dues owed to employees▫ other than workmen for the period of 12 monthspreceding the liquidation
commencement date• financial debts owed to unsecured creditors• dues which shall rank equally▫ amount due to the CG and the SGincluding the amount to be received on account of the Consolidated Fund of India and the
Consolidated Fund of a State, if any, in respect of the whole or any part of the period of 2years preceding the liquidation commencement date;
▫ debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;
• any remaining debts and dues;• preference shareholders, if any; and• equity shareholders or partners, as the case may be.• from the proceedsFees payable to liquidator shall be deducted proportionately
payable to each class of aforementioned recipients
61
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62
Distribution of Assets: Order of Priority• The section brings very important changes in the priority
of distribution.▫ First, it puts government dues, which, by several specific
statutes are put on the top of the waterfall, to a positionbelow unsecured lenders.
▫ Second, it distinguishes between financial creditors andoperational creditors, putting the former in priority over thelatter.
▫ Third, by putting the unrealized part of a secured creditor‟sclaim who enforces security interest outside liquidation, to aposition subordinated to unsecured creditors, it gives apositive temptation to secured creditors to join the queue inwinding up,and gain priority.
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Critical question for Secured Creditor
• Whether to stay in liquidation proceedings, or stay out of liquidation?
▫ Creditors will have to take an early call on Secure Liquidation –Whether to Stay Out of Liquidation or Stay in
Staying out – secured creditor enforces security interest, forremaining claim, he is at par with unsecured lenders
Staying in - secured creditor relinquishes security interest. Assetbecomes part of the common pool. Secured creditor gains firstpriority out of all assets
▫ Decision to be based on:LTV ratio of the secured asset vs. LTV ratio of other free assets
of the entityRecovery rate depends on the choice
▫ Choice once made cannot be changed
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Provisioning Implications of the Code
• Once an insolvency resolution application is filed▫ Prima facie, this is an indication of weakness in credit;
should warrant provisioning
• Once resolution application is sanctioned▫ Provisioning may be required based on the fair value
of the restructured facility
• Once company goes into liquidation▫ Deeper provisioning may be required looking at the
deficit on assets
64
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Stage-wise Submission of Reports
• The liquidator shall prepare and submit to the AA
▫ sale report(s)
On sale of an asset
▫ minutes of consultation with stakeholders
▫ the final report prior to dissolution
67
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Resolution Plan• Section 5 (26) defines “resolution plan” -
▫ a plan proposed by any person for insolvency resolution of
the corporate debtor as a going concern in accordance with
Part II
• Resolution plan is prepared by resolution applicants –
▫ Resolution applicant can be creditors of the corporate
debtor, prospective lenders, prospective investors, or any
other person
• Resolution plan shall be prepared on the basis of
information memorandum prepared by RP
68
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Vertical comparison• Section 30(2) of the Code provides for essential
components in the resolution plan which calls for vertical
comparison
▫ Resolution plan must provide for –
Repayment of debts of operational creditors in such
manner as may be specified by the Board
Shall not be less that the amount to be paid to the operational
creditors in the event of liquidation of the corporate debtor under
section 53
• Vertical comparison means a comparison between a
creditor's entitlement in the resolution plan and in a
hypothetical liquidation
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Duties of liquidator
• Make public announcement
▫ Within 5 days from appointment
• Verify the claims submitted▫ Within 30 days from the last date for receipt of claims
• File the list of stakeholders with AA▫ Within 45 days from the last date for receipt of claims
• Inform the secured creditor if a person is willing to buythe secured asset▫ Within 21 days of receipt of the intimation
• liquidate the corporate debtor▫ Within a period of 2 years
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Liquidator's fee
• Fee payable to the liquidator shall form part of the
liquidation cost
• Liquidator shall be paid fees as decided by the
committee before a liquidation order is passed under
section 33(1)(a) and 33(2)
• In all other cases, liquidator shall be paid fees as
provided in next slide
71
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Tabulating Liquidation and Voluntary Liquidation Process under the IBC, 2016
S.No Particulars Part/Regulation Liquidation of Corporate Persons Voluntary Liquidation of Corporate
Persons
1 Sections applicable Both fall under Part II of
the Code on
INSOLVENCY
RESOLUTION AND
LIQUIDATION FOR
CORPORATE PERSONS
Chapter III
Sections 33-54
Chapter V
Section – 59
2 Offence and Penalties Chapter VII of Part II – on
Offences and Penalties
S 69 to 77 for Liquidation – for the penal
provision.
Applicable Chapter VII
3 Regulations Applicable and
w.e.f
IBBI (Liquidation Process) Regulations,
2016
W.e.f 15th December 2016
IBBI (Voluntary Liquidation Process)
Regulations, 2017
W.e.f 1st April 2017
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4 Number of Regulations 41 RegulationsSchedules I&III – Proof of ClaimsII – Books
46 Regulations
Schedules
I, II and III
5 Liquidation
Commencement Date
Defined under IBC code 2016
Section3(17) - "Liquidation
commencement date" means the date
on which proceedings
for liquidation commence in
accordance with section 33 or section
59, as the case may
be;
Insolvency Commencement Date( Sec
50, Sec 46, Sec 43, Sec 36, Date of the
Commencement of the Liquidation
(Sec 38), Liquidation Commencement
Date (Sec 53).
