Insolvency & Bankruptcy Practice

Transcription

1 Insolvency & Bankruptcy Practice

2 Why is the code imperative today? How can the code help? Lender inertia during the CIRP would mean liquidation invariably an economically inferior outcome as compared to resolution 2. Clarity on the insolvency framework will attract investors to invest into stressed/distressed situations 3. Moratorium clause to ensure smooth insolvencyresolution process 4. An open floor for submission of resolution plans should facilitate the approval of the best plan 5. The framework defines the role of the judiciary and leaves limited scope for a legal delay/deferral of the problem What does it change for the Borrowers? 1. Any creditor can file an insolvency petition a default of INR 1 Lakh or more 2. Insolvency professional to takeover the management and operations of the borrower during the corporate insolvency resolution process 3. Borrowers to focus on liquidity ensure tight cash flow and monitoring to stay current on payments 4. Need to be proactive in identifying issues, communicating with lenders and developing/implementing a turnaround plan 5. In case of fraudulent diversion of assets, personal contribution can be sought; imprisonment possible What does it change for the lenders? 1. Right to control the borrower upon default and maximize recovery 2. Option to initiate the process even if the default is in respect of the debt of another lender 3. Need for more robust monitoring systems to enable judicious exercise of powers 4. Lack of lender consensus on resolution plan can push the borrower into liquidation 5. Clear priority of distribution (waterfall) upon liquidation; government dues subservient to those of secured creditors and unsecured financial creditors Why was the code needed? 1. Reduce the time taken to resolve insolvency 2. Develop investor confidence 3. Eliminate confusion caused by a complex judicial framework 4. Address the NPA situation decisively 5. Develop the credit and bond market What does the code intend to change? 1. Create a single insolvency and bankruptcy framework - Set up a clear and unambiguous process to be followed by all stakeholders in a timebound manner 2. Provide a commercial solution to a commercial issue 3. Allow genuine business failures a second chance 4. Clear and unambiguous process to be followed by all stakeholders in a time-bound manner 5. Provide confidence to lenders of their rights & enforcement

3 National Company Law Tribunal (NCLT) Ecosystem Insolvency And Bankruptcy Board (IBBI) Insolvency Professional Agencies (IPA s) Insolvency Professionals (IP) Insolvent Entity Information Utilities (IUS) Committee of Creditors (COC) IBBI apex body for promoting transparency & governance in the administration of the IBC; will be involved in setting up the infrastructure and accrediting IPs & IUs. IUs - Centralised repository of financial and credit information of borrowers; would validate the information and claims of creditors vis-à-vis borrowers, as needed. IPAs- professional bodies registered by the Board to promote and regulate the insolvency profession; these bodies will enrol IPs IPs- Licensed private professionals regulated by the Board; will conduct resolution process; to act as Liquidator/bankruptcy trustee; appointed by creditors and override the powers of board of directors. Adjudicating Authority (AA) - would be the NCLT for corporate insolvency; to entertain or dispose any insolvency application, approve/ reject resolution plans, decide in respect of claims or matters of law/ facts thereof. COC- consists of financial creditors to who will appoint and approve actions of IPs

4 Emergence of Insolvency Code Globally Bankruptcy and Insolvency Act Recovery rate (cents on the dollar): 87.4 Time taken (years): 0.8 Text 9.4 Singapore Bankruptcy Act Recovery rate (cents on the dollar): 88.7 Time taken (years): 0.8 United States of America 1978 Results Canada 1985 USA: Recovery Rate United Kingdom 1986 Singapore 1995 India 2016 United States Bankruptcy Code Recovery rate (cents on the dollar): 78.6 Time taken (years): 1.5 Text 4.4 Text 4.4 Text 4.4 Text 3.7 United kingdom Insolvency Act Recovery rate (cents on the dollar): 88.6 Time taken (years): 1 Insolvency & Bankruptcy Code Recovery rate (cents on the dollar): 26 Time taken (years): 4.3

