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New Insolvency and Bankruptcy Code boon for lakhs of investors

Monday, May 15, 2017
By Devendra Jain

Founder, NPA-

The Insolvency and Bankruptcy Code passed by the Parliament last year provides for a specialized forum to oversee all kinds of liquidity and insolvency proceeding for individuals, small and medium entrepreneur companies and also big corporate firms.

One of the biggest advantages this offers for small investors of the company is the time bound manner for the re-organization and the insolvency resolution of the company in order to maximize the value of the assets of the company and keep a balanced view of the interest of all the stakeholders.

In the Corporate Resolution process the application may be filed by any financial creditor, operational creditor or by the Corporate himself. The main condition for filing an application is that there should have been a default of more than Rs 1 lakh by the Corporate that towards any financial Institution, Banks etc. called as financial creditor or their suppliers, employees, government dues or other operational dues called as operational creditor. When the application filed with the NCLT in a prescribed format, NCLT is bound to give its assessment within 14 days of filing the application. It can either admit the application for initiating the insolvency process or reject the application on various grounds as per the Act.

After the admission of the initiation of Insolvency Process, an Interim Resolution Professional will be appointed and he will take entire charge of the Company and existing management and Board of Directors will be suspended till the resolution process period.

In all other cases, as per the existing norms, the corporate insolvency resolution process (CIRP) will need to be completed in 180 days, where a one-time extension of 90 days is permitted by the National Company Law Tribunal (NCLT) in deserving cases.

The Interim Resolution Professional will do all acts as management of the Company. He can appoint the other professional to run the Company as going concern. He will take entire charge on all assets, bank accounts, etc. under his control.

During the resolution Process Moratorium will be granted to the Company for prohibiting institution of any suit before a court of law, transferring/encumbering any of the assets of the Debtor etc.

However, the supply of essential goods or services to the corporate shall not be terminated during this period. It shall be effective till completion of Resolution Process.
The Interim Resolution Professional will invite all claims from all creditors and consolidate all claims and will constitute the Committee of Creditors.

All Financial Creditors will be member of the Creditors Committee, operational creditor may be invited in the meeting of creditors but they will not get any voting rights in any decision. Creditors Committee will watch all resolution process and entire decision will be taken and considered by the creditors committee with a vote of minimum 75%.

A resolution plan will be invited from any creditor, outside agency and even from the promoters to resolve the financial sickness of the Company. The plan would later be discussed in the committee of creditors and approved by them.

The plan would then be submitted to the National Company Law Tribunal for approval and implementation. If all the creditors are not satisfied with the resolution plan, the company then goes for liquidation.

Out of the remittance received from liquidation of assets, payment to creditors will be made as per the priority prescribed in the Act. Other than time bound resolution process another advantage of the act is that the creditors are in the loop for the process and it avoids costly and time consuming litigation process.

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