Definition of Insolvency
Commencement Date – Sec 3(12) of the
IBC Code 2016 - "insolvency
commencement date" means the date
of admission of an
application for initiating corporate
insolvency resolution process by the
Adjudicating
Defined under Regulation 2(1)© -
The date on which the proceedings for voluntary liquidation commence as per section 59(5) and Regulation 3(4)
[email protected] 14/12/2017
6 Stakeholders Regulations
2(1)(k)
- “stakeholders” means the
stakeholders entitled to
distribution of proceeds
under section 53.
Regulations 2(1)(f) -“stakeholders” mean the stakeholders entitled to proceeds from the sale of liquidation assets under section 53.
7. Creditor’s Approval There is no question of
approval of creditors in a
regular liquidation process
from section 33 to 54, though it
can be initiated by them
Section 59 – Regulations Proviso to Regulation 3(1)© -Creditors representing 2/3rds of the value of debt shall approve within seven days from the date of passing of the resolution
[email protected] 14/12/2017
8 Initiation of Liquidation
Process
Liquidation of a Corporate Person
Is Initiated under Section 33 of IBC,
2016 by an order of the
Adjudicating Authority
- When Resolution plan is not
received or
- When the Resolution Plan is
rejected
- Decision of the Committee of
Creditors to liquidate the
Corporate Debtor
- On Contravention of the
Resolution Plan approved by
AA, application to AA by those
whose interest is affected
Voluntary Liquidation Proceedings of a corporate person is initiated by a declaration, resolution, approval and information -Of a company given under Section 59 (3) of the IBC 2016-Other than a company under Regulation 3
9 Appointment of
Liquidator
Section 34 of the IBC, 2016
- Resolution Professional
appointed for CIRP under
Chapter II of Part II shall act as a
Liquidator
Resolution passed in the General
meeting for Voluntary liquidation and
appointment of the Liquidator
[email protected] 14/12/2017
10 Replacement of
Liquidator
Under section 34(4) of the IBC, 2016
the AA replaces the liquidator on
two grounds
- The Resolution plan submitted
u/s 30 fails to meet the
requirement
- The board recommends
replacement of liquidator
No specific provision
11. Liquidator’s Fee Section 34(9) states that the
Liquidator’s fee shall be paid from
the proceeds of liquidation estate.
According to Regulation 4
- Fee agreed upon by the
Committee of Creditor before
Liquidation order passed under
33(1)(a) and 33(2). (Reg 4(2))
- Fee as a percentage of assets
realized in all other cases (Reg
4(3))
According to regulation 7 the liquidator remuneration will form part of Liquidation Cost
[email protected] 14/12/2017
12 Powers and Duties of the
Liquidator
Section 35 of the IBC 2016 Section 35(1) (a) to (o) defines 15 duties
and powers of the Liquidator
Chapter III covering regulations 5-11
1. Reporting
2. Books to be maintained
3. Appointment of Professionals
4. Consultation with Stakeholders
5. Personnel to extend co-operation
6. Disclaimer of Onerous property
7. Extortionate Credit transactions
Chapter IV covering regulations8-14
1. Reporting
2. Books to be maintained
3. Appointment of Professionals
4. Consultation with Stakeholders
5. Extortionate Credit transactions
6. Public Announcement
13 Power of the Liquidator
to access information
Section 37 of the IBC 2016 Notwithstanding anything contained in
any other law for the time being in
force, the liquidator can access
information from
- an information utility
- credit information systems
- agency of Central, State or Local
Government
- Financial/Non- Financial information
utility
- Information systems for securities
- Database of the board
- Any other source specified by the
board
Same thing applicable for Voluntary
liquidation due to application of section
59(6)
114
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14 Liquidation Estate Section 36 (1) to (4) – The
liquidator holds it in a
fiduciary capacity
Estate of the assets listed under section
36 mainly those on which it has
ownership rights. It also includes assets
that do not form part of the assets under
36(4) mainly assets owned by a third
party
Section 59 (6) - The provisions of
sections 35 to 53 of Chapter III shall
apply to
voluntary liquidation proceedings for
corporate persons with such
modifications as may benecessary.
15 Consolidation and
Verification of Claims
Section 38 & 39 of the IBC
2016
- The liquidator shall receive or collect
claims within 30 days from the date of
commencement of Liquidation
- Both financial and operational
creditors shall submit claims with
supporting documents
- Financial creditor (Form
- Claims can be withdrawn within 14
days from the date of submission
- The claims are verified and further
supporting evidence may be
requested by the liquidator
- Same provisions- Section 59(6)
- Claims shall be proved by the
stakeholder (Reg 15)
Following forms are submitted
- Operational Creditor Form B of
Schedule I (Reg 16)
- Financial Creditor Form C Schedule
I (Reg 17)
- Workmen and employees – Form D
of
- Schedule I (Reg 18)
- Other stakeholder Form E of
Schedule I
- The claimant shall bear the cost of
proving its claims
- Foreign Currency debts are
converted into Indian Rupees on
the liquidation commencement date
- The claims shall be verified within
30 days by the liquidator
- The liquidator shall prepare a list of
stake holders within 45 days from
the last date for receipt of claims
[email protected] 14/12/2017
Cont….