5 Current Status Ease of doing business ranking 130 out of 189 countries 72,841 cases pending in 33 debt recovery tribunals The stressed assets peaked at 10 lakh crore, 15% of gross advances in Cost of insolvency procedures amount to a 9 percent of the value of the estate. Average recovery rate of debtors is close to 26 cents per dollar. Average time taken for liquidation in India is 4.3 years

6 Driving factors Shift of control from the defaulting debtor s management to its creditors Time bound resolution process to preserve the economic value entire process should be completed in 180 days (270 days in case of extension) Brings financial lenders to a platform enabling quick decision making and arriving at consensus quickly If negotiations fail to establish viability, the outcome of bankruptcy becomes binding No injunction can be granted by any court, tribunal or authority in respect to action taken by adjudicating authority Lender can initiate the process even if the default is in respect of the debt of another lender Creditor approved resolution professional is appointed ensuring unbiased decision making Clear and fair distribution of funds in case of liquidation, government dues not to get priority Protection of assets of secured borrowers with maximisation of realisation Positive support from government for realisation and resolution of NPAs Recent govt. ordinance authorises RBI to force banks to use IBC

7 Resolution Process Application to Adjudication Authority Appointment of Interim Resolution Professional Moratorium Period Formulation of Credit Committee Formulation of Information Memorandum and Resolution Plan Resolution plan proposed by creditors YES Implement the Plan Resolution plan proposed by creditors 75% approve the proposed plan NO Liquidate the company

8 Resolution Process Highlights Interim Resolution Plan Financial creditor applicant shall propose the name of an IRP in the application. It is optional for the operational creditor to propose the name of an interim IP Moratorium Interim Resolution Resolution Interim Plan PlanResolution Plan Resolution Plan Payment of insolvency resolution process costs. Pay liquidation value to operational creditor in 30 days and to dissenting financial creditor before other financial creditors. Management of affairs of the borrower after the plan is approved. Implementation and supervision of the approved plan. Fast Track Insolvency NCLT to declare moratorium from the insolvency commencement date until the completion of insolvency. Moratorium shall prohibit: 1. Institution of suits 2. Transfer of shares 3. Recovery of assets Moratorium Fast Track Insolvency For debtors with: Assets and income below a level Such class of creditors Other categories As may be notified by the central government (completed in 90 days) COC COC Voting Power Voting Power Consists of financial creditors only, excluding related parties. Will confirm or replace IRP as RP To approve several actions of RP. COC can replace IP during CIRP by 75% approval. Only financial creditors have voting rights in the committee in the ratio of the debt owed. All decision of the committee shall be approved by 75% of financial creditors. If all members are not present at a meeting, a vote shall not be taken at the meeting and the RP can seek vote by an electronic voting system. Directors of the suspended board and operational creditors can attend the meeting but would not have any voting rights

9 Liquidation process Liquidation Process Appointment of Liquidator Formation of Liquidation Estate Consolidation and Verification of claims Distribution of Assets Priority of Claims Costs and Expenses of Insolvency Workmen s dues for the period of twenty-four months & dues of Secured Creditors Wages any unpaid to the employees Dues to central government and state government Unsecured Financial Creditors

10 Role of Insolvency Professional Duties of resolution professional as per Section 25 :- Takes custody and control of all assets of the corporate debtor - including the business records of the corporate debtor Raise interim finances subject to the approval of the committee of creditors Appoint accountants, legal or other professionals in the manner as specified by Insolvency Board Invite prospective lenders, investors and any other persons to put forward resolution plans Present all resolution plans at the meetings of the committee of creditors Continuation of business as a going concern on behalf of the corporate debtor. Acts as a liquidator unless replaced by the Adjudication Authority and performs the following functions: o o o o Verification and settlement of claims of creditors Evaluation of assets and property Measures to protect and preserve the assets and properties Sale of immovable property and actionable claims

