The Insolvency and Bankruptcy Code (IBC) is a significant legislative development in India aimed at addressing issues related to insolvency and bankruptcy.
It consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit, and balance the interests of all stakeholders, including alteration in the order of priority of payment of government dues, and to establish an Insolvency and Bankruptcy Board of India.
Moratorium: The IBC provides for a moratorium during which creditor action will be stayed, granting a temporary period of relief to the debtor. This is not automatic and has to be applied for.
Insolvency and Bankruptcy Board of India: The IBC establishes the Insolvency and Bankruptcy Board of India (IBBI) as the regulator, which oversees the insolvency resolution processes and regulates insolvency professionals and insolvency professional agencies.
Time-Bound Process: The IBC aims to complete the insolvency resolution process within a maximum of 330 days, with an initial timeline of 180 days, to provide a timely bound process for payment to creditors and insolvency resolution.
Protection of Creditors' Interests: One of the objectives of the IBC is to protect the interests of creditors, including stakeholders in a company, and to maximize the value of assets of corporate persons.
Revival of Companies: The IBC seeks to revive the company in a time-bound manner, promoting entrepreneurship and providing a specialized resolution mechanism to deal with bankruptcy situations in various sectors, including the financial sector and insurance firms.
National Company Law Tribunal (NCLT): The NCLT is the adjudicating authority for insolvency resolution and liquidation proceedings under the IBC. Different benches of the NCLT handle corporate and individual insolvency cases.
Insolvency Professionals (IPs): Insolvency professionals play a crucial role in the resolution process. They are licensed professionals responsible for managing the affairs of the debtor during the resolution period.
Committee of Creditors (CoC): The CoC is a group of creditors that makes key decisions during the resolution process. It typically consists of financial creditors and is actively involved in the insolvency resolution process.
Liquidation: If a resolution plan is not agreed upon or fails, the company goes into liquidation. The IBC outlines the process for selling the assets of the company and distributing the proceeds among creditors.
Cross-Border Insolvency: The IBC has provisions for dealing with cross-border insolvency, allowing the government to enter into agreements with other countries for reciprocal arrangements.
The IBC has undergone several amendments since its enactment in 2016, with the most recent being the Insolvency and Bankruptcy Code (Amendment) Act, 2021.
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