CoC Meeting 7 days from the date of Constitution of CoC Nil
IM 14 Day from the date of Constitution of CoC Nil
Plan Resolution Plan Repayment plan
Notice of the Meeting 7 days 14 days
Adjournment of Meeting Next day 7 days
Publication Notice 5 days 10 days
Consolidation of Claims 30 days 7 days
List of Creditors 30 days 14 Days
Meeting of Creditors Nil 21 Days
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Cross Border Insolvency
Cross-border insolvency broadly covers three aspects:
1
Where foreign creditors have rights/claims over a debtor's assets in another jurisdiction where insolvency proceedings are underway;
2
• Where a debtor has branches/assets in several jurisdictions, including a jurisdiction other than where the insolvency proceedings are underway; and,
3
• Where a debtor entity is subject to insolvency proceedings simultaneously in one or more jurisdictions.
[email protected] 14/12/2017 118
Cross Border resolution before Code
• Recognition of foreign insolvency proceedings is one of the foremostobjectives of any legal regime that seeks to address cross-borderinsolvency
1
2
3
• Indian law recognises foreign judgments and foreign decrees of some reciprocating territories, such as the UK and Singapore.
• Section 13 and 44A of the Code of Civil Procedure, 1908.
• No recognition has been accorded to foreign proceedings, including insolvency-related proceedings, such as reorganisations.
[email protected] 14/12/2017 119
Cross Border Insolvency & IBC, 2016
A liquidator is empowered to take custody/control of and sell the assets and property (including those situated outside India) of a corporate debtor. (Section 35(1)(b) and (f) of the Code)
Enabling mechanism under which the central government of India may enter into reciprocal agreements with the governments of any country for the purpose of enforcing the provision of the Code (Sec 234)
In the course of the insolvency/bankruptcy proceedings, a resolution professional/ liquidator/bankruptcy trustee may make an application to the relevant adjudicating authority seeking evidence or action in relation to assets of the debtor/guarantor in a country with whom India has entered into a reciprocal arrangement. (Sec 235)
[email protected] 14/12/2017 120
Institutional Entities under the IBC, 2016
Insolvency and Bankruptcy Board of India (IBBI)
Adjudicating Authority (AA) – NCLT , NCLAT, DRT, DRAT, SC
Insolvency Professionals Agencies (IPA)
Insolvency Professionals (IP)
Information Utilities (IU)[email protected] 14/12/2017 121
Insolvency Professional
A person enrolled u/s 206 with an insolvency professional
agency as it’s MEMBER
And Registered with the Board
u/s 207.
[email protected] 14/12/2017 122
Transfer of Proceedings from High Court to Tribunal
COMPANIES (TRANSFER OF PENDING PROCEEDINGS) RULES, 2016 clarifies as follows
• Winding up proceedings pending before High Court (HC) on account of inability to pay debts
• All proceedings pending before HC as on 15th December, 2016
• And the notice for which has not been served on the respondent
• Shall stand transferred to the respective Bench of the Tribunal having jurisdiction
• And shall be dealt with according to the PROVISIONS OF THE CODE
• Winding up proceedings pending before High Court (HC) on account of other than inability to pay debts
• All proceedings pending before HC as on 15th December, 2016
• And the notice for which has not been served on the respondent
• Shall stand transferred to the respective Bench of the Tribunal having jurisdiction
• And shall be dealt with according to the provisions of the COMPANIES ACT, 2013
[email protected] 14/12/2017 123
Transfer of Proceedings from High Court to Tribunal…
• Winding up proceedings pending before High Court (HC) relating to Voluntary Winding Up
• All proceedings pending before HC as on 1st April, 2017
• Shall continue to be dealt with by the High Courts
• In accordance with the provisions of the COMPANIES ACT, 1956
Winding up Proceedings
transferred to NCLT
Inability to Pay Debt IBC, 2016
Other than Inability to Pay Debt
Companies Act, [email protected] 14/12/2017 124
Adjudicating Authority (AA)
AA
For Corporate Persons
Part II
NCLT
For Partnerships and Individuals
Part III
Debt Recovery Tribunal
[email protected] 14/12/2017 125
Adjudicating Authority for corporate persons
• National Company Law Tribunal▫ having territorial jurisdiction over the place where the registered office of the
company is located• Appellate Authority is the National Company Law Appellate Tribunal▫ Appeal to be filed within 30 days▫ Extension of maximum 15 days allowed, provided there is "sufficient cause"
• Appeal to Hon’ble Supreme Court▫ Against orders of NCLAT on a question of law▫ Within 45 days of receipt of NCLAT's order
• Jurisdiction of any Civil Court of authority barred• Strict timelines for NCLT/NCLAT▫ Reasons to be recorded for not passing orders within time limits specified in the
Code▫ Non-obstante provisions – override the Companies Act, 2013▫ President of NCLT/Chairperson of NCLAT may extend the period specified
under the Code to a maximum of 10 days – reasons to be recorded
103
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Adjudicating Authority for individuals and Firms
• The Debt Recovery Tribunal (constituted under the RDDBFI Act)▫ having territorial jurisdiction over the place where the individual debtor actually
and voluntarily resides or carries on business or personally works for gain• Appellate authority is the Debt Recovery Appellate Tribunal▫ Appeal to be filed within 30 days▫ Extension of maximum 15 days possible, provided there is "sufficient cause"
• Appeal to Supreme Court▫ Against an order of DRAT(on question of law), within 45 days▫ Extension possible for further 15 days, in case there is "sufficient cause"
• Jurisdiction of any Civil court or authority barred• Abidance to timelines▫ In case order is not passed by DRT/DRAT within specified timelines, reasons shall
be recorded in writing▫ Chairperson of the DRAT may extend the timelines▫ Extension limits not specified, unlike in the case of NCLT/NCLAT
104
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Resolution Professional / Liquidator
“Resolution Professional", for the purposes of this Part, means
• an insolvency professional
• appointed to conduct the corporate insolvency resolution process and
• includes an interim resolution professional
“Liquidator" means
• an insolvency professional appointed as a liquidator
• in accordance with the provisions of Chapter III or Chapter V of this Part.