11 Legal Framework Adjudicating Authority The code has established two separate tribunals to adjudicate grievances related to insolvency, bankruptcy and liquidation of different entities under the law: i) NCLT will have jurisdiction over companies and LLPs ii) the Debt recovery Tribunal will have jurisdiction over individuals and partnership firms. Key Legal Differentiators Board Insolvency and Bankruptcy Board of India(IBB) is an apex body governing Insolvency and Bankruptcy Code The major function of the board is to exercise regulatory measures on insolvency professionals, insolvency professional agencies and information utilities. Agency Insolvency Professional Agencies (IPAs) would admit insolvency professionals as members. o Currently there are three IPAs Indian Institute of Insolvency Professionals of ICAI ICSI Insolvency Professional Agency Insolvency Professional Agency of Institute of Cost Accountants of India Topic Current Regime The Code What constitutes insolvency Class of creditors Inability to pay debt/erosion of net worth Secured and unsecuredseparate classes recognised Default of amount higher than INR 1 lakh Financial and operational no subclasses. Committee of creditors consists of financial creditors only Management during CIRP Liquidator RP under supervision COC Information Utilities The information utilities shall act as a regulated information agency which shall electronically record, maintain and provide access of financial information to the persons as may be specified e.g. creditors Preferential payments Exclusions from liquidation estate Institutional Framework Certain government dues had priority over secured debt N/A Fragmented. Spread across various authorities & forums Government dues rank after financial unsecured debt. Trade creditors rank below financial creditors Netting and set off recognised on financial control Amends and consolidates laws relating to insolvency and reorganization of companies, partnerships and individuals. NCLT is the AA for CIRP. Also envisages establishment of information utilities. Insolvency Professionals Insolvency professionals play a vital role in the insolvency and bankruptcy resolution process as envisaged by the Committee Insolvency professionals form a crucial pillar upon which rests the effective, timely functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution process.

12 Presence About KG Somani & Co. K G Somani& Co (KGS) is a 3rd generation Chartered Accountants firm, practicing in India for over 5 decades. The Managing Partner, Mr. KG Somani is the past president of Institute of Chartered Accountants of India and has represented India on the council of International Federation of Accountants. KGS has an international presence in about thirty countries being a member of TGS Global Network and it also has networking of firms under the regulation of the Institute of Chartered Accountants of India through its affiliates & offices at five major cities in India. KGS has association with Financial Institutions, Banks, Power Companies and Corporations, Manufacturing and Transport (including Railways & Aviation) Industry etc. in and outside India. KGS Network in India Mexico and USA Austria, Belgium, Cyprus, Czech Republic, France, Germany, Hungary, Italy, Malta, Netherlands, Portugal, Spain, United Kingdom Argentina, Brazil, Uruguay and Venezuela Angola & Kenya China, Indonesia, Singapore, Thailand, Turkey, United Arab Emirates, Australia

13 KGS Advantage Services Auditing Taxation Financial Services Advisory & Liasoning Sectors Banking NBFC Industrial Products Automobiles Textile FMCG Power Generation Print Media Hospitality Dairy Engineering and Construction Others Network & Experience KGS has an extensive network of Banks, NBFCs, VC/PEs and other financial institutions. It has presence in the accounting field for more than 5 decades and by leveraging on this experience, it is able to offer quality services to its clients KGS Team Our team of dedicated professionals have committed their experience and skills to provide high quality professional services to the clients with the commitment to the highest standards of ethics and integrity. Empanelments RBI panel for statutory audits of public sector banks Comptroller Auditor General of India Chief Commissioner of Income Tax New Delhi Nationalized Banks, Govt. of India Public Company Accounting Oversight Board World Bank/ United Nations Serious fraud Investigation Office Presence Domestic network: AVS & Affiliates AVS has a pan India presence with around 50 partners and around 280 staff member International Network: TGS Global a global accountancy network specializing in accounting, audit, tax, & commercial legal services.

