B.RAMANA KUMAR, M.Com., LLB., FCA, ADVOCATE & INSOLVENCY PROFESSIONAL, Chennai.

Transcription

1 I NSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS O F INDIA, Chennai 30 March Workshop on B.RAMANA KUMAR, M.Com., LLB., FCA, ADVOCATE & INSOLVENCY PROFESSIONAL, Chennai.

2

3 Need for a New Law Recovery of debts Too late and Too little Debt market stunted and scared Impacted Global index of Ease of doing business Balance Sheet Test driven and not liquidity driven and hence No Early Warning Systems for resolution

4 Coverage Understanding Insolvency and Bankruptcy Key constituents of the Code Key Concepts of the Code

5 Insolvency Resolution is seamless Default of Debt Application to Adjudicating Authority Insolvency Resolution Process Failure of Resolution Liquidation process is commenc ed Enterprise Liquidation

6

7 Coverage Scenario in India Defaulting Debtor in Possession and its demerits Movement to Creditor in Control

8 Debtor in possession Control and custody of assets continue to vest with debtors even in the event of a debt default. Promoters continue to stay in control with limited rights to creditors except for secured financial creditors who have the right to repossess assets of the defaulter

9 Debtor in possession Debtor in possession presents the following issues Emphasis on secured credit only SME s are starved of credit because they are unable to provide collaterals Debtor in possession is also fraught with possibilities of mishandling of assets of the enterprise by promoters

10 Creditor in Control The IBC proposes a Creditor in Control scenario Once a default occurs, it is the Committee of Creditors who are empowered to make a decision Committee of creditors is constituted to comprise all the financial creditors of the enterprise All decisions of the CoC is by 75% majority Voting share is based on value of debt owing to the creditor

11

12 Structure of the Code Part 1 Preliminary and definitions Part 2 - Corporate Debtors Part 3 - Individuals and Partnerships Part 4 - Board, Professionals, Agencies and Utilities Part 5 Miscellaneous Provisions Parts 2, 3 and 4 have separate chapters within them 255 Sections and 11 Schedules Delegated Legislation enabled by Rules and Regulation

13 THE CODE MECHANISM Adjudicating Authority NCLT and DRT Act Board Utility Agency Professionals

14 Structure of the code Part I- Preliminary Chapters None Sections 1 to 3 Contains details of Basic aspects including applicability and definitions

15 Structure of the code Part II - Corporate Insolvency Process

16 Structure of the code Part III - Insolvency resolution and Bankruptcy for Individuals and partnership firms

17 Structure of the code Part IV - Regulation of Insolvency Professional Agencies and Information Utilities

18 Structure of the code Part V Miscellaneous

19 Structure of the code Schedules to the Code

20

21 Coverage Constituents of the Code Insolvency Resolution Process as envisaged in the Code

22 Code concepts Insolvency The Black s Law Dictionary defines insolvency as The condition of a person who is insolvent; inability to pay one's debts; lack of means to pay one's debts. Such a relative condition of a man's assets and liabilities that the former, if all made immediately available, would not be sufficient to discharge the latter. Or the condition of a person who is unable to pay his debts as they fall due, or in the usual course of trade and business Bankruptcy The Black s Law Dictionary defines Bankruptcy as The state or condition of one who is a bankrupt; amenability to the bankrupt laws; the condition of one who has committed an act of bankruptcy, and is liable to be proceeded against by his creditors therefor, or of one whose circumstances are such that he is entitled, on his voluntary application, to take the benefit of the bankrupt laws

23 Key Constituents Applicants Financial Creditor, Operational Creditor, Debtor in default Committee of Creditors Adjudicating Authority Insolvency and Bankruptcy Board of India Insolvency professional Agency Insolvency Professional Information Utility

24 Code concepts 2 (10) "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decreeholder; 2 (11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt 2 (6) "claim" means (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

25 (20) "operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred; Code concepts 2 (12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be; 5 (6) "dispute" includes a suit or arbitration proceedings relating to (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty; 5 (7) "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;

26 Code concepts (21) "operational debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority

27 Need for IP s Creditor in Possession necessitates a trustee to act on behalf of the creditors and debtors. Hence the need for an insolvency professional The Act provides for a separate category of professionals to be registered for this purpose The IP can be an Interim Professional, Resolution Professional or a Liquidator depending on the circumstances and the phase of operation

28 Key Constituents Applicants Financial Creditor, Operational Creditor, Debtor in default Committee of Creditors Adjudicating Authority Insolvency and Bankruptcy Board of India Insolvency professional Agency Insolvency Professional Information Utility

29 Management Accountants and Insolvency Professionals

30 Need for IP s Creditor in Possession necessitates a trustee to act on behalf of the creditors and debtors. Hence the need for an insolvency professional The Act provides for a separate category of professionals to be registered for this purpose The IP can be an Interim Professional, Resolution Professional or a Liquidator depending on the circumstances and the phase of operation Ovopax Resolutions 30

31 Insolvency professionals Default by Corporate debtor IRP role : Committe of Crs Convene meeting A & L list CoC appoints Resolution Professional Application by Financial Creditor Interim Resolution Professional identified in application Application Admitted Proof of debt Participates in the Resolution plan for the Corporate Debtor within 180 days of CIP Preserves and Protects enterprise value in the calm period of 180 days Ovopax Resolutions 31

32 Insolvency professionals Individuals Fresh Start Order Chapter III for Individuals Part II Individual Insolvency Resolution Process Chapter III for Individuals Part III Individual Bankruptcy Process Chapter IV Part II Corporate Debtors Corporate Insolvency resolution Process Chapter II Part II Liquidation of a Corporate Debtor Chapter III Part II Ovopax Resolutions 32