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Insolvency Professional Agency
“Insolvency Professional Agency" means anyperson registered with the Board under section 201as an insolvency professional agency”
• Indian Institute of Insolvency Professional of ICAI –
• Web site www.iiipicai.in
• Other IPAs www.icsiipa.com
• www.ipaicmai.in
[email protected] 14/12/2017 129
Information Utility
“ Information utility means a person who is registered with the Board under section 210”
National E-Governance Services Limited- Information Utility registered with IBBI
Role and Responsibility
Create and store financial information.
Accept electronic submission of financial information.
Get the information authenticated before storing.
Provide information.
Publish statistical information.
[email protected] 14/12/2017 130
Report of the Technical Committee on Information Utility: 16th August, 2017
• 14 topics of the Technical Standards out of the 18 listed under the Regulation 13(2) under Chapter IV of the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 (IU Regulations):
• Section I Registration of users (Regulation13(2)(c))
• Section I Identification and Verification of Persons (13(2)(f))
• Section II Unique identifier for each record and each user (13(2)(d))
• Section III Submission of information (13(2)(e))
• Section IV Authentication of information (13(2)(g))
• Section IV Verification of information (13(2)(h))
• Section V Standard terms of service (13(2)(b))
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Cont….
• Section VI Consent framework for providing access to information to third parties (13(2)(j))
• Section VII Data integrity (13(2)(i))
• Section VII Security of system (13(2)(k))
• Section VII Security of information (13(2)(l))
• Section VIII Risk management framework (13(2)(m))
• Section IX Preservation of information (13(2)(q))
• Section IX Purging of information (13(2)(r))
Technical Standards related to remaining four topics under Regulation 13 will be notified separately.
[email protected] 14/12/2017 132
Appeals – Sec 61Points for discussion Section 10FQ of the Co
Act, 1956
Section 421 of theCompanies Act, 2013
Section 61 of the Code
The authority the order
of which is appealable
NCLT NCLT NCLT
When an appeal cannot
be filed
Where the order was
made by NCLT with the
consent of parties.
Where the order is made
by NCLT with the consent
of parties.
No such provision
Who can file an appeal? Any person aggrieved Any person aggrieved Any person aggrieved
Appellate authority NCLAT NCLAT NCLAT
Time-limit for filing an
appeal
Within 45 days Within 45 days Within 30 days
Extension of time-limit No limit specified,
though there is a
provision for extension
Not exceeding 45 days Not exceeding 15 days
83
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Appeals – Sec62Points of comparison Section 10GF of the
Companies Act, 1956Section 423 of theCompanies Act, 2013
Section 62 of the Code
Who can file an appeal? Any person aggrieved by
the order of NCLAT
Any person aggrieved by
the order of NCLAT
Any person aggrieved by
the order of NCLAT
Appeal may be made
before
Supreme Court Supreme Court Supreme Court
Time-limit for filing an
appeal
Within 60 days Within 60 days Within 45 days
Extension of time-limit Not exceeding 60 days Not exceeding 60 days Not exceeding 15 days
84
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Transitional Provisions
Until the Board is constituted or a financialsector regulator is designated under section195 & section 244
• Shall be exercised by the CentralGovernment
Central Government may by regulation provide for
• Recognition of persons having qualification and experience in the field of finance law, management or insolvency as insolvency professional/ agencies
• Recognition of persons with technological, statistical, and data protection capability as information utilities
• Conduct of the CIR, insolvency resolution process, liquidation process, FSP and bankruptcy process
[email protected] 14/12/2017 135
Case Updates
Supreme Court
Uttara Foods And Feeds P Ltd Versus Mona Pharmachem-13th Nov, 2017
Chitra Sharma & Ors. Vs. Union of India & Ors.