14 Introducing KGS in insolvency practice Besides providing services in various financial and taxation matters along with consultancy in managerial field, our firm has well experienced Insolvency Professionals KGS Services as Insolvency Professionals: 1. A fresh start order process 2. Individual insolvency resolution process 3. Corporate insolvency resolution process- Insolvency Professional (IP) to take over the management and operations of the borrower during the CIRP 4. Individual bankruptcy process and 5. Liquidation of a corporate debtor firm. Manage stakeholders Cash flow forecasting & monitoring Sell non-core assets/ part of operations Rapid diagnostic for red flags Execute the turnaround plan Develop a turnaround plan (resolution plan)

15 KGS Infrastructure TEAM COMPOSITION Strength Advisors* 10 Partner 13 Chartered Accountants (other than partners) 15 Company Secretary/Cost Accountants 5 Law Graduates 2 MBA 5 Post Graduates 5 Semi - Qualified 50 Associates/ Consultants 10 Others 10 *These comprise of retired senior bankers and senior professionals from the large public and private sector undertakings and public sector banks/ financial institutions. **Our Qualified Insolvency Professionals are empanelled with top banks and financial institutions of India like State Bank of India, Punjab National Bank & Bank Of Baroda to name a few.

16 Key Personnel/Advisors Mr. K G Somani was the president of the Institute of Chartered Accountants of India in He is a Fellow Member of ICAI and also a member of Institute of Company Secretaries of India & Institution of Valuers. He was also elected as a member of the Central Council of The ICAI in the year 1979, and was a council member during (12 years). He has strong knowledge of finance, companies act, tax laws and has handled a large number of audits and cases related to sick units before BIFR and its appellate authority. He is Qualified Insolvency Professional and is registered with Insolvency & Bankruptcy Board of India. He is currently acting as resolution professional for Ferro Alloys Corporation Limited (Listed Company ) Mr. Dharmendra Dhelariya, a Chartered Accountant has more than 15 years of experience in Audit and Assurance, Accounting Outsourcing Solutions, Income Tax Services, Company Law Matters, Management Consultancy and Service Tax. His area of specialisation includes Information System Audit, Forensic Accounting and Fraud Detection and Insolvency and Bankruptcy. He is Qualified Insolvency Professional and is registered with Insolvency & Bankruptcy Board of India Mr. Vinod Somani is a chartered accountant and has over 30 years of experience in business. His focus areas are audit, income tax, company law matters, project finances and specializes in BIFR matters. Vinod is also serving as director of various public and private companies. He has been serving on behalf of Department of Pubic Enterprises as an expert in the MOU task force committee across various sectors such as Oil & Gas, Chemical & Fertilizer, Tourism & Transport etc. Mr. Pradeep Kabra is a Chartered Accountant and has a masters degree in law. He has over 30 years of experience in all facets of the upstream oil and gas industry. He is currently a partner with Faber Capital Limited and was the President and CEO of ShaMaran Petroleum Corp., a publicly listed company in Canada and NASDAQ First North, Stockholm. He is based in Geneva, Switzerland.

17 Key Personnel/Advisors Mr. Girish Gupta is a global financial executive with 31 years of full spectrum of financial experience in multinational companies. Well rounded educational background with a chartered accountant degree from the Institute of Chartered Accountants Of India and Bachelors of Commerce from Shri Ram College of Commerce, Delhi. Strong leadership and executive skills developed by working internationally with MNC s, multicultural operations, cross border multicultural environment and energy sector focus orientation. Mr. Sushil Behl is a Government Nominee on Central Council of the Institute of Cost Accountants of India and an Independent Director with SMC Power Generation Limited. He retired from the Board level position of Director (Finance) of Western Coalfields Limited (Coal India), in August An alumni of FMS, Delhi, his prime area of specialization is Financial Management with specialized skills in Corporate Governance, Corporate Finance, Budgetary Control, Corporate Law & Taxation, Capital restructuring, Coal Pricing, Contract Management, Dispute Resolution Mechanisms, Overseas Mergers & Acquisitions/ Trading, Infrastructure etc. He is Qualified Insolvency Professional and is registered with Insolvency & Bankruptcy Board of India. Mr. S. Vishvanathan joined State Bank of India as a probationary officer and served as the Managing Director at State Bank of India since October 9, 2012 until April 30, He has also served as the Chief Executive Officer and Managing Director of SBI Capital Markets Limited from June 22, 2009 to August He has been closely involved in the debt restructuring plans of many companies. He is a hands-on man with experience in all aspects of banking from wholesale to retail, treasury operations and international banking. Mr. Achal Kumar Gupta holds a Master s Degree in Arts and a certified associate of the Indian Institute of Bankers. Mr. Gupta was the Deputy Managing Director of IFCI Ltd for a period of 3 years from to He started his career at Syndicate Bank and thereafter joined State Bank of India in September, 1977 and retired as Managing Director of State Bank of Patiala on 30/11/2013. Mr. Gupta is having over 40 years of varied experience in the areas of Banking and Finance such as credit appraisal and administration, retail banking, treasury management, branch banking, agriculture banking, NRI services and risk management.

