The Companies Act of 1956, the Sick Industrial Companies(Special Provisions) Act of 1985, the Securitisation and Financial Asset Assets and Implementation of Securities Act, and the Securitisation and Rehabilitation of Financial Assets and Regulatory oversight of Securities Act were among the numerous laws that dealt with the insolvency technology and retooling procedures of giant corporations, partnership firms, and individuals before the implementation of the Insolvency and Bankruptcy Code, 2016. Multiple laws, forums, and complexity caused delays in promptly resolving troubled organizations, partnership businesses, or people. This further contributed to the depreciation of the borrower's assets, rendering insolvency negotiations unnecessary.
The IBC 2016 has established a collective framework for handling insolvencies in the nation while keeping a delicate balancing act for all participants to maintain the process's economic worth in a timely way.
Defining the Differences – Corporate Debtor, Financial Creditor or Operational Creditor
If a corporate debtor fails to pay their obligations for an amount specified by the Code, any creditor of the corporate debtor (CD), regardless of whether they are financial creditors (FC), operational creditors (OC), secured or unsecured creditors, or the company debtor itself, may apply to the adjudicator (AA) to begin a bankruptcy proceeding (CIRP) to against corporate debtor.
The emphasis has shifted from a “Debtor in Possession” regime to a “Creditor in Possession” regime, whereby the Corporate Debtor's creditors, through their designated Interim Resolution Professional/Resolution Professional (IRP/RP), continue to be in charge of the Corporate Debtor's assets as of the time the AA approves the application. Additionally, the business is run as a continuing concern under the authority of the Resolution Professional until the AA approves a resolution plan.
The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018 introduced in Lok Sabha
On July 23, 2018, the Insolvency And Bankruptcy Code (Second Amendment) bill 2018 was presented to the Lok Sabha. The Bankruptcy and Insolvency Act (Amendment) Ordinance, 2018, published on June 6, 2018, is replaced by the Bill, which alters the Bankruptcy and Insolvency Act, 2016. The Code outlines a timeline for addressing insolvency in businesses and among people. Firms or people who cannot pay off their debts are considered insolvent.
- Financial creditors: According to the Code, a financial creditor is a person who is owed money. Any sum received with the same commercial impact as a loan falls under this kind of debt.
- Legal representatives of creditors: The Bill stipulates that the financial lenders will be addressed on the creditor committee by an authorised agent in specific circumstances, such as where the debt is owed to a group of creditors.
- The voting threshold of COC: The Code stipulates that a plurality of at least 75% of the secured creditors must vote on each decision made by the committee of creditors. This cutoff is lowered to 51% under the Bill.
- Corporate resolution: According to the Code, a corporate applicant must file a special solution that needs to be passed by the 3/4th of the total number of partners in order to start the insolvency resolution process.
- Withdrawal of approved applications: According to the Bill, a resolution applicant may remove a resolution application from the National Corporation Law Tribunal once the resolution process has begun. The removal has to be approved by 90% of the committee of creditors.
- Execution of the resolution plan: According to the Ordinance, the NCLT should ensure that it has measures for efficient implementation before approving a resolution plan.
Conclusion
Although it's a relatively new piece of legislation, the IBC has undergone several amendment steps in a short amount of time to close any gaps or ambiguities that would impede the effective and seamless operation of the Code.
The relevant authorities and legislative research institutions have been instrumental in this trip of IBC by bringing new dimensions of legislation into being within the constrained time frames that further defined the implications of such significant modifications.
The recently passed Ordinance greatly simplified the challenges of putting the Code into practice. Every stakeholder has had a considerable impact, and their strategy has enabled them to achieve the success envisioned in the Code. The IBC 2016 has fundamentally altered the Insolvency and Bankruptcy code structure and has established itself as a turning point in Indian legal history.
