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Insolvency and Bankruptcy Code

Insolvency and Bankruptcy Code

Insolvency and Bankruptcy Code

Topics Covered:

  1. Indian Economy and issues relating to it.

What to study?

For Prelims:

  • IBC, IBBI, SEBI, MoU and its features

For Mains:

  • Significance of the Bankruptcy code and its insolvency process.

Context:

The Insolvency and Bankruptcy Board of India (IBBI) signed a Memorandum of Understanding (MoU) today with the Securities and Exchange Board of India (SEBI).

What is bankruptcy?

Bankruptcy refers to a financial condition where a firm/individual is unable to repay debts to creditors.  An adjudicating authority through passing a bankruptcy order will declare a debtor to be bankrupt (Insolvency and Bankruptcy Code, 2016)

Insolvency and Bankruptcy Code, 2016 (IBC)

It is the bankruptcy law of India which was a dedicated move to establish a single law for insolvency and bankruptcy.  It minimizes the cost and the time incurred in attaining liquidation. The code will hasten the process of liquidation and protect the interests of small investors

Key features

  • A maximum time limit, for completion of the insolvency resolution process, has been set for corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree.
  • For start ups (other than partnership firms), small companies and other companies (with asset less than Rs. 1 crore), resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.

Insolvency and Bankruptcy Board of India (IBBI) – 10 Members

  • It establishes IBBI to oversee the insolvency proceedings in the country and regulate the entities registered under it.
  • The board has representatives from the Ministries of Finance and Law, and the Reserve Bank of India.

The Code provides for two separate tribunals

 (i) The National Company Law Tribunal  

(ii) The Debt Recovery Tribunal for individuals and partnerships.

 The MoU provides for

(a) Sharing of information between the two parties, subject to the limitations imposed by the applicable laws;

(b) Sharing of resources available with each other to the extent feasible and legally permissible;

(c) Periodic meetings to discuss matters of mutual interest

(d) Cross-training of staff for effective utilisation of collective resources;

(e) Capacity building of insolvency professionals and financial creditors;

(f) Joint efforts towards enhancing the level of awareness among financial creditors

Source: PIB

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