Alchemist Asset Reconstruction Company L. Vs. Hotel Gaudavan P. L.&Ors.- 23 Oct2017
Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited- 21 Sep 2017
Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Co. Ltd.- 19 Sep 2017
Innoventive Industries Ltd. Vs. ICICI Bank & Anr. Civil Appeal Nos.8337-8338 of 2017 -31 Aug 2017
Mothers Pride Dairy India Pvt. Ltd. Vs Portrait Advertising and Marketing Pvt. Ltd. -28th July 17
[email protected] 14/12/2017 136
Supreme Court
Neelkanth Township and Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Ltd.- 23 Aug 2017
Lokhandwala Kataria Construction Private Limited Vs. Nisus Finance and Investment Managers LLP-24th July 17
Falcon Tyres Ltd. Vs Edelweiss Asset Reconstruction Co. Ltd. Writ Petition No. 16486-2017 (GM-Res)- 5th June 2017
New York Mellon London Branch Vs Zenith Infotech Ltd. -21st Feb 2017
[email protected] 14/12/2017 137
Case Updates
High Court
In the matter of Sanjeev Shriya- 06 Sep 2017
Essar Steel India Ltd. Vs. RBI-17th July 17
Uttam Galva Steels Ltd Vs UOI and Ors- 20th April 17
Sree Metaliks Ltd and Anr vs UOI- 07th Apr 17
Innoventive Industries Limited vs UOI and Ors- 23 Feb 17
[email protected] 14/12/2017 138
Case UpdateNCLAT
CKPL Steels Pvt Ltd Vs. Ashok Magnetics Ltd - 05 Dec 2017
Sobha Limited Vs. Pancard Clubs Ltd.- 04 Dec 2017
Steamline Industries Ltd. Vs. Tecpro Systems Ltd. - 04 Dec 2017
Sysco Industries Ltd. Vs. Ecoplast Ltd. - 31 Aug 2017
Aditya Kumar Jajodia Vs. Srei Infrastructure Finance Ltd.- 30 Nov 2017
Amod Amladi Vs. Sayali Rane & Anr.- 30 Nov 2017
Annapurna Infrastructure Pvt. Ltd. and Anr. Vs. SORIL Infra Resources Ltd. - 29th Aug 2017
Bhash Software Labs Pvt. Ltd. Vs. Mobme Wireless Solutions Ltd. 29th Aug 2017
Design Worx Infrastructure India Pvt. Ltd. Vs Premier Restaurants Pvt. Ltd. –01.08.2017
Shilpi Cable Technologies Ltd. Vs Macquarie Bank Ltd. - 01.08.2017
Inox Wind Ltd. Vs Jeena & Co.- 28.07.2017
[email protected] 14/12/2017 139
NCLAT
Rubina Chadha & Anr. Vs AMR Infrastructure Ltd.- 21.07.2017
Unimark Remedies Ltd. Vs Ashok Alco Chem Ltd.-21.07.2017
Nikhil Mehta and Sons Vs AMR Infrastructure Ltd.-21.07.2017
Macquaire Bank Limited. Vs Uttam Galva Metallics Limited.-17.07.2017
M/s. Hotel Gaudavan Pvt. Ltd. Vs Alchemist Asset Reconstruction Co. Ltd.- 17.07.2017
KKV Naga Prasad Vs Lanco Infratech Ltd.- 13.07.2017
[email protected] 14/12/2017 140
Case update NCLT
Principal Bench
• M/s. India bulls Housing Finance Ltd Vs. Deltronix India Ltd-24.11.2017 u/s 7
• M/s.Central Bank of India VS Moser Bear Solar Ltd- 14.11.2017 u/s 7
• M/s. Alchemist Asset Reconstruction Co. Ltd VS Moaser Bear India Ltd-14.11.2017 u/s 7
• M/s. ACPC Enterprises VS Affinity Beauty Salon Pvt ltd.--10.11.2017 u/s 7
• M/s. Central Bank of India VS NCML Industries Ltd--07.11.2017 u/s 7
• M/s.ICICI Bank ltd VS Tirupati Inks Ltd- 02.11.2017 u/s 7
• M/s. Axis Bank Ltd. And DBS Bank Ltd Vs. Edu Smart Services Pvt. Ltd.-27.10.2017 u/s 7
• Free Culture Apparels Pvt. Ltd- 01 Sep 2017 u/s 9.
[email protected] 14/12/2017 141
NCLT-Principal Bench
• M/s.State Bank of India Vs Bhushan Steel Limited-26.07.2017 u/s 7
• M/s S2 Infotech International Ltd. VS Inrtarvo Technollgies Pvt. Ltd.-14.07.2017 u/s 9
• M/s Penugodna Saitsh Babu VS Amarpali Biotech India Pvt. Ltd.-04.07.2017 u/s 9
• M/s. Macquarie Bank Ltd. V/s. M/s. Shilpi Cable Technologies Ltd.-24.05.2017 u/s 9
[email protected] 14/12/2017 142
Case Update
• Other Benches:
• M/s. Rudra Mercantile Pvt. Ltd. V. Nugen Machineries Ltd.-07.12.2017 u/s 9
• M/s. Nikhil Intermediates Pvt Ltd v. Vintex Rubber Pvt Ltd--01.12.2017 u/s 9
• M/s. Dhirajlal Vrajlal Selani v. SBI- 01.12.2017 u/s 10
• M/s. L&T Finance Ltd. V. Logix Express Pvt. Ltd.- 29.11.2017 u/s 7
• M/s. Globe Express Services (Overseas Group) Limited & Anr Vs MM Cargo Container Line Private Limited- 27.07.2017 u/s 9
• M/s. Inox India Pvt Lt.d V. JBF Petrochemicals Ltd.- 28.11.2017 u/s 9
• M/s. Shree RAdhe Industries Ltd.-04.12.2017 u/s 7
• M/s. Nvento Foods Technologies Pvt. Ltd-29.11.2017 u/s 7
• M/s. Tehri iron and Steel Casting Ltd. Vs Punjab National Bank- 27.07.2017 u/s [email protected] 14/12/2017 143
NCLT-other benches
• M/s Aggarwal Elastics through Vs Ms Anu Elastics Pvt. Ltd.- 25.07.2017 u/s 9
• M/s State Bnak Of India Vs M/s. Garg Inox Ltd.- 25.07.2017 u/s 7
• M/s Maheshawar Textiles Vs. Zapp India Ltd.- 20.07.2017 u/s 9
•
M/s. Agricore Commodities Pvt. Ltd. v. Anil Ltd.- 25.07.2017 u/s 9
• M/s.Rajesh Lohia, IRP Vs. Bhagwan Motors Pvt. Ltd. & Others- 21.07.2017 u/s 9
• M/s. SREI Infrastructure Finance Ltd. Vs. K.S.Oils Ltd.- 21.07.2017 u/s 7
• M/s. Nagai Power Pvt. Ltd. Vs. GEI Industrial Systems Ltd.- 20.07.2017 u/s 9
• M/s. Spectrum Trimpex Ltd. v Anil Ltd.- 20.07.2017 u/s 7
[email protected] 14/12/2017 144
Case Update
IBBI: In the matter of IP registration
3 cases filed till now
Judgement dated: 02 Mar 2017, 14 Mar 2017, 29 Jun 2017
The name of the applicant are not disclosed
• the applicant had submitted an application under regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 seeking certificate of registration as an Insolvency Professional
[email protected] 14/12/2017 145
The Banking Regulation (Amendment) Act, 2017• The Banking Regulation (Amendment) Ordinance, 2017-Notified on 4th
May, 2017
• dealing with bank’s stressed assets
• The two new Sections has been inserted (viz. 35AA and 35AB)
• It enables:
1) RBI is authorised to issue directions to any bank to initiate insolvency resolution process in respect of a default under the Insolvency and Bankruptcy Code, 2016.
2) The RBI has also been empowered to issue other directions for resolution, and appoint or approve for appointment, authorities or committees to advise banking companies for stressed asset resolution.
• The Banking Regulation (Amendment) Bill, 2017 was introduced in Lok Sabha on 24.07.2017 and passed on 03.08.2017
• Passed in Rajya Sabha on 10.08.2017 and receives President assent-25/08/2017
14/12/2017 146
RBI press release-May 22, 2017
• It was clarified that a corrective action plan could include flexible restructuring, SDR and S4A.
• With a view to facilitating decision making in the JLF, consent required for approval of a proposal was changed to 60 percent by value instead of 75 percent earlier, while keeping that by number at 50 percent.
• Banks who were in the minority on the proposal approved by the JLF are required to either exit by complying with the substitution rules within the stipulated time or adhere to the decision of the JLF
• Participating banks have been mandated to implement the decision of JLF without any additional conditionality.
• The Boards of banks were advised to empower their executives to implement JLF decisions without further reference to them
• It was made clear to the banks that non-adherence would invite enforcement actions.
• On 22 May, 2017, the RBI also announced that it will form a committee to recommend cases for the IBC process. Accordingly, Internal Advisory Committee (IAC) was formed on 13 June, [email protected]
14/12/2017 147
IAC Recommendation-(RBI Press release 13 June, 2017) • 7 Paragraphs are there
• The IAC also arrived at an objective, non-discretionary criterion for referring accounts for resolution under IBC. In particular, the IAC recommended for IBC reference all accounts with fund and non-funbased outstanding amount greater than ₹ 5000 crore, with 60% or more classified d as non-performing by banks as of March 31, 2016.
• The IAC noted that under the recommended criterion, 12 accounts totalling about 25 per cent of the current gross NPAs of the banking system would qualify for immediate reference under IBC.
• As regards the other non-performing accounts which do not qualify under the above criteria, the IAC recommended that banks should finalise a resolution plan within six months. In cases where a viable resolution plan is not agreed upon within six months, banks should be required to file for insolvency proceedings under the IBC.