33 Insolvency professionals Qualifications and Disqualfns Empanelment Appointment Interim RP functions RP functions Liquidator functions Ovopax Resolutions 33

34 IP QUALIFICATIONS Professionals Others Graduate (?) + 15 years experience and enrolled with the relevant professional institute CA CWA CS Lawyer Actuary Graduate (?) + 3 out of last 10 years experience in Financial service provider ARC Debt Restrucuring Turnaround work Liquidation Amalgamations and mergers Winding up Debt finance Monitoring / recoveries of stressed assets Etc.. Ovopax Resolutions 34

35 IP DISQUALIFICATIONS Convicted by any competent court for an offence punishable with imprisonment for a term exceeding six months or for an offence involving moral turpitude or any economic offence, and a period of five years has not elapsed from the date of expiry of the sentence undischarged insolvent, or has applied to be adjudicated as an insolvent; Been declared to be of unsound mind; Minor; Not a fit and proper person; Not qualified the Insolvency Professionals Examination Not enrolled with an insolvency professional agency or the insolvency professional agency with which he claims to be enrolled, has not been appropriately registered or the period of its registration has expired; Not a person resident in India Ovopax Resolutions 35

36 Insolvency professionals Disclosing the registration number assigned to him by the Board and affirming that he is qualified to practise as an insolvency professional Disclosing the number of cases of corporate insolvency resolution process for which he is currently serving as an interim resolution professional, resolution professional or liquidator Disclosing any of the following situations, which may result in conflict of interest in respect of his appointment : The existence of any pecuniary or personal relationship between him and the corporate debtor; and the persons entitled to a distribution if the corporate debtor were to be liquidated and its assets were to be distributed in accordance with section 53 of the Code, (collectively stakeholders); If he is a relative of any of the stakeholders, or is a shareholder of such stakeholder, or is any principal or employee, or is a business partner or has a controlling interest in the business of any of the stakeholders; If he has, at any time during the previous three years, had a professional, financial or business relation with the stakeholders Certifying that there are no disciplinary proceedings pending against him with the Board or the insolvency professional agency he is a member of Ovopax Resolutions 36

37 Insolvency professionals 1. Enrolment with the IP Agency 2. Application to the Insolvency Board ( IBBI ) 3. Examination to be passed 4. Certificate of Registration of the RP by IBBI 5. Transitional registration 6. Renewal of Certificate 7. Provision for cancellation etc Ovopax Resolutions 37

38 RP Role as IRP Rights ( Sec 17 to 20 ) Management of the debtor from the date of appointment vests with IRP Powers of the BoD / partners of LLP are suspended Officers and managers report to the IRP Financial institutions act on instructions of the IRP IRP executes deeds and documents on behalf of the corporate debtor Takes actions with the specification of the BoD Access to all information in the Information utility Ovopax Resolutions 38

39 RP Role as IRP Duties ( Sec 17 to 20 ) Collect all information Collate Claims List of Assets and Liabilities as at initiation date Business operations for 2 years Financial and operational payments for 2 years Other information Received in pursuance of public announcement by Adj. Authority ( NCLT ) Ovopax Resolutions 39

40 RP Role as IRP Duties ( Sec 17 to 20 ) Constitute Committee of Creditors All financial creditors Care on related parties Assignment of voting share Provide all information to CoC Hold first meeting within 7 days Ovopax Resolutions 40

41 RP Role as IRP Duties ( Sec 17 to 20 ) Manage Debtor entity as a going concern Operating professionals report to IRP Appoint other professionals ( CA, lawyers) Enter into contracts / amend / modify Raise interim finance with consent as required from secured creditors Assets of the debtor List, Monitor, Preserve and protect Manage Operations till RP is appointed Ovopax Resolutions 41

42 Roles of an RP ( Sec 17 to 20 ) Resolution professional IRP = 30 days Confirmed or replaced by the CoC and Resolution Professional Role comes into existence Ovopax Resolutions 42

43 RP Role as RP Duties Administer Information memorandum Resolution Plan Appoint relevant professionals Interim finance with consent of CoC Abide by law to ensure that certain actions are done only with the Consent of the CoC Prepare Information memorandum Invite key stakeholders to discuss and put forth resolution plans ( within 180 days ) Ovopax Resolutions 43

44 RP Role as IRP Duties Resolution Plan Seek extension as may be necessary Submit to NCLT for approval Revise The resolution plan Ovopax Resolutions 44

45 Roles of Liquidator Liquidation Triggers Non receipt of resolution plan within 180 days Resolution plan rejected by AA and order passed Decision of CoC ( before resln plan ) to liquidate Contravention of Resolution Plan Ovopax Resolutions 45

46 Roles of Liquidator Claims Assets Operations Collect Collate Maintain records Update and settle Preserve and protect Custody and Control Sell moveable and immoveable property Carry on for beneficial liquidation Draw and accept NI, Pro notes etc Represent the entity as the official liquidator Ovopax Resolutions 46

47 Roles of Liquidator Other Acts Investigate transactions Avoid certain types of transactions Initiate and defend legal suits and proceedings Obtain professional assistance All steps for liquidation Progress Report Progress report to IBBI Ovopax Resolutions 47

48 Roles of Liquidator Liquidation Estate Aggregate all assets into a liquidation estate Maintain priority of payments as specified by law Dissolution Application for dissolution of the liquidation estate Ovopax Resolutions 48

49 QUESTIONS & COMMENTS 49

50 CA B.RAMANA KUMAR ADVOCATE & INSOLVENCY PROFESSIONAL A1, GROUND FLOOR, SARADA APARTMENTS 17/6, SRINGERI MUTT ROAD, RA PURAM, MANDAVELI, CHENNAI PHONE