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    Need For Insolvency and Bankruptcy Code: Exploring The Rationale and Objectives

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    Alisha
    The IBC was implemented to consolidate bankruptcy laws, resolve insolvency in a time-bound manner, promote entrepreneurship and ensure availability of credit. It established authorities like the NCLT, NCLAT and IBBI to oversee insolvency resolution and created a framework for IPs, IUs and other agencies. The code aims to balance interests of stakeholders, maximize asset value and resolve insolvency efficiently within a set timeframe. It draws from UNCITRAL principles of certainty, value maximization, and equitable treatment of creditors. The design of the IBC features

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    Need For Insolvency and Bankruptcy Code: Exploring The Rationale and Objectives

    Uploaded by

    Alisha
    83 views26 pages
    The IBC was implemented to consolidate bankruptcy laws, resolve insolvency in a time-bound manner, promote entrepreneurship and ensure availability of credit. It established authorities like the NCLT, NCLAT and IBBI to oversee insolvency resolution and created a framework for IPs, IUs and other agencies. The code aims to balance interests of stakeholders, maximize asset value and resolve insolvency efficiently within a set timeframe. It draws from UNCITRAL principles of certainty, value maximization, and equitable treatment of creditors. The design of the IBC features

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    PPT 08-03-2020

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    The IBC was implemented to consolidate bankruptcy laws, resolve insolvency in a time-bound manner, promote entrepreneurship and ensure availability of credit. It established authorities like the NCLT, NCLAT and IBBI to oversee insolvency resolution and created a framework for IPs, IUs and other agencies. The code aims to balance interests of stakeholders, maximize asset value and resolve insolvency efficiently within a set timeframe. It draws from UNCITRAL principles of certainty, value maximization, and equitable treatment of creditors. The design of the IBC features

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    83 views26 pages

    Need For Insolvency and Bankruptcy Code: Exploring The Rationale and Objectives

    Uploaded by

    Alisha
    The IBC was implemented to consolidate bankruptcy laws, resolve insolvency in a time-bound manner, promote entrepreneurship and ensure availability of credit. It established authorities like the NCLT, NCLAT and IBBI to oversee insolvency resolution and created a framework for IPs, IUs and other agencies. The code aims to balance interests of stakeholders, maximize asset value and resolve insolvency efficiently within a set timeframe. It draws from UNCITRAL principles of certainty, value maximization, and equitable treatment of creditors. The design of the IBC features

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    Need for Insolvency and Bankruptcy Code:

    Exploring the rationale and objectives

    1
    Preamble of IBC
    To consolidate and amend the laws relating to
    reorganisation and insolvency resolution of
    corporate persons, partnership firms and
    individuals in a time bound manner for
    maximisation of value of assets of such
    persons
    To promote entrepreneurship
    Preamble of IBC
    To ensure availability of credit
    To balance the interests of all the stakeholders
    including alteration in the order of priority of
    payment of Government dues
    To establish an Insolvency and Bankruptcy
    Board of India, and for matters connected
    therewith or incidental thereto
    Understanding IBC
    Corporate Person Individuals &
    Authorities
    Partnership
    • Insolvency • Fresh Start • Adjudicating
    Resolution • Insolvency Authorities
    • Liquidation Resolution • IBBI
    • Bankruptcy • Insolvency
    Agencies
    • Insolvency
    Professionals
    • Information
    Utilities
    Corporate Person

    Corporate Person

    Any person
    Company LLP incorporated with
    Limited Liability
    Institutional Infrastructure
    Adjudicating Insolvency and
    Authorities [Part II, Bankruptcy Board
    Appellate Authorities
    Chp VI & Part III, Chp
    VI] [Part IV, Chp I & II]

    National Company Information


    National Company Utilities
    Law Appellate
    Law Tribunal
    Tribunal [Part IV, Chp V]

    Insolvency
    Debt Recovery Debt Recovery Professional
    Tribunal Appellate Tribunal Agency
    [Part IV, Chp III]

    Insolvency
    Professionals
    Part IV, Chp IV]
    Adjudicating Authorities
    NCLT/
    DRT/DRAT
    NCLAT
    Individuals other
    Corporate Person than Personal
    Guarantors

    Personal
    Guarantors of Partnership Firm
    Corporate Person

    Proprietorship
    Firms
    Bankruptcy Law Reforms Committee

    Formed on 22nd August 2014


    Under the Chairmanship of Dr T K
    Vishwanathan
    Submitted its report in November 2015
    Finding the Rationale

    Identification of the difficulties in earlier


    regime
    Requirement of Unified Law dealing with
    bankruptcy and insolvency
    Identifying Key Economic Question in
    bankruptcy process – what is to be done
    when default occurs?
    Insolvency Resolution Process
    Finding the Rationale

    If Resolution fails, then liquidation or


    bankruptcy
    Speed is the Essence
    Identifying and Addressing the sources of
    Delay
    Need for a Regulator
    Cross Border Insolvency
    Reasons for Insolvency
     Financial Failure
     Business Failure
     Fraudulent Operations
    Suggested Steps in Insolvency
     Assessment of Viability
     Conflicts in Creditor-Debtor negotiation
     Asymmetry of Information between creditor
    and debtor
     Conflict amongst different types of creditors
     Side stepping of Promoters
    Objectives of New Bankruptcy law

     Efficient handling of conflicts between


    creditor and debtor
     Avoiding destruction of value
     Identifying reason of failure –
    Misfeasance or Business Failure
    Perspective in Identifying Failure

     Normal business failure


     Protection of the concept of Limited
    Liability
     Control of company is not a divine right
     Malfeasance – Illegitimate transfer of
    wealth by promoters etc
    Difficulties in Previous Bankruptcy
    Regime
     Lack of Jurisdictional Clarity – Rights of
    Creditors/Rights of Debtors
     Multiple Jurisdictional Forums
    Principles for a New Code
    UNCITRAL Legislative Guide on Insolvency
     Provision of certainty in the market to promote
    efficiency and growth.
     Maximisation of value of assets
     Striking a balance between liquidation and
    reorganisation.
     Ensuring equitable treatment of similarly situated
    creditors.
     Provision of timely, efficient and impartial resolution
    of insolvency.
    Principles for a New Code
    UNCITRAL Legislative Guide on Insolvency
     Preservation of the insolvency estate to allow equitable
    distribution to creditors.
     Ensuring a transparent and predictable insolvency law
    that contains incentives for gathering and dispensing
    information.
     Recognition of existing creditor rights and
    establishment of clear rules for ranking priority of
    claims.
     Establishment of a framework for cross-border
    insolvency.
    Objectives Desired
    Low time to resolution
    Low loss in recovery
    Higher levels of debt financing

    “Performance of the Code in


    Implementation will be determined on
    outcome of above objectives”
    Principles Driving the Design
    Assessment of viability at early stage
    Symmetry of Information between
    creditors and debtors
    Time bound process to preserve
    economic value
    Collective Process
    Principles Driving the Design
    Respecting rights of all creditors equally
    Failure of Negotiations lead to binding
    outcome i.e. bankruptcy
    Clarity of Priority and upholding of
    rights of all stakeholders
    Design of the Code
    Unified Code
    Insolvency trigger to place least cost on
    the Adjudicating Authority
    Strong Base of Information Utilities
    Adjudicator focusses on matters of
    procedure
    Design of the Code
    Regulated Industry of Insolvency
    Professionals
    Regulator to ensure malleability and
    efficiency
    Regulation of IUs
    Regulations of IPs
    Procedural aspects determination
    Data collection, research and performance
    evaluation
    Design of the Code
    Resolution Phase I – Calm Period for
    Insolvency Resolution
    Resolution Phase II – Bankruptcy as an
    outcome of insolvency resolution
    Swift and efficient bankruptcy or
    liquidation
    Benefits from Design of the Code

    Misplaced Emphasis on Secured Credit


    Value Destruction in corporate distress
    – SARFAESI
    Poor Environment of Credit – Bias in
    favour of few lenders
    Industrial Disease continues for years
    Benefits from Design of the Code

    Problems of Infrastructure Developers


    Failure of Auctions
    Corporate Bond Market Development
    Thank you!

    91

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