• The Reserve Bank, based on the recommendations of the IAC, will accordingly be issuing directions to banks to file for insolvency proceedings under the IBC in respect of the identified accounts. Such cases will be accorded priority by the National Company Law Tribunal (NCLT).
[email protected] 14/12/2017 148
12 cases RBI identifies for insolvency proceedings• 1. Essar Steel
•2. Monnet Ispat & Energy
• 3. Bhushan Steel
• 4. Bhushan Power & Steel
• 5. Era Infra Engineering
• 6. ABG Shipyard
• 7. Jaypee Infratech
• 8. Amtek Auto
• 9. Alok Industries
• 10. Lanco Infratech
• 11. Electrosteel Steels
• 12. Jyoti [email protected] 14/12/2017 149
Essar Steel case
• Total Debt- Rs 45,000 crore
• Cases filed at Ahmedabad Bench of NCLT
• M/s.Standard Chartered Bank Ltd vs Essar Steels Ltd- u/s 7- 2.08.17
• M/s.State Bank of India vs Essar Steels Ltd- u/s 7- 2.08.17
• Two separate applications were filed. In case of SCB direction of RBI is not applicable. The direction given to SBI by RBI is held to be valid by High court.
• Name of IRP was proposed by both. IRP proposed by SBI is to be appointed as the value of debt of JLF is far more than the value of SCB.
• IRP-Shri Satish Kumar Gupta
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Monnet Ispat & Energy-SBI vs. Monnet Ispat& Energy
• Debt- Rs 1539.33 crore
• Mumbai bench
• Filed u/s 7
• Pronounced on 18.07.17
• Debt due to: State Bank of Patiala, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore
• Since State Bank of Patiala, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore have been merged with State Bank of India, with effect from 1.4.2017, the resulting bank, i.e. State Bank of India has filed this Petition for initiation of Insolvency Resolution Process on the ground that this Debtor defaulted to repay 1539,33,72,303.63 was due outstanding as on 21.6.2017.
• Petition is admitted
• IRP- Mr. Sumit Binani
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Bhushan Steel Case-M/s.State Bank of India Vs Bhushan Steel Limited
• Case filed at Principal Bench
• Debt-4390.75 Crore in Indian Currency
• 49,684,877-towards foreign currency loan
• Pronounced on 26.07.17
• this petition is admitted
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Bhushan Power & Steel Case-Punjab National Bank vs. Bhushan Power & Steel-
• Case filed at Principal Bench u/s 7
• defaulted amount under the Term Loan Agreement I as on 31.05.20 17 is Rs. 17,04,00,000/ -
• Term Loan Agreement II , the defaulted amount is claimed to be
• -Rs.34 ,73,00,000/ -
• Pronounced on 26 .07.2017
• this petition is admitted
• IRP- Mr. Mahender Kumar Khandewal
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ABG Shipyard-M/s. ICICI Bank Ltd. vs. ABG Shipyard Ltd
• Case filed at Ahmedabad bench u/s 7
• Total debt- 4291.90 crores
• Pronounced on 1.08.17
• Petition is admitted
• IRP-Mr. Sundares Bhatt
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Amendment in press release issued by RBI on 13th June. 2017
• Reserve Bank of India’s Circular dated June 13, 2017 directing National Company Law Tribunal (NCLT) to accord priority to the cases of 12 defaulters identified.
• The third line of paragraph no. 5 of the Press Release, which reads as follows: Such cases will be accorded priority by the National Company Law Tribunal (NCLT).... stands deleted.
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Press release challenged by Essar Steel India Ltd
• The Gujarat High Court in Essar Steel India Ltd case, said that RBI has to be careful while issuing press releases; it must be in consonance with the Constitutional Mandates, based upon sound principles of Law, but in any case should not be in the form of advise, guidelines or directions to judicial or quasijudicial authorities in any manner what so ever.
• RBI observed that:
• “such cases will be accorded priority by the National Company Law Tribunal…” was a serious issue, as “nobody is entitled or empowered to advise, guide or direct the judicial or quasi-judicial authority in any manner whatsoever”.
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SEBI Requires Disclosure of Loan Defaults
• SEBI issued a Circular dated July 18, 2017 by which it required listed banks to disclose to the stock exchanges divergence in the asset classification and provisioning in certain two circumstances, viz. where
• (i) the additional provisioning requirements assessed by the Reserve Bank of India (RBI) exceed 15 percent of the published net profits after tax for the reference period; or
• (ii) the additional gross non-performing assets (NPAs) identified by the RBI exceed 15 percent of the published incremental gross NPAs for the reference period.
• Circular also provides for the format in which the above disclosures are to be made
.
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SEBI circular dated-4th August 2017
Disclosures by listed entities of defaults on payment of interest/ repayment of principal amount on loans from banks / financial institutions, debt securities, etc.
• The disclosures shall be made to the stock exchanges when the entity has defaulted in payment of interest / instalment obligations on debt securities (including commercial paper), Medium Term Notes (MTNs), Foreign Currency Convertible Bonds (FCCBs), loans from banks and financial institutions, External Commercial Borrowings (ECBs) etc.
