UNDERSTANDING CORPORATE INSOLVENCY UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016 Jyoti Singh, Partner Phoenix Legal, Mumbai E-mail: jyoti.singh@phoenixlegal.in, 1
PRESENTATION OUTLINE 1 RESOLUTION PROCESS INITIATION AND EXECUTION OF CORPORATE INSOLVENCY RESOLUTION PROCESS FROM THE PERSPECTIVE OF THE FINANCIAL CREDITORS, OPERATIONAL CREDITORS AND CORPORATE DEBTORS. 2 PROCEDURE OF INITIATION & APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL. 5 3 LEGAL EFFECT OF MORATORIUM. 4 MEETING OF COMMITTEE OF CREDITORS & APPOINTMENT AND ROLE OF RESOLUTION PROFESSIONAL 5 DO S AND DON T S
INITIATING CIRP: WHO CAN INTIATE THE CIRP UNDER THE CODE? (section 6 of the Code) Financial creditor Creditor Operational creditor Who can initiate the IRP? Corporate Applicant (including the Corporate Debtor or a member thereof being in charge or control of the operations and financial affairs thereof) 3
INITIATING CIRP: WHO CAN INTIATE THE CIRP UNDER THE CODE? Banking Regulation (Amendment ) Act, 2017 (w.e.f August 25, 2017) Introduction of section 35AA under the Banking Regulation Act, 1949, to empower the Central Government to authorize the Reserve Bank to issue directions to any banking company or banking companies to initiate insolvency resolution process in respect of a default, under the provisions of the Insolvency and Bankruptcy Code, 2016. Introduction of section 35AB, whereby, the Reserve Bank may, from time to time, issue directions to any banking company or banking companies for resolution of stressed assets. 4
CIRP AT A GLANCE Fro a Fi a cial Creditor s perspective (section 7 of the Code) DEFAULT BY CORPORATE DEBTOR APPLICATION FOR INITIATION OF CIRP BY FINANCIAL CREDITOR BEFORE THE NCLT (section 7(1), (2), (3) of the Code) ADMISSION/ REJECTION OF APPLICATION BY NCLT (within 14 days of filing application) (section 7(4),(5), (6), (7) of the Code) APPOINTMENT OF RESOLUTION PROFESSIONAL (section 22 of the Code) COMMITTEE OF FINANCIAL CREDITORS IS CONSTITUTED (section 21 of the Code) APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL + MORATORIUM & PUBLIC NOTICE (section 13, 14 15 and 16 of the Code) PREPARATION AND APPROVAL OF REVIVAL PLAN BY 75% MAJORITY OF FINANCIAL CREDITORS (section 30 of the Code) APPPROVAL/ REJECTION OF RESOLUTION PLAN BY THE NCLT (section 31 of the Code) IMPLEMENTATION OF RESOLUTION PLAN OR REJECTION OF PLAN AND LIQUIDATION, AS THE CASE MAY BE 180 days' process extenda ble by a maximu m of 90 days 5
CIRP AT A GLANCE Fro a Operatio al Creditor s perspective (section 8 and 9 of the Code) DEFAULT BY CORPORATE DEBTOR DEMAND NOTICE THE CORPORATE DEBTOR FOR PAYMENT (Corporate Debtor to respond within 10 days) (section 8 of the Code) APPLICATION FOR INITIATION OF CIRP BY FINANCIAL CREDITOR BEFORE THE NCLT (section 9 of the Code) ADMISSION/ REJECTION OF APPLICATION BY NCLT (within 14 days of filing application) (section 9(5) of the Code) APPOINTMENT OF RESOLUTION PROFESSIONAL (section 22 of the Code) COMMITTEE OF FINANCIAL CREDITORS IS CONSTITUTED (section 21 of the Code) APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL + MORATORIUM & PUBLIC NOTICE (section 13, 14, 15 and 16 of the Code) PREPARATION AND APPROVAL OF REVIVAL PLAN BY 75% MAJORITY OF FINANCIAL CREDITORS (section 30 of the Code) APPPROVAL/ REJECTION OF RESOLUTION PLAN BY THE NCLT (section 31 of the Code) IMPLEMENTATION OF RESOLUTION PLAN OR REJECTION OF PLAN AND LIQUIDATION, AS THE CASE MAY BE 180 days' process extenda ble by a maximu m of 90 days 6
CIRP AT A GLANCE Fro a Corporate Applica t s perspective (section 10 of the Code) DEFAULT BY CORPORATE DEBTOR APPLICATION FOR INITIATION OF CIRP BY FINANCIAL CREDITOR BEFORE THE NCLT (section 10 (1), (2), (3) of the Code) ADMISSION/ REJECTION OF APPLICATION BY NCLT (within 14 days of filing application) (section 10 (4) of the Code) APPOINTMENT OF RESOLUTION PROFESSIONAL (section 22 of the Code) COMMITTEE OF FINANCIAL CREDITORS IS CONSTITUTED (section 21 of the Code) APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL + MORATORIUM & PUBLIC NOTICE (section 13, 14 15 and 16 of the Code) PREPARATION AND APPROVAL OF REVIVAL PLAN BY 75% MAJORITY OF FINANCIAL CREDITORS (section 30 of the Code) APPPROVAL/ REJECTION OF RESOLUTION PLAN BY THE NCLT (section 31 of the Code) IMPLEMENTATION OF RESOLUTION PLAN OR REJECTION OF PLAN AND LIQUIDATION, AS THE CASE MAY BE 180 days' process extenda ble by a maximu m of 90 days 7
PROCEDURAL ASPECTS OF CIRP Insolvency Resolution Process For Corporate Persons Regulations, 2016 & Application to Adjudicating Authority Rules, 2016 Application Insolvency Resolution Professional (IRP) Costs Involved May be made individually or jointly with other financial creditors; (An operational creditor needs to first send a demand notice to the corporate debtor) As per For a exed to the Application to Adjudicating Authority Rules, 2016 along with relevant documents mentioned therein Application may be withdrawn by the applicant on a request made to NCLT before its admission. Must provide its consent in For annexed to the Application to Adjudicating Authority Rules, to act as IRP, when application for initiating CIRP is made IRP is appointed for maximum period of 30 days and must be unrelated and independent of the Corporate Debtor Must issue Public Announcement (as per Form A of the Schedule to CIRP Regulations) - within 3 days of appointment Application fees : Rs. 25,000/- Expenses for the Public Announcement made by an IRP to be borne by an Applicant Expenses incurred on or by the IRP (may be reimbursed to the extent ratified by the committee of creditors) A creditor shall bear the cost of proving the debt due to such creditor. 8
