May 22, 2024

The Enterprise News

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A Comprehensive Guide to the Insolvency and Bankruptcy Code (IBC)

The Insolvency and Bankruptcy Code of India (IBC), 2016, is a comprehensive law enacted by the Indian government to address issues related to insolvency, bankruptcy, and the timely resolution of financial distress faced by individuals, companies, and other entities. It provides a single unified framework to consolidate and streamline the insolvency resolution process, replacing multiple existing laws that were fragmented and inefficient.

Objectives of the IBC

The primary objectives of the IBC include:

  • Facilitating the timely resolution of insolvency cases to maximize the value of assets.
  • Balancing the interests of creditors and stakeholders.
  • Promoting entrepreneurship and availability of credit.
  • Establishing a transparent and efficient insolvency resolution mechanism.

Overall, the Insolvency and Bankruptcy Code of India represents a significant reform aimed at enhancing the ease of doing business, promoting investor confidence, and strengthening the Indian economy’s financial stability.

The Four Pillars Of The IBC

The foundational elements of the IBC infrastructure consist of four key components:

  1. Insolvency Professionals (IPs):

Insolvency Professionals are central to the IBC ecosystem. These professionals, duly licensed and regulated, are responsible for various actions, including handling the fresh start order process under Chapter II of Part III, managing individual insolvency resolution processes, overseeing corporate insolvency resolution processes and more.

  1. Information Utilities (IUs):

Information Utilities serve as repositories of financial data pertaining to Corporate Debtors. They gather, organize, verify, and distribute this information, which is essential for insolvency resolution, liquidation, and bankruptcy proceedings.

  1. Adjudicating Authorities (AAs):

Adjudicating Authorities are specialized tribunals entrusted with the responsibility of ensuring that the Insolvency Resolution, Liquidation, and Bankruptcy processes are conducted in adherence to the provisions outlined in the Bankruptcy and Insolvency Code. Additionally, individuals dissatisfied with rulings from the National Company Law Tribunal (NCLT) have the option to appeal to the Appellate Tribunal – National Company Law Appellate Tribunal (NCLAT), and subsequently to the Hon’ble Supreme Court if necessary.

  1. Insolvency and Bankruptcy Board of India (IBBI):

The IBBI serves as the regulatory body overseeing Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs), Insolvency Professional Entities (IPEs), and Information Utilities (IUs). Its mandate includes regulating the conduct of professionals involved and monitoring the transactions carried out within the framework of the IBC.

These four pillars collectively form the backbone of the Insolvency and Bankruptcy Code infrastructure, ensuring the effective functioning and integrity of the insolvency resolution process in India.

Benefits of the IBC

The IBC addresses several shortcomings of the previous insolvency resolution process and provides significant advantages to various stakeholders:

  1. Timely Resolution of Insolvencies:
  • Under the IBC, insolvency resolution is conducted within a specified timeframe, ensuring swift and efficient resolution. This timely resolution minimizes economic losses, preserves employment opportunities, safeguards government revenues, and maintains the stability of the local ecosystem. It also protects the interests of operational creditors, homebuyers, and other stakeholders by providing a clear and predictable resolution process.
  1. Certainty and Clean Title:
  • One of the key benefits of the IBC is the assurance of a clean title for buyers acquiring companies through the insolvency process. Regardless of past defaults or non-compliance issues, the buyer receives ownership of the company free from any encumbrances. This certainty in the settlement of liabilities and ownership of assets enhances investor confidence and facilitates smoother business transactions.
  1. Prevention of Fraudulent Activities by Debtors:
  • Upon the Adjudicating Authority (AA) admitting an application, control of the insolvent entity and its assets is transferred to an Insolvency Professional (IP). This transfer of ownership prevents debtors from engaging in fraudulent activities to defraud creditors, thereby ensuring transparency and integrity in the insolvency resolution process.

Functions Of Insolvency Services

The functions of insolvency services typically include:

  • Debt management, 
  • Insolvency administration, 
  • Asset realization, 
  • Legal compliance, 
  • Creditor liaison, 
  • Financial analysis, 
  • Rehabilitation, 
  • Regulatory compliance. 

Services like Ancoraa Resolution provide professional guidance to individuals and businesses facing financial distress, facilitating debt restructuring, bankruptcy proceedings, and individual insolvency resolution. They administer insolvency processes such as bankruptcy and liquidation, ensuring adherence to relevant laws and regulations. Insolvency practitioners act as intermediaries between debtors and creditors, negotiating settlements and maximizing returns for stakeholders.

To Sum Up

The Insolvency and Bankruptcy Code continues to evolve through amendments and judicial interpretations, further enhancing its effectiveness and relevance. Its overarching objective is to address non-performing assets (NPAs) and rejuvenate the Indian industry by providing opportunities for the acquisition of insolvent companies by responsible market players. By offering a fresh start to the industry while maintaining accountability and transparency, the IBC contributes to the overall growth and stability of the Indian economy.