• The entities shall make disclosures within one working day from the date of default at the first instance of default in the format specified
• The disclosure requirements take effect from October 1, 2017.
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Removal of difficulties: the Insolvency and Bankruptcy Code (Removal of Difficulties) Order, 2017
• Notified on 24th May, 2017
• The following proviso shall be inserted Section 4(b) after the second proviso of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003-
“Provided also that any scheme sanctioned under sub-section (4) or any scheme under implementation under sub-section (12) of section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall be deemed to be an approved resolution plan under sub-section (1) of section 31 of the Insolvency and Bankruptcy Code, 2016 and the same shall be dealt with, in accordance with the provisions of Part II of the said Code:
Provided also that in case, the statutory period within which an appeal was allowed under the Sick Industrial Companies (Special Provisions) Act, 1985 against an order of the Board had not expired as on the date of notification of this Act, an appeal against any such deemed approved resolution plan may be preferred by any person before National Company Law Appellate Tribunal within ninety days from the date of publication of this order.”[email protected] 14/12/2017 159
Insolvency Professionals to act as Interim Resolution Professionals (Recommendation) Guidelines, 2017
• Issued on 25th May, 2017
Provides:
• Who can act as IRP?
• Determination of Vicinity
• Expression of Interest of IPs in Form A
• Eligible IPs
• Process of selection of IP
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Professional Opportunities
1. Studying the business of the Company and the various business verticals in which it operates.
2. Studying and understanding the entire debt profile of the Company with specific focus on the debt owed to the financial creditor, operational creditor and other stake holders.
3. Analysing the financial statements of the company for the last 3 years.
4. Preparation and filing of the Corporate Insolvency Resolution Process Application with the Adjudicating Authority.
5. Appointing the Interim Resolution Professional / Resolution Professional in consultation with the clients.
6. Assisting on Public Announcement as required under the Code.
7. Advising on the preparation of Information Memorandum and Statement of Affairs as may be desired by the Insolvency Professional in terms of the code.
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Professional Opportunities
8. Studying the sanction letters and the correspondences with the financial creditors, operational creditors, committee of creditors and Insolvency and Bankruptcy Board of India during the Corporate Insolvency Resolution Process.
9. Assisting the client in all correspondences with the Lenders, Committee of Creditors, Corporate, NCLT, NCLAT and IBBI.
10. Assisting the client in appointing the Registered Valuers, Legal and other Professionals.
11. Reviewing the Minutes of meeting of Committee of Creditors and any other Meetings of similar nature by creditors and advising the Company on the contents therein.
12. Assisting the Company in evolving strategy from Legal/ financial point of view in the meeting of Committee of Creditor/ various other similar meeting with creditors.
13. Exploring the various available restructuring options. Conceptualize and thereafter strategize a best fit restructuring options or a combination of two or more options for the best possible fast recovery of SEFL dues.
14. Preparation of the financial model and a Resolution Plan based on the mutually agreed commercial viable financial structure.
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Professional Opportunities15. Meeting, conference and discussion with the Insolvency Professional on the resolution plan
and making the necessary changes as suggested therein.
16. Drafting, settling and filing all representations, petitions, replies, rejoinders and all other such pleading as may be necessary before the Adjudicating Authority and appearances for hearing before the Adjudicating Authority.
17. Conferences, consultations, legal opinions and advice etc. with respect to any issues relating to proceeding under the code.
18. Filing and defending of any Applications which may be filed by the company or against the company with NCLT/ NCLAT.
19. Performing all Duties of an Interim Resolution Professional/ Resolution Professional by the Partner/ Director/ Empaneled Resolution Professionals in their individual capacity.
20. Any other assignment under Insolvency and Bankruptcy Code 2016.
• An opportunity of internship to students who wish to pursue a professional career in insolvency, liquidation, bankruptcy or any other related field.
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How to pass Limited Insolvency Examination
• Be optimistic /use subconscious mind
• Read from bare acts /rules/regulations
• Use memory techniques
• Discuss with peers
• Read on whole syllabus
• Read questions attentively –see what is asked
• Attempt all questions
• Appear again with renewed enthusiasm
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Useful websites
• www.mca.gov.in
• www.ibbi.gov.in
• www.insol.org
• www.insolindia.com
• www.iiipicai.org
• www.icsiipa.com
• www.ipaicmai.in
• www.insolvencyprofessionals.org.in
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How to master the subject• Buy all books available in market
• Read the act , rules, regulations, BLRC report , websites
• Repealed laws, allied laws
• Be positive, have time bound goal
• Increase rapport with authors, speakers and regulators
• Give observations on draft regulations
• Attend conferences & seminars
• Visit tribunals and DRTs
• Discuss with peers
• Address programmes
• Be a life time [email protected] 14/12/2017 170
How to Develop Practice
1. Make your presence felt
2. Participate in seminars / programme as speakers, panelists, querists
3. Exchange visiting cards
4. Make website / use social media
5. Write article, books
6. Give suggestions to ministry, regulator, trade bodies
7. Make network / joint venture in different areas
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Invitation to participate in learning exercise
• Co author of books
• In house Training
• Consultancy areas
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