JOIN USOn May 11 2016, the Parliament passed the Insolvency and Bankruptcy Code 2016 (The Code), which is a crucial piece of legislation, that codifies law of bankruptcy and seeks to achieve overall underlying purpose of encouraging entrepreneurship by providing for time-bound resolution of insolvency process, which has been hitherto tainted by legal bottlenecks and prolonged Court proceedings.
The Code is a comprehensive compilation of laws, rules and regulations pertaining to the subject of bankruptcy law in India. Notably, alteration in priority of payment of government dues is a significant shift in stance, amongst other objects, from the present regime prescribed where Government dues are given utmost importance.
Procedure for filling
Under the scheme of the Code, an operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor.
After the expiry of the period of 10 days from the date of delivery of the notice or invoice demanding payment, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
When a corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor by filing an application before the Adjudicating Authority. As per the Code, a default includes default in respect of financial debt not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. The minimum amount of default has been specified to be Rs 1 lakh, which the Central Government may increase upto Rs 1 crore.
Under the scheme of the Code, the Adjudicating Authority is required to ascertain the existence of a default within a period of 14 days of the receipt of the application. Where the Adjudicating Authority is satisfied that a default has occurred, it may admit such application and the corporate insolvency resolution process commences from the date of admission of the application.
The Adjudicating Authority, after admission of the application is required to declare a moratorium, cause a public announcement of the initiation of corporate insolvency resolution process and appoint an interim resolution professional. On the insolvency commencement date, the Adjudicating Authority is required to declare moratorium.
The insolvency resolution process is required to be completed within a time period of 180 days from the date of admission of application to the Adjudicating Authority to initiate such process and can be extended only by a further period of 90 days.
It would be interesting to see a situation where the insolvency resolution process does not get completed even within the extended period of 270 days.
Way forward and challenges
A key challenge to the effective working of the Bankruptcy Code would be the effective functioning of insolvency professional agencies which, in turn, would depend upon getting competent professionals on board for discharging these vital functions that are presently discharged by Court Receiver attached to a High Court. The functioning of these insolvency resolution agencies and provision of required infrastructure would hold key to the overall success of this brilliant piece of legislation.
(The author is the Founder Partner of Mumbai-based law firm Vertices
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