18 Key Personnel/Advisors Ms. Neeru Abrol, ex- CMD, National Fertilizers Limited (NFL), is a Chartered Accountant by profession and has over three decades of rich experience in manufacturing industry, which also includes SAIL. She embodies an extensive experience in the field of financial management. Under her stewardship, NFL has come into profits after a gap of two years with the successful commissioning of revamp projects costing Approx. Rs. 4,700 Crores. Mr. Vishwa Ranjan Gupta is ex- Director (Finance) of Central Warehousing Corporation since May, Shri Gupta, a B.Com graduate, is a Fellow member of the Institute of Chartered Accountants of India and M.B.A. from U.K. He has over 32 years working experience in various organizations. He was also posted as Director Finance in Indian Railway Catering and Tourism Corporation Limited (IRCTC). He was a Nominee Director on the Board of Andhra Pradesh State Warehousing Corporation, Maharasthra State Warehousing Corporation, Madhya Pradesh Warehousing and logistics Corporation, Telangana State Warehousing Corporation and Haryana State Warehousing Corporation

19 Key Personnel/Advisors Mr. K K Kuba, a chartered accountant, is an alumni of Shri Ram College of Commerce & has an exposure of over four and half decades in industry with a sound knowledge of finance, companies act, tax laws, Cost Accounts/Credit Control in listed and public limited Companies and reached to the level of DGM System and has handled a large number of audits. Mr. Rajendra Prasad Tak, a chartered accountant, is a retired CMD of Cement Corporation of India. He played pivotal role in turnaround of the Company. His area of specialization includes Finance, Management, Sales, Marketing, Administration and Corporate Governance having indepth knowledge and understanding of total business environment, function related knowledge, making business decisions, far sight vision, building team player. He is nominated as member of the Board of Governors of National Council for Cement and Building Materials by Department of Industrial Policy and Promotion, Ministry of Commerce & Industry, on 26th February, He is also an elected member of executive board of SCOPE. He is Qualified Insolvency Professional and is registered with Insolvency & Bankruptcy Board of India Mr. Bhuvnesh Maheshwari, a chartered accountant, has wide & rich experience of over 27 years in the field of auditing, accountancy, finance, banking & taxation including critical financial scrutiny & compilation of financial data, consultation on improving internal control systems. He is experienced in Internal and Statutory Audits of large Public and Private Sector Undertakings, Banks, Financial Institutions, Insurance Companies, Mutual Funds, Venture capital, Co-operative Societies, System Audits, Investigation of frauds, audits in an EDP environment and special audit u/s 142 (2A) of the Income Tax Act. He also expertises in implementation of Internal Financial Controls & convergence of accounts in IndAS from IGAAP. He is Qualified Insolvency Professional and is registered with Insolvency & Bankruptcy Board of India. Mr. Ashish Batta, a chartered accountant, has vast experience of 19 years in the field of Statutory Audits, Tax Audits, Management Audits, internal audits & due diligence audits etc. He has conducted numerous audits of large public and private sector companies, banking institutions and organizations in various sectors of industry and trade. He is Qualified Insolvency Professional and is registered with Insolvency & Bankruptcy Board of India.

20 Thanking You NAME CONTACT NO Vinod Somani Kavita Agarwal /1 Asaf Ali Road, 3rd Floor, Delhi Website: