470f76csk_insolvency_rajkot_sc_ppt.ppt

CA SNEHAL KAMDAR
Bcom,FCA,DISA (ICAI), DBM (Forensic audit) &
Insolvency professional
9869351460
snehal.kamdar@jjkandco.com

Agenda to discuss
For Company and LLP-
CIRP ( Roles & responsibility of Lender & operational
Issues)
Liquidation Process
Fast Track Insolvency Resolution Process
Voluntary Liquidation Process

The IBC 2016 Aims to….
1
• To promote entrepreneurship;
2
• To make credit available;
3
• To balance the interest of all stakeholders by consolidating and
amending the existing laws relating to insolvency and bankruptcy;
4
• To reduce the time of resolution for maximizing the value of assets.

Significant Features of the IBC 2016
Single insolvency and bankruptcy framework. It
replaces/modifies/amends certain existing laws.
Overriding effect on all other laws relating to Insolvency &
Bankruptcy. S 238
Not applicable to corporate financial service providers like Banks,
NBFC, Insurance Co’s etc. there will be separate legislation.
Provides for moratorium period from insolvency
commencement date
The Code shifts the focus from “Debtors” in possession to
“Creditors in Control”.
The test of insolvency has been shifted from “erosion of net

Impact of the IBC 2016
BIFRand SICA go off completely;
Corporate resolutionscomeunder NCL
T;
Tighttimelinesunderthenewlaw –entire process of resolution to be over in180to270
days;
May lead to greater financial discipline;
Creditors haveanupper handinresolutionplans;
Moratoriumis notindefinite –limited moratorium;
If revival does notwork out,entity to mandatorily go into liquidation;

Impact of the IBC 2016
Companiesand guarantorscanbe both brought undera common forum– NCL
T/DRT;
While borrowers mayfile resolutionapplications seeking moratorium,but borrower
will haveto face thethreat of liquidation/bankruptcy ;
Candebtors underbanker-driven restructuringalsogo for NCL
T/DRTresolution–
yes.Inview of mandatory timelines,thecasemay reachbankruptcy stage faster;
Accelerating provisioning – faster transition into a caseof lossassets.

IBC, 2016 – Analysing the Parts I to V
Part I
PRELIMINARY - 1
Chapter - Section 1 -3
Part II applies to
corporate persons
other than financial
service providers
Part – III applies to
individuals and
partnership firms
except those located in
state of Jammu &
Kashmir proviso S1(2)
Section 3 definitions
Part II
INSOLVENCY
RESOLUTION AND
LIQUIDATION FOR
CORPORATE
PERSONS -
7 Chapters - Sections
4-77
Section 5 definitions
Part III
INSOLVENCY
RESOLUTION
FOR
INDIVIDUALS
AND
PARTNERSHIP
FIRMS
• 7 Chapters
• Section 78-187
• Section 79
definitions
Part IV
REGULATION OF
INSOLVENCY
PROFESSIONALS,
AGENCIES AND
INFORMATION
UTILITIES
• 7 Chapters
• Section 188-223
Part V
MISCELLANEO
US
• Section 224-255
• (Section 245-
255 enables
amendments in
other statutes,
11 legislations )

Understanding terminologies-
 Insolvency - inability to pay debts different from solvency
 Liquidation – process of selling assets and paying creditors - used
only for corporate persons
 Winding up – larger term includes liquidation & removal of names
used only for corporate persons
 Removal of name – like death certificate for individuals
 Bankruptcy – like liquidation and insolvency for corporate persons

Section 3(37) IBC 2016 residuary definitions
As defined in these legislations
 The Indian contract Act, 1872
 The Indian Partnership Act, 1932
 The Securities Contract (Regulation) Act, 1956
 The Securities Exchange Board of India Act, 1992
 The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
 The Limited Liability Partnership Act, 2008
 The Companies Act, 2013

Time Limit for Completion of Insolvency
Resolution Process
Time
Limit
Sec 12 of the IBC 2016 – 180 days may be extended by
further period not exceeding 90 days
Sec 56 of IBC – fast track 90 days may be extended by
45 days only once, initiated by a creditor or a corporate
debtor

Part II of IBC 2016 ( S 4 to 77)
CORPORATE INSOLVENCY RESOLUTION PROCESS AND
LIQUIDATION FOR CORPORATE PERSONS
 C I Preliminary S 4 & 5
 C II Corporate Insolvency Resolution Process S 6 to 32
 C III Liquidation Process S 33 to 54
 C IV Fast Track Corporate Insolvency Resolution Process S 55
to 58
 C V Voluntary Liquidation of Corporate Persons S 59
 C VI Adjudicating Authority for Corporate Persons S 60 to 67
 C VII Offences and Penalties S 68 to 77

Insolvency resolution process for corporate
An operational creditor send a demand
notice to the corporate debtor. Within the 10
days, if the operational creditor does not
receive payment or notice of dispute, it
applies before NCLT for resolution process.
A defaulting corporate debtor may also file
an application for initiating corporate
insolvency resolution process with the
NCLT the Adjudicating Authority
A corporate commits a default
Within 14 days, the AA accepts the
application if it is complete Else rejects
allowing 7 days time to rectify mistakes
AA declares moratorium for prohibiting certain
things
Makes public announcement for the initiation of
the process, call for the submission of claims.
Appointment of an interim resolution
professional.
Within 14 days of application receipt, if AA is
satisfied about the default and all other
parameters are met it accepts the application.
Else rejects allowing 7 days time to rectify
mistakes
Within 14 days of application receipt, AA
admits the application if default has not been
rectified and if application is complete. Else
rejects allowing 7 days time to rectify
mistakes
Commencement of corporate insolvency resolution process
The financial creditor, individually or jointly with
other financial creditors may files an application
for initiating the insolvency resolution process
against the corporate debtor before NCLT, the
Adjudicating Authority. (AA)
Cont’d….

Insolvency Resolution Process for Corporates
ion process for corporate
Corporate debtors goes into Liquidation
Constitute a Committee of Creditors (CoC)
Appointment of the resolution professional (RP) (Either Interim resolution professional can continue or a new one can be
appointed by CoC with backing of 75% majority (in Value terms)
RP prepares Information Memorandum. Resolution Applicant prepares resolution plan and submit to RP. RP examines
all Resolution Plan and presents such plan to CoC which meets the criteria
AA accepts Resolution plan AA rejects resolution plan
CoC accepts one of the Plans CoC rejects all Plans
RP submits Resolution Plan to Adjudicating Authority approves or rejects the
plan
Corporate debtors goes into Liquidation
RP implements Resolution plan and handover management to
existing/new promoters
Corporate Debtors doesn’t comply
with resolution plan

Application on default to NCLT
Reject Accept
Interim RP appointment + Moratorium +
Public Announcement
Constitute a Committee of Creditors
(CoC)
Appointment of RP by CoC
Preparation of Information
Memorandum
RP submits resolution plan to CoC
CoC Accepts CoC Rejects
RP submits plan to AA
AA Accepts AA Rejects
RP
implements
the plan
Corporate debtor goes into
liquidation
RP: Resolution Professional, AA: Adjudicating
Authority
Summary of insolvency resolution process for corporate
n p
Debtor doesn’t
comply with
resolution plan

Once CIRP commences . . .
Commenceme
nt of
CIRP
Public
announcement of
Initiation of CIRP
u/s 15
Declaration of
Moratorium
u/s 13
Call for
submission
of Claims
Appointment
of IRP by
AA u/s 22
Within 14
days of
Insolvency
Commenc
em ent
Date
Manage
m ent of
affairs of
C.Dr.
Consolidati
on of
Claims
against
C.Dr.
1st meetingof
Crs.Committee
Constitutionof
Crs.Committee
Review of
Financial
Position of
C.Dr.
Appointment of
RP for Conduct
of
CIRP
Within 7 days
Max. 30 days tenure for IRP
31

Appointment of resolution
professional
Constitution of
Crs. Committee
by IRP
Application to AA
for appointment
of proposed RP
1st meetingof Crs.
Committee
Intimation to
IRP, C.Dr.,
& AA
Proposeto
replace the
RP
AA to direct the IRP
to continue as RP
until Board confirms
otherwise
AAforwards the
nameto Board
Existing
IRP
appointed
as RP?
AA
appoints
RP
No
No
Y
es
Board
confirm
s
within
10
days?
Yes
Within 7 days
32

Conduct of CIRP by RP
Preparation of
Information
Memorandum
by RP
Submission of
Resolution
Plan by
Resolution
Applicant
Review of
Resolution
Plan by RP
Approval
of a
Resolution
Plan by
Crs.
Committe
e
Selection of
Resolution
Plan(s)
confirming to
specified
conditions
Presentation of
selected
Resolution
Plan(s) to Crs.
Committee
Submission
of approved
Resolution
Plan to AA
by RP
Review of
Resolution
Plan by AA
Order of
AA
Admit the
Resolution Plan
Reject the
Resolution Plan
33

3 Stagesof Corporate Insolvency
Resolution
• Insolvency application accepted, plan not yet
sanctioned
▫ Moratorium of SARFAESI action, any other action
• Resolution plan sanctioned
▫ Creditor action will depend on the resolution plan;
resolution
plan mandatory on all
• Liquidation proceedings
▫ Secured creditor staying in liquidation process
Security interest relinquished, secured creditor
cannot take enforcement action
▫ Secured creditor stays out of liquidation
Security interest enforcement/SARFAESI permitted
34

Effect of Moratorium Order
• AA shall declare moratorium order on the
insolvency
commencement date prohibiting –
▫ institution of suits or continuation of
pending suits or proceedings
against the C.Dr.
 including execution of any judgment, decree or order in any
court of
law, tribunal, arbitration panel or other authority
any of its
▫ transferring,encumbering, alienating
or disposing of assets or
any legal right or beneficial interest
▫ recovery of any property by an owner or lessor
▫ action to foreclose, recover or enforce any security interest
created by the C.Dr. in respect of its property
 including any action under the SARFAESI Act, 2002
• Moratorium shall have effect till the completion of the
CIR process or liquidation order
35

Effect of Moratorium order on SARFAESI Proceedings
36
• Code prohibits SARFAESI proceedings during moratorium
period.
• Following circumstances might arise –
▫ Moratorium starts before sending notice under section 13(2)
Notice shall be served after completion of 180 days (or
270 days, if an extension is granted)
▫ Moratorium starts after sending notice under section
13(2) to the borrower
Fresh notice under section 13 (2) shall be served after completion of
180 days or 270 days, as the case may be.
13(2) to the borrower + repossessing the asset
Repossessed asset shall be sold only after completion of 180 days or
270 days, as the case may be.
13(2) to the borrower + repossessing the asset + sale of
repossessed asset
Such secured creditor shall rank 5th in the waterfall priority to the extent
of unsecured portion

Appointmentof Resolution
Professional
• An insolvency professional shall be eligible to be appointed as a
resolution
professional -
▫ If he, and all partners and directors of the insolvency professional
entity of which he is a partner or director, are independent of the
corporate debtor
• Independent of the corporate debtor shall mean –
▫ Eligible to be appointed as an independent director on the board of
the corporate debtor under Section 149 of the Companies Act, 2013
▫ Is not a related party of the corporate debtor; or
▫ Is not an employee or proprietor or a partner, in the last 3 FY of:
A firm of auditors or PCS or cost auditors of the corporate debtor; or
A legal or a consulting firm, that has or had any transaction with the corporate
debtor amounting to 10% or more of the gross turnover of such firm.
• Whether an insolvency professional needs to be independent of the
creditor(s) filing an application against the corporate debtor?
39

Dutiesof Resolution Professional
• Make disclosure of independence at the time of appointment
(Reg 3 (2))
• Make a public announcement (in form A) on appointment as
an IRP
▫ Within 3 days from the date of appointment
• File a report certifying constitution of the
committee to the Adjudicating Authority
▫ Within 30 days from the date of appointment
• Circulate the minutes of the meeting to all participants by
electronic means
▫ Within 48 hours of the said meeting
• A record of the summary of the decision taken on a relevant
agenda item shall be circulated
▫ Within 24 hours of the conclusion of the voting
• Appoint 2 registered valuers to determine the liquidation
value of the corporate debtor
▫ Within 7 days from the date of appointment as RP
40

Dutiesof Resolution Professional
• Submit an information memorandum in
electronic form
▫ To each member of the committee and any
potential resolution applicant (upon submission of
an undertaking)
Before 1st meeting – matters listed in paragraphs (a)
to (i) of Reg. 36 (2)
Within 14 days of the 1st meeting - matters listed in
paragraphs (j) to (l) of Reg. 36 (2)
• Submit the resolution plan approved by the
committee to the AA with the certification that -
▫ the contents of the resolution plan meet all the
requirements of the Code and the Regulations; and
▫ the resolution plan has been approved by the
committee
41

Committeeof Creditors
• Committee of creditors shall be formedwith financial
creditors only.
▫ Financial creditors which are related parties
of the corporate debtor shall not form part of committee
• What if the corporate debtor has no financial creditor?
• Where all financial creditors are related parties of the
corporate debtor?
▫ Committee shall be formed with 18 largest O.Cr. By value
If the number of O.Cr. is less than 18 then all the O.Cr. shall be
included
▫ 1 representative elected by all workmen
Other than those included in 18 members
▫ 1 representative elected by all employees
Other than those included in 18 members
42

Whowill bear thestagewise cost?
• Expenses of public announcement
▫ Shall be borne by applicant which may be reimbursed by the Committee to the extent ratified
• Cost of proving the debt
▫ Shall be borne by respective creditors
• Cost of IRP/ RP
▫ Any expenses to be incurred or payment to be made to IP – applicant shall borne the expense
▫ As soon as the committee meets – proposal shall be laid before the committee and committee
shall either ratify the expenses or reject the proposal
If committee ratifies the proposal – expenses shall be borne by the committee to the extent they agree
to ratify
If committee rejects the proposal – expenses shall be borne by the applicant
▫ Once the resolution plan is approved – the expenses shall be borne by the corporate
debtor and shall rank first as far as priority is concerned (Ref. Reg 38 of IRP for CP)
▫ If the resolution plan is rejected -- the expenses shall be borne by the corporate debtor and shall
rank first as far as priority is concerned (Ref. section 53 of the Code)
43

Winding up on Inability to Pay Debts
Winding up on grounds other than Inability to pay debts
Voluntary Winding up
Section 2(94A) of the Companies Act, 2013 has been amended to define
“Winding Up” as “winding up under this Act or liquidation under Insolvency
and Bankruptcy Code, 2016”

Winding Up on Inability to Pay Debts
 Section 271(1)(a) of the Companies Act, 2013 omitted by Section 255 of the Code
 Section 271(1)(a) deals with Winding up by Tribunal on account of Inability to Pay
Debts
 Section 7 to 9 of the Code now deals with it
 Application to AA for initiation of Corporate Insolvency Resolution Process can be
made where there is a ‘default’
 ‘Default’ defined in the Code to mean non-repayment of a debt, whether in whole or
in part, has become due and payable by a corporate person
 Which means under the Code insolvency resolution can be initiated even against
financially solvent company that has defaulted payment
 Once the resolution process is accepted by the Tribunal, Insolvency Professional is
appointed to conduct the Corporate Insolvency Resolution Process
 The process to be completed within 180days from the date of admission of the
application by the Tribunal
 On failure of which the Tribunal will order for Liquidation of the Corporate Person

Winding up on grounds other than inability to
pay debts
 Section 271 of the Companies Act, 2013 deals with the following
271(a)Passing of special resolution to that effect
271(b)Acting against Sovereignty and Integrity of India, security of state
271(c)Conducting affairs in a fraudulent manner
271(d)Default in filing of financial statements or annual returns with the
registrar
 271(e)On just and equitable ground in the opinion of the Tribunal
 These provisions are notified under Chapter XX w.e.f .15th December 2016,
therefore winding up application for the above grounds shall be made to
the Tribunal
 Provisions of Companies Act, 2013 shall apply.

Fast Track CIRP
• Sections 55 to 58 under chapter IV of Part II (w.e.f. 14th
June, 2017)
Applicable to the following categories of corporate debtors:
-a small company, or
-a startup (other than the partnership firm), or
-an unlisted company with total assets, not exceeding Rs.1
crore.
• Default completion time is 90 days from the insolvency
commencement date as against 180 days in other cases.
▫ One-time extension of a maximum of 45 days permissible
▫ Necessity of extension to be determined by AA
44

The Insolvency and Bankruptcy Board of India (Fast Track Insolvency
Resolution Process for Corporate Persons) Regulations, 2017
 W.e.f 14th June 2017
 The IBBI announced the regulations in exercise of its powers
conferred by sections 58, 196 and 208 read with section 240 of the
Insolvency and Bankruptcy Code, 2016.
 10 Chapters, 39 Regulations and Schedules
 Various forms are prescribed under Schedule (Form A to E)
 These regulations provide the process for initiation of insolvency
resolution of eligible corporate debtors, conduct of the Fast Track
Process, proof of claims, approval of the resolution plan by the
Adjudicating Authority.

Voluntary Liquidation
Time limit- 12 months from the voluntary liquidation
commencement date.
 Steps involved-
 Step – 1: Filing of application
 Step – 2: Commencement of voluntary
liquidation
 Step – 3: Appointment of Liquidator and
Public Announcement
 Step – 4: Submission of Preliminary Report
and Completion of Books of Account
 Step – 5: Appointment of Professionals
 Step – 6 Consultation with Stakeholders
 Step – 7: Claims by creditors
 Step – 8: Determination and Verification of
Claims
 Step – 9 Preparation of List of Stakeholders
 Step – 10: Realisation and Distribution
 Step – 11: Submission of Final Report
 Step -12: Dissolution

Formats Prescribed under IBBI (Voluntary
Liquidation Process) Regulations, 2017

List of Books to be maintained by a
Liquidator – Schedule - II

Cont.…

Winding up, liquidation & dissolution
 Sec 2(94A) of the Companies Act, 2013 defines “winding up”- introduced by
Sec 255 the Eleventh Schedule of the IBC 2016
 “Winding Up” – ‘winding up under this Act or under Insolvency and
Bankruptcy Code, 2016’
Winding up
Process
Insolvency and
Bankruptcy Code, 2016
Companies Act,
2013
Governed by

Winding up and Applicable
Provisions
CORPORATE
INSOLVENCY
RESOLUTION PROCESS
(INABILITY TO PAY)
• IBC, 2016
• IBBI (Insolvency
Resolution Process for
Corporate Persons)
Regulations, 2016
WINDING UP ON
GROUNDS OTHER THAN
INABILITY TO PAY
• Companies Act, 2013
• Companies Court Rules,
1959
VOLUNTARY WINDING
UP
• Section 59 of the IBC,
2016
• The IBBI ( Voluntary
Liquidation Process).
Regulation, 2017
• (Both w.e.f 1st April 2017)

Liquidation and distribution of recovery proceeds
of recovery proceeds
The Insolvency and Bankruptcy Board of India has framed new regulations under ‘Insolvency and
Bankruptcy Board of India (Liquidation Process) Regulations, 2016 [the regulation]’ to deal with liquidation
process
Liquidation Process
Appointment of Liquidator
To make public announcement - to call upon stakeholders to submit their claims as on liquidation commencement date and to provide last
date for submission of claim (30 days from the liquidation commencement date-Y+30)
Submission of the preliminary record to the Adjudicating Authority (Y+75)
Submission of claims by different stakeholders. Verification of stakeholders’ claims and preparation of final list of stakeholders by the
liquidator.
Asset memorandum by the liquidator and valuation by at least two independent valuers.
Asset sale either by auction or by private sale. Distribution of proceeds (Y+2 yrs)
Liquidation commencement date: means the date on which proceedings for liquidation commence in accordance with section 33 or section 59 of the Code (Y)

Liquidation waterfall
Section 53 of the Code deals with distribution of assets sale proceeds along with liquidation waterfall.
Entire insolvency resolution process cost and liquidation cost
Workmen’s dues for the period of twenty-four months
preceding the liquidation commencement date
Debts owed to a secured creditor in the event such secured
creditor has relinquished security in the manner set out in
section 52
+
Wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation
commencement date
Financial debts owed to unsecured creditors
Any amount due to the Central Government and
the State Government
Debts owed to a secured creditor for any amount
unpaid following the enforcement of security interest
+
Any remaining debts and dues
Preference shareholders, if any
Equity shareholders or partners, as the case may be

Preferential transactions
• Sec 43- Corporates & Sec 165 – Individuals
• Examples-
▫ payment or set-off of debts not yet due;
▫ performance of acts - no obligation to perform;
▫ granting of a security interest to secure existing unsecured
debts;
▫ unusual methods of payment;
▫ payment of a debt of considerable size in comparison to the
assets of the debtor;
▫ payment of debts in response to extreme pressure from a
creditor
• Defences available
▫ transaction as consistent with normal commercial practice
▫ ordinary course of business
▫ new credit & new value
▫ counterparty proves that it was unaware of a preference
▫ no knowledge of the debtor's insolvency
• Creation of an escrow in favour of certain payees was held to
be voidable preference in Re Lewis’ of Leicester Ltd (1995)
56

Undervalued transaction
• Sec 45 – Corporate & Sec 164 – Individuals
▫ What is not an arm‟s length transaction is an
undervalued transaction
▫ Imply unequal exchange
• What constitutes an "undervalued transaction"?
▫ Gift
▫ Significantly less value
• Not of "proportionate value" but "ordinary course
of business" – Is it covered under undervalued
transaction?
• In Hill vs Spread Trustee Co Limited, creation of
security interest has been regarded as
undervalued transaction.
57

Transactionsdefrauding creditors
• Sec 49- Corporate
▫ the transaction is an undervalued transaction
under sub- section (2) of section 45;
▫ such transaction was deliberately entered into by
the corporate debtor;
▫ the transaction was entered into:
(a) for keeping assets of the corporate debtor beyond
the
reach of any person who is entitled to make a claim
(b) to adversely affect the interests of such a person in
relation to the claim.
58

ExtortionateCredit Transactions
• Sec 50 – Corporate & Sec 167 – Individuals
• What constitutes "extortionate"?
• Cannot presume that every regulated
financial services provider will necessarily be
compliant with either the law, or self-framed
fair lending code
59

• Broad description of the transaction to be avoided
▫ Any transfer made to a certain creditor, surety or
guarantor.
So as to put the recipient in a beneficial position in
relation to other creditors
▫ Gifts or transfer of property at a value significantly lower
than the consideration paid by the debtor.
▫ Any transaction deliberately intended.
to put the assets of entity beyond the reach
adversely affect the interest to any claim
▫ Any financial or operating debt on exorbitant terms.
60
Power of the RP or liquidator to seek avoidance and
reversal of transactions

Distribution of Assets: Order of Priority
• Insolvency resolution process costs and the liquidation costs paid in full
• debts which shall rank equally
▫ debts owed to a secured creditor in the event such secured creditor has relinquished
security
▫ workmen‟s dues for the period of 24 months preceding the liquidation commencement
date
• wages and any unpaid dues owed to employees
▫ other than workmen for the period of 12 monthspreceding the liquidation
commencement date
• financial debts owed to unsecured creditors dues which shall rank equally
▫ amount due to the CG and the SG
 including the amount to be received on account of the Consolidated Fund of India and the
Consolidated Fund of a State, if any, in respect of the whole or any part of the period of 2 years
preceding the liquidation commencement date;
▫ debts owed to a secured creditor for any amount unpaid following the enforcement of
security interest;
• any remaining debts and dues;
• preference shareholders,if any; and
• equity shareholdersor partners, as the casemay be.
• Fees payable to liquidator shall be deducted from the proceeds
proportionately payable to each class of aforementioned recipients
61

62
Distribution of Assets: Order of Priority
• The section brings very important changes in
the priority
of distribution.
▫ First, it puts government dues, which, by several specific
statutes are put on the top of the waterfall, to a position
below unsecured lenders.
▫ Second, it distinguishes between financial creditors and
operational creditors, putting the former in priority over
the latter.
▫ Third, by putting the unrealized part of a secured
creditor‟s claim who enforces security interest outside
liquidation, to a position subordinated to unsecured
creditors, it gives a positive temptation to secured
creditors to join the queue in winding up, and gain
priority.

