BANKRUPTCY CODE 2015
At the beginning, it is necessary to note some salient
features of the proposed insolvency and bankruptcy code, 2015
·
There is
no requirement of any notice before filing for insolvency resolution process.
·
Verification of default is to be done on the
basis of data available with information utility to be set up under the code.
·
Information utilities are consisting of data regarding
debt, liabilities, assets against which secured loans are obtained and
instances of default.
·
All solvent corporate debtors and lenders have
to furnish such data.
·
On verification of default from the information
utility the adjudication authority shall appoint interim insolvency
professional and make a public announcement of commencement of the insolvency
resolution.
·
The insolvency professional has to take
possession of all assets and manage the affairs of the corporate debtor.
·
The insolvency professional shall form a
creditors committee to obtain the relevant data from the Company and get the
resolution plan prepared and approved by the creditors committee.
·
From the date of insolvency resolution order
there will be a moratorium against any action or recovery proceedings against
the corporate debtor for 180 days or extended time of 270 days.
·
The insolvency professional is a practicing
chartered accountant, company secretary advocate or cost accountant registered
with the insolvency and bankruptcy board of India.
·
There are time limits prescrived for each step
in the insolvency resolution process and if the insolvency resolution plan is
not approved within 180 days or 270 days, the corporate debtor shall be ordered
to be wound up and put under liquidation.
It is clear from the above that if there is
a default in repayment of debt, such default can trigger an insolvency
resolution petition which if accepted will require the corporate debtor to hand
over possession and management of the business enterprise to the insolvency
professional and get a resolution plan approved.
If
resolution plan is not approved the corporate debtor will face the sale of its
business enterprise as a going concern or closure by sale of assets, to pay the
creditors. The proposed bankruptcy law is a major change and departure from the
existing law, which is interpreted by the courts in favour of debtors.
Court has held that winding up is a discretionary relief which the court
should grant if it is satisfied that the existence of the company will cause
immense prejudice to all concerned. The order of winding up should be made in
the rarest of rare cases, and the discretion to wind up should not be exercised
when there is slight hope of revival of the company.
On
enactment of the insolvency and bankruptcy code 2015 the above principles and
norms observed by the courts in the matter of passing orders for liquidation of
companies will have to be replaced by following new principles.
·
The object of passing the insolvency resolution
order and appointment of interim insolvency professional is to find cause for
insolvency, examine viability of the business enterprise and approve the
resolution plan if the creditors agree to such a plan.
·
If the resolution plan is not approved, efforts
have to the made to sell or assign the business as a going concern and derive
maximum value of the business enterprise.
·
If any business enterprise is carrying on
business by borrowing money from banks, financial institutions and other creditor, it has to ensure that all
commitments to repay borrowed funds are honored and if there is a default it is
presumed that the business enterprise is insolvent and such insolvency can be
resolved if the creditors agree to the resolution plan.
The proposed bankruptcy code
is also an alarm to all the debtors to ensure that commitments to make payment
whether for loan repayment or for purchase of goods, service and other inputs
for the business on credit, are honoured preferably before the due, so that
insolvency is not triggered.
Source: copied from “The Economics Times of
India”.
Article written by MR UMARJI
Former Chief Advisor, legal, IBA.
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