3/20/2021 Assignment

Individual Insolvency

Submission To – Dr. Pyla Narayana Rao

Submission By - Aadish Jain (GIP2001)

 Corporate Insolvency vs. Individual Insolvency

Purpose, Importance, Main areas, Implications, cases and

S.No Issue/Theme
Findings/ Suggestions

As per section 4 of the IBC, Part II (Insolvency resolution and

liquidation for corporate persons) shall apply to matters relating to
the insolvency and liquidation of corporate debtors. Corporate
debtor is defined u/s 2(8) of the Code as corporate person who owes
a debt to any person. As per section 3(7) Corporate person means a
company as defined in clause (20) of section 2 of the Companies
Act, 2013 (18 of 2013), a limited liability partnership, as defined in
clause (n) of sub-section (1) of section 2 of the Limited Liability
Partnership Act, 2008 (6 of 2009), or any other person incorporated
with limited liability under any law for the time being in force but
shall not include any financial service provider.
Hence, Corporates are artificial persons with a broadly uniform
structure. The code provides a uniform process for resolution of
their insolvency.
However, Part III of the Code provides for three processes for
individual insolvency resolution, on default of threshold amount:
(a) Fresh Start Process - This is available only to those debtors
who have an annual income =< Rs.60000, assets =< Rs. 20000,
debts =<Rs.35000 and do not have a dwelling unit. Only the
debtor can file an application for fresh start for discharge of his
debt. A resolution professional (RP) examines the application and
1. Applicability
submits a report to the AA, recommending acceptance or rejection
of the application. On consideration of the report of the RP, the AA
passes an order, either admitting or rejecting the application. If the
application is admitted, the creditors have an opportunity to object
to the process on limited grounds. On conclusion of the process, the
AA passes an order for the discharge of the debtor or revokes the
admission of the application. The discharge order writes off the
unsecured debts, allowing the debtor to start afresh, subject to an
entry in the credit history.

(b) Insolvency resolution process – This provides a framework for

the debtors and creditors to collectively renegotiate a repayment
plan under the supervision of an RP. The debtor or a creditor may
make an application for initiation of the process. If the application is
admitted by the AA, a public notice is issued inviting claims from
all creditors. The debtor then prepares a repayment plan, in
consultation with the RP. If the plan is approved by 75% of the
voting share of the creditors, and thereafter by the AA, the RP
supervises its implementation. On execution of the repayment plan,
the AA issues a discharge order releasing the debtor from its
liability in terms of the plan, and the debtor gets and ‘earned start’.

pg. 1 Aadish Jain – GIP 2001

 (c) Bankruptcy process: If resolution process fails or repayment
plan is not implemented, the debtor or creditor may make an
application for the initiation of bankruptcy process. If the
application is admitted, the AA passes a bankruptcy order and
appoints a bankruptcy trustee, followed by an invitation of claims
from creditors. The bankruptcy trustee investigates the affairs of the
bankrupt, realises the estate of the bankrupt and distributes the
proceeds in accordance with the priority provided in the code. He
submits a report of administration of the estate of the bankrupt to
the committee of creditors for approval. On expiry of one year from
the bankruptcy commencement date or within seven days of the
approval by the committee of creditors, the bankruptcy trustee
applies for a discharge order and the AA passes a discharge order,
this discharge order releases the debtor from the bankruptcy det.
The bankrupt, however, suffers certain disabilities during the period
of bankruptcy process.
Therefore, individual insolvency process expects customised
process for resolution of each of the above mentioned categories.

There is no automatic debt relief in case of corporate entities.

Individual Insolvency, however, offers a fresh start process which
grants automatic debt relief for a set of debtors where chance of
recovery is low as compared to the efforts involved. As per section
92 of the code – The Adjudicating Authority shall pass a discharge
order at the end of the
2 Debt Relief
moratorium period for discharge of the debtor from the qualifying
debts as enlisted in submission made by resolution professional to
the Adjudicating authority.

While a corporate resolution process may yield into liquidation

process, fresh start process never yields into bankruptcy process.

A corporate entity and its business can be re-organized or liquidated

and sold in bits and pieces. As per regulation 32 of the Insolvency
and Bankruptcy Board Of India (Liquidation Process) Regulations,
2016, The liquidator may sell-
(a) an asset on a standalone basis;
Liquidation vs (b) the assets in a slump sale;
3
reorganization (c) a set of assets collectively;
(d) the assets in parcels;
(e) the corporate debtor as a going concern; or
(f) the business(s) of the corporate debtor as a going concern: The
business, if any, of an individual can be re-organised. The
individual cannot, however, be liquidated or sold.

Commencement
Commencement of liquidation is automatic on failure of corporate
4 of liquidation vs
resolution process. As per section 33, Where the Adjudicating
Bankruptcy
Authority, -

pg. 2 Aadish Jain – GIP 2001

 (a) before the expiry of the insolvency resolution process period or
the maximum
period permitted for completion of the corporate insolvency
resolution process under section 12 or the fast track corporate
insolvency resolution process under section 56, as
the case may be, does not receive a resolution plan under sub-
section (6) of section 30;
or
(b) rejects the resolution plan under section 31 for the non-
compliance of the requirements specified therein,
it shall -
(i) pass an order requiring the corporate debtor to be liquidated.
Also, where the resolution professional, at any time during the
corporate insolvency resolution process but before confirmation of
resolution plan, intimates the Adjudicating Authority of the decision
of the committee of creditors approved by not less than sixty-six
per cent. of the voting share to liquidate the corporate debtor, the
Adjudicating Authority shall pass a liquidation order. Further on
receipt of the application by the adjudicating authority by a person
whose interest are prejudicially affected due to contravention of
resolution plan, it shall pass a liquidation order.

However, it is not so in the case of individual insolvency. A fresh

application needs to be made either by the debtor or a creditor for
commencement of the bankruptcy process, after failure of resolution
process. As per section 121, An application for bankruptcy of a
debtor may be made, by a creditor individually or jointly with other
creditors or by a debtor, to the Adjudicating Authority in the
following
circumstances, namely; –
(a) where an order has been passed by an Adjudicating Authority
under sub-section 4 of section 100 (If the application referred to in
section 94 or 95, as the case may be, is rejected by the Adjudicating
Authority on the basis of report submitted by the resolution
professional professional, or that the application was made with the
intention to defraud his creditors or the resolution; the order by AA
shall record that the creditor is entitled to file for a bankruptcy
order. Or

(b) where an order has been passed by an Adjudicating Authority

under sub-section 2 of section 115 (Rejection of the repayment plan
under section 114); or

(c) where an order has been passed by an Adjudicating Authority

under sub-section 3 of section 118 (Repayment plan coming to end
prematurely).

Only on completion of liquidation, a corporate is dissolved. As per

5 Dissolution
section 54 Where the assets of the corporate debtor have been
completely liquidated, the liquidator shall make an application to

pg. 3 Aadish Jain – GIP 2001

 the Adjudicating Authority for the dissolution of such corporate
debtor.

The Bankruptcy process does not affect or is not affected by the

existence of the debtor. It is not closed even on the death of the
debtor. As per section 169 Continuance of proceedings on death of
bankrupt -
If a bankrupt dies, the bankruptcy proceedings shall, continue as if
he were alive.

The code does not envisage an RP to supervise the implementation

of resolution plan for corporates.

Supervision of However, he supervises implementation of repayment plan under

6 resolution / the individual insolvency. As per section 116 , The resolution
repayment plan professional shall supervise the implementation of the repayment
plan and he may apply to the Adjudicating Authority for directions,
if necessary, in relation to any particular matter arising under the
repayment plan.

The National Company Law tribunal is the AA for insolvency of

corporate entities and personal guarantors to corporate entities
undergoing corporate processes. As per section 60(1) The
Adjudicating Authority, in relation to insolvency resolution and
liquidation for corporate persons including corporate debtors and
personal guarantors thereof shall be the National Company Law
Tribunal having territorial jurisdiction over the place where the
registered office of a corporate person is located.
Adjudicating
7
Authority
The Debt Recovery Tribunal is the AA for insolvency of
individuals. As per section 179(1) (1) Subject to the provisions of
section 60, the Adjudicating Authority, in relation to insolvency
matters of individuals and firms shall be the Debt Recovery
Tribunal having territorial jurisdiction over the place where the
individual debtor actually and voluntarily resides or carries on
business or personally works for gain and can entertain an
application under this Code regarding such person.

pg. 4 Aadish Jain – GIP 2001