• Whether to stay in liquidation proceedings, or stay out of liquidation?
▫ Creditors will have to take an early call on Secure Liquidation –
Whether to Stay Out of Liquidation or Stay in
Staying out – secured creditor enforces security interest, for
remaining claim, he is at par with unsecured lenders
Staying in - secured creditor relinquishes security interest. Asset
becomes part of the common pool. Secured creditor gains first
priority out of all assets
▫ Decision to be based on:
LTV ratio of the secured asset vs. LTV ratio of other free
assets of the entity
Recovery rate depends on the choice
▫ Choice once made cannot be changed

ProvisioningImplicationsof the Code
• Once an insolvency resolution application
is filed
▫ Prima facie, this is an indication of weakness in
credit; should warrant provisioning
• Once resolution application is sanctioned
▫ Provisioning may be required based on the fair
value of the restructured facility
• Once company goes into liquidation
▫ Deeper provisioning may be required looking at
the deficit on assets
64

Stage-wiseSubmission of Reports
• The liquidator shall prepare and submit to
the AA
▫ sale report(s)
 On sale of an asset
▫ minutes of consultation with stakeholders
▫ the final report prior to dissolution
67

ResolutionPlan
• Section 5 (26) defines “resolution plan” -
▫ a plan proposed by any person for insolvency resolution
of the corporate debtor as a going concern in
accordance with Part II
• Resolution plan is prepared by resolution applicants
–
▫ Resolution applicant can be creditors of the corporate
debtor, prospective lenders, prospective investors, or
any other person
• Resolution plan shall be prepared on the
basis of information memorandum prepared by RP
68

Vertical comparison
• Section 30(2) of the Code provides for essential
components in the resolution plan which calls for
vertical comparison
▫ Resolution plan must provide for –
 Repayment of debts of operational creditors in such
manner as may be specified by the Board
 Shall not be less that the amount to be paid to the operational
creditors in the event of liquidation of the corporate debtor under
section 53
• Vertical comparison means a comparison between
a creditor's entitlement in the resolution plan and
in a hypothetical liquidation
69

Dutiesof liquidator
• Make public announcement
▫ Within 5 days from appointment
• Verify the claims submitted
▫ Within 30 days from the last date for receipt of claims
• File the list of stakeholders with AA
▫ Within 45 days from the last date for receipt of claims
• Inform the secured creditor if a person is willing
to buy
the secured asset
▫ Within 21 days of receipt of the intimation
• liquidate the corporate debtor
▫ Within a period of 2 years
70

Liquidator's fee
• Fee payable to the liquidator shall form part of
the liquidation cost
• Liquidator shall be paid fees as decided by the
committee before a liquidation order is passed
under section 33(1)(a) and 33(2)
• In all other cases, liquidator shall be paid fees
as provided in next slide
71

Liquidator's fee
72

Tabulating Liquidation and Voluntary
Liquidation Process under the IBC, 2016
S.No Particulars Part/Regulation Liquidation of Corporate Persons Voluntary Liquidation of Corporate
Persons
1 Sections applicable Both fall under Part II of
the Code on INSOLVENCY
RESOLUTION AND
LIQUIDATION FOR
CORPORATE PERSONS
Chapter III
Sections 33-54
Chapter V
Section – 59
2 Offence and Penalties Chapter VII of Part II – on
Offences and Penalties
S 69 to 77 for Liquidation – for the penal
provision.
Applicable Chapter VII
3 Regulations Applicable and
w.e.f
IBBI (Liquidation Process) Regulations,
2016
W.e.f 15th December 2016
IBBI (Voluntary Liquidation Process)
Regulations, 2017
W.e.f 1st April 2017

4 Number of Regulations 41 Regulations
Schedules I&II
I – Proof of Claims
II – Books
46 Regulations
Schedules
I, II and III
5 Liquidation
Commencement Date
Defined under IBC code 2016
Section3(17) - "Liquidation
commencement date" means the date on
which proceedings
for liquidation commence in accordance
with section 33 or section 59, as the case
may
be;
Insolvency Commencement Date( Sec
50, Sec 46, Sec 43, Sec 36, Date of the
Commencement of the Liquidation (Sec
38), Liquidation Commencement Date
(Sec 53).
Definition of Insolvency
Commencement Date – Sec 3(12) of the
IBC Code 2016 - "insolvency
commencement date" means the date of
admission of an
application for initiating corporate
insolvency resolution process by the
Defined under Regulation 2(