The Insolvency and Bankruptcy

Code, 2016
The Insolvency and Bankruptcy Code, 2016 (IBC) was passed by the Parliament on 11 May 2016,
received Presidential assent on 28 May 2016 and was notified in the official gazette on the same day.

Erstwhile legislative framework New framework

Chapter XIX & Chapter XX of Companies Act, 2013

Part VIA, Part VII & Section 391 of Companies Act, 1956 The Insolvency and Bankruptcy code
RDDBFI Act, 1993 (Provisions of this Code to override other
existing laws on matters pertaining to
SARFAESI Act, 2002 Insolvency and Bankruptcy)
SICA Act, 1985 “An act to consolidate and amend the laws
The Presidency Towns Insolvency Act, 1909 relating to reorganisation and insolvency
resolution of corporate persons, partnership
The Provincial Insolvency Act, 1920 firms and individuals in a time bound manner for
Chapter XIII of the LLP Act, 2008 maximisation of value of assets of such persons,
to promote entrepreneurship, availability of credit
and balance the interests of all the stakeholders
including alteration in the order of priority of
Non-statutory guidelines/out-of-court
payment of Government dues and to establish an
mechanism: Insolvency and Bankruptcy Board of India, and
• Bilateral restructuring for matters connected therewith or incidental
thereto.”
• One-time settlement
• JLF/CDR/SDR - Objective section of the Act

• Sale of loan to ARC

The Insolvency and Bankruptcy Code ecosystem

Insolvency and Bankruptcy Board (IBB) IBB – apex body for promoting transparency & governance in
NCLT – The adjudicating authority (AA)

the administration of the IBC; will be involved in setting up the

infrastructure and accrediting IPs & IUs.
Insolvency professional Information IUs - centralised repository of financial and credit information
agency (IPA) Utilities (IUs) of borrowers; would accept, store, authenticate and provide
access to financial data provided by creditors.
IPs- persons enrolled with IPA and regulated by Board and
IPA will conduct resolution process; to act as Liquidator/
Insolvency bankruptcy trustee; appointed by creditors and override the
Professionals (IPs) powers of board of directors.

Committee of Adjudicating authority (AA) - would be the NCLT for

Creditors (CoC) corporate insolvency; to entertain or dispose any insolvency
application, approve/ reject resolution plans, decide in
respect of claims or matters of law/ facts thereof.
Insolvent entity
IPA - registered by the board shall enroll IPs.

2 | The Insolvency and Bankruptcy code, 2016 : an overview

Corporate Insolvency
Resolution and Liquidation
Resolution timeline and process Key highlights

Corporate insolvency resolution process

Application on default – Any financial or operational
Default
creditor(s) can apply for insolvency on default of debt or
interest payment
75% of the
creditors to Appointment of IP – IP to be appointed by the regulator and
No approve approved by the creditor committee. IP will take over the
running of the Company.
Appointment of an
Insolvency professional (IP) From date of appointment of IP, power of Board of directors
Yes to be suspended and vested in the IP. IP shall have immunity
from criminal prosecution and any other liability for anything
done in good faith
Implement Moratorium period – Adjudication authority will declare
Moratorium period the plan moratorium period during which no action can be taken
(180/270 days) against the company or the assets of the company. Key focus
will be on running the Company on going concern basis. A
Resolution plan would have to be prepared and approved by
the Committee of creditors
Credit committee Credit committee - A credit committee of creditors will be
Goes into liquidation
formation constituted. Related party to be excluded from committee.
Each creditor shall vote in accordance to voting share
assigned if 75% of creditor approve the resolution plan same
needs to be implemented.

Liquidation process
Initiation – Failure to approve resolution plan within specified
days will cause initiation of Liquidation. Debtor can also opt
for voluntary liquidation by a special resolution in a General
Meeting.
Liquidator – The IP may act as the liquidator, and exercise all
powers of the BoD. The liquidator shall form an estate of the
assets, and consolidate, verify, admit and determine value of
creditors’ claims.
Order of priority for distribution of assets

•• Insolvency related costs

•• Secured creditors and workmen dues upto 24 months

•• Other employee’s salaries/dues up to 12 months

•• Financial debts (unsecured creditors)

•• Government dues (up to 2 years)

•• Any remaining debts and dues

•• Equity

3 | The Insolvency and Bankruptcy code, 2016 : an overview

 Key aspects of the Insolvency and Bankruptcy Code

1
IBC proposes a paradigm shift from the existing ‘Debtor in possession’ to a ‘Creditor
in control’ regime.

2 IBC aims at consolidating all existing insolvency related laws as well as amending
multiple legislation including the Companies Act.

3
The code would have an overriding effect on all other laws relating to Insolvency &
Bankruptcy.

4
The code aims to resolve insolvencies in a strict time-bound manner - the evaluation
and viability determination must be completed within 180 days.

5 Moratorium period of 180 days (extendable upto 270 days) for the Company.
Insolvency profressional to take over the managemnent of the Company.

6 Clearly defined ‘order of priority’ or the waterfall mechanism.

7 The waterfall to render government dues junior to most others is significant.

8 Antecedent tranactions can be investigated and in case of any illegal diversion of

assets personal contribution can be ordered by court.

9
Introduce a qualified insolvency professional (IP) as intermediaries to oversee the
process

Establishment of Insolvency and Bankruptcy board as an independent body for

10 the administration and governance of Insolvency & bankruptcy Law; and Information
Utilities as a depository of financial information.

The Code, at best, is a plan currently awaiting execution. Appropriate information-flow, establishment of a tribunal process
and the provision to bring in responsible professionals. The Ministry of Finance has indicated that they are aiming to make IBC
operational by 31 March 2017.

4 | The Insolvency and Bankruptcy code, 2016 : an overview

 The IBC envisages a “creditor in control”
regime with financial creditors exercising control
through IPs in the event of a single default in
1
repayment of any loan or interest. This can be
effected without any notice and the law is very
stringent as compared to the SARFAESI Act, 2002. More than 1,000 No.1 professional
professionals in estructuring services firm in India
As a result, stressed/ distressed corporates need & Turnaround group globally,
to implement an accurate cash flow forecasting 100+ in India
mechanism to identify mismatches of inflows
with commitments on a timely basis. If there is a
possibility of a potential default that can trigger
IBC, an effective turnaround plan should be devised
and communicated to all stakeholders in advance
– including financial and operating creditors,
employees, etc. Such a plan should include aspects
of financial restructuring, operational improvement
and sale of assets which can be monetised.
More than 50 debt and Team comprising
operational restructuring Ex-bankers CXOs and
How EY can help? assignments delivered in consultants enabling
India with a total debt impact greater leverage and
of ~US$50 billion advantage in the market

Cash flow
forecasting &
monitoring

Rapid diagnostic Manage

for red flags stakeholders

Restructuring
& Turnaround
services
Develop a Sell non-core Ability to undertake interim Involved in executing
turnaround plan assets/ part of management and IP roles maximum SDRs in India
(resolution plan) operations or work with management
teams in an advisory
Execute the
capacity
turnaround plan

Key contacts:

Abizer Diwanji Dinkar Venkatasubramanian Shailendra Ajmera

Partner and Leader Partner Partner
Restructuring & Turnaround Services Restructuring & Turnaround Services Restructuring & Turnaround Services
Contact no: +91 2261920000 Contact no: +91 1246714430 Contact no: +91 11 6671 8000
Email: abizer.diwanji@in.ey.com Email: dinkar.venkatasubramanian@in.ey.com Email: Shailendra.Ajmera@in.ey.com

5 | The Insolvency and Bankruptcy code, 2016 : an overview