VALUATION

OF
LAND AND BUILDING
FOR IBBI EXAMINATION

By:
CEV INTEGRAL APPRAISERS FOUNDATION
REGISTERED VALUERS ORGANISATION

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Chapter Salient Features of Insolvency & Bankruptcy Code 466
32
32.1 Insolvency 466
32.2 Bankruptcy 466
32.3 Why code was needed 467
32.4 Journey of the code 467
32.5 Objective of the code 468
32.6 Liquidation 468
32.7 Insolvency Resolution Process 469
32.8 Procedure for voluntary Liquidation 469

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 CONSTITUTION OF INDIA

CHAPTER 32 :Salient Features of Insolvency & Bankruptcy Code

Insolvency

Insolvency is when an individual or organization is unable to meet its outstanding

financial debt towards its lender as it become due. Insolvency can be resolved by way of
changing the repayment plan of the loans or writing off a part thereof. If it cannot be
resolved, then a legal action may lie against the insolvent and its assets will be sold to pay
off the outstanding debts. Generally, an official assignee/liquidator appointed by the
Government of India, realizes the assets and allocates it among the creditors of the
insolvent.

Bankruptcy

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 INSOLVENCY & BANKRUPTCY CODE

Bankruptcy is a concept slightly different from insolvency, which is rather amicable.

Abankruptcy is when a person voluntary declares himself as an insolvent and goes to the
court. On declaring him as ‘bankrupt’, the court is responsible to liquidate the personal
property of the insolvent and hand it out to its creditors. It provides a fresh lease of life to
the insolvent

WHY CODE WAS NEEDED?

JOURNEY OF THE CODE

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 INSOLVENCY & BANKRUPTCY CODE

OBJECTIVE OF THE CODE

The new law aims to consolidate the laws relating to insolvency of companies and limited
liability entities (including limited liability partnerships and other entities with limited
liability), unlimited liability partnerships and individuals, contained in a number of
legislations, into a single legislation and provide for their reorganization and resolution in
a time bound manner for maximization of value of their assets. Such consolidation will
provide for a greater clarity in law and facilitate the application of consistent and coherent
provisions to different stakeholders affected by business failure or inability to pay debt.

The Code separates commercial aspects of the insolvency proceedings from judicial
aspects. While Insolvency Professionals (IPs) will deal with commercial aspects suchas
management of the affairs of the corporate debtor, facilitating formation of committee of
creditors, organising their meetings, examination of the resolution plan, etc., judicial
issues will be handled by proposed Adjudicating Authorities (National Company Law
Tribunal / Debt Recovery Tribunal) . One more important institution created under the
Code is the ‘Information Utility’ which would store financial information and data and
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 INSOLVENCY & BANKRUPTCY CODE

terms of lending in electronic databases. This would eliminate delays and disputes about
facts when default does take place.

The Code also provides a fast track insolvency resolution process for corporates and LLPs.
This will be an enabler for start-ups and small and medium enterprises (SMEs) to
complete the resolution process in 90 days (extendable to 45 days in deserving cases).

LIQUIDATION

In the event that:

i. the COC cannot agree on a workable resolution plan within the IRP Period (i.e.180 days
extendable once by another 90 days);

ii. the COC decides to liquidate the company;

iii. the NCLT rejects the resolution plan; or

iv. the corporate debtor contravenes provisions of the resolution plan, the NCLT shall:

v. pass an order requiring liquidation of corporate debtor;

vi. make a public announcement of corporate debtor entering liquidation; and

vii. require a liquidation order to be sent to the registering authority of the corporate debtor
(for example Registrar of Companies in case of companies incorporated under Companies
Act).

The IP acting as the resolution professional shall, upon commencement of liquidation shall
be appointed as the liquidator for the process, unless replaced by NCLT.

INSOLVENCY RESOLUTION PROCESS

An application to initiate an IRP under the Code can be either made by the debtor
(personally or through an insolvency resolution professional) or by a creditor (either
personally or jointly with other creditors through an insolvency resolution professional).
However, a partner of a partnership firm is not eligible to apply for an IRP unless a joint
application is filed by majority of the partners of the partnership firm.

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 INSOLVENCY & BANKRUPTCY CODE

Procedure for voluntary liquidation:

1. Declaration of Solvency to be made by the majority of Directors

Majority of directors of the company/entity must make a declaration verified by an

affidavit stating that-

1. they have made a full inquiry into the affairs of the company and they have formed an
opinion that either the company has no debt or that it will be able to pay its debts in full
from the proceeds of assets sold/ to be sold in the voluntary winding up; and

2. the company is not being liquidated to defraud any person

2. Documents to accompany the declaration

1. Audited financial statements and record of business operations of the company for the
previous two years or for the period since its incorporation, whichever is later;

2. a report of the valuation of the assets of the company, if any prepared by a registered
valuer.

Registrar of companies and insolvency and bankruptcy board of India to be notified

about the general body resolution within seven days

The company is required to notify the Registrar of Companies and the Insolvency
and Bankruptcy Board of India about the general body resolution for voluntary winding up
of the company within seven days of such general body resolution or within seven days of
the subsequent approval of the general body resolution by the creditors, as the case may
be.

Approval of creditors must be obtained within seven days of general body resolution
where the company owes any debt to any person

If the company owes any debt to any person, approval of the resolution for
voluntary winding up of the company is required from creditors representing two-thirds in
value of the debt of the company within seven days of general body resolution.

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General body resolution to be passed within four weeks of making of declaration
ofsolvency

The company should pass a special resolution in a general meeting where the
company is to be liquidated voluntarily and appointment of an insolvency professional to
act as liquidator.

Or

A resolution of the members of the company in a general meeting requiring the company
to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed
by its articles or on the occurrence of any event in respect of which the articles provide
that the company shall be dissolved, as the case may be and appointing an insolvency
professional to act the liquidator should be passed.

 Voluntary liquidation proceedings in respect of a company shall be deemed to have

commenced from the date of passing of the resolution.

 Where the affairs of the corporate person have been completely wound up, and
itsassets completely liquidated, the liquidator can make an application to the
Adjudicating Authority for the dissolution of such corporate person.

 On such application the Adjudicating Authority shall pass an order for dissolution.

 A copy of the order is to be forwarded to the authority with which the corporate is
registered with fourteen days

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