POWERS & DUTIES OF AN IRP (sections 17 and 18 of the Code) MANAGEMENT OF THE AFFAIRS OF THE CONCERNED CORPORATE DEBTOR All powers of the Board of Directors shall be exercised by the IRP; Financial Institutions to act on the instructions of the IRP in relatio the Corporate De tor s Accounts; IRP shall act, execute and take all actions on behalf of the Corporate Debtor. DUTY IN RELATION TO CREDITORS Collect all information relating, assets, business operations and financial & operational payments for previous 2 years of the Corporate Debtor; Re eive a d ollate reditor s claims and file information collected with the Information Utility; Constitute a committee of creditors; PROTECTION & PRESERVATION OF VALUE OF PROPERTY OF THE CORPORATE DEBTOR Monitor and manage the assets of a Corporate Debtor; Appoint accountants, legal or other professionals, as required; Raise interim finance with the consent of creditors, if required. 9
VERIFICATION OF CLAIMS (Regulation 13 of the CIRP Regulations, 2016) Timeline Claim to be submitted by all creditors before the last date mentioned in the Public Announcement of an IRP (no specific timeline prescribed under the Code) IRP to verify the claims within 7 days of receipt thereof Mode of Submission Financial Creditors to submit claim as per For C a exed to CIRP Regulations, 2016 Relevant documents like Financial Contract, Account Statements of the corporate debtor, or any order of a court/tribunal adjudging the non payment of debt to be submitted (apart from records available with an Information Utility, if any) Claims dominated in foreign currency are to be valued in Indian currency at the official exchange rate on the insolvency commencement date. 10
MORATORIUM (section 14 of the Code) Order of the NCLT while admitting an application for initiation of CIRP i.e. on the insolvency commencement date, prohibiting the following till the completion of CIRP: 1. Institution/Continuation Of Suits Or Proceedings Against The Corporate Debtor; 2. Transfer Of Property By The Corporate Debtor; 3. Recovery Proceedings Against The Corporate Debtor (Including Any Action Under The SARFAESI Act); 4. Recovery Of Any Property By An Owner/Lessor Where Such Property Is In The Possession Of The Corporate Debtor. 11
COMMITTEE OF CREDITORS (sections 21, 24 of the Code read with Chapter V of the CIRP Regulations) To comprise of all Financial Creditors, except related parties Voting share would be proportional to the value of debt Voting to be conducted only when all members are present and voting. Resolution Professional to be appointed on the very 1 st meeting A single trustee may be authorized by the committee of creditors to act on their behalf 1 st Meeting must be convened within 7 days of constitution Quorum for meeting to be members representing atleast 33% of the voting rights All decisions to be taken by a vote of atleast 75% of the creditors Members may be present either in person or through video conferencing 12
POWERS & DUTIES OF A RESOLUTION PROFESSIONAL (sections 22, 23, 25 of the Code) PREPARING INFORMATION MEMORANDUM Providing all details and particulars of financial, legal and administrative information of the Corporate Debtor. It is required to be circulated to all the committee members before a resolution plan is drafted. Information Memorandum will form the basis on which a resolution plan will be drafted CONDUCT CIRP Same as an IRP, an RP has to manage and operate the affairs of a Corporate Debtor Co ve e eeti gs of the Creditor s Co ittee Determine the voting share of each creditor Determine the liquidation value of the corporate debtor within 7 days of his appointment. Sell any unencumbered asset of the Corporate Debtor, other than in ordinary course of business, with the consent of the committee provided the book value of such asset does not exceed 10% of the total claims admitted. 13
DO s AND DON T S 1) All creditors must adhere to the procedural mandates of the Code.; 2) The claim amount in an insolvency petition must not be frivolous and must be the actual amount due and payable by such corporate debtor to the applicant creditor. ; 3) The Adjudicating Authority must take a cautious approach and carefully distinguished bonafide cases from malicious proceedings 4) The Resolution Professional must be carefully chosen keeping in view the past track record of such professional and capacity to undertake the work. 1) The insolvency proceedings must not be used as a means of recovery of debts. 2) Corporate Debtors must not initiate insolvency proceedings with an intention to thwart enforcement actions initiated by its creditors before other forums. 14
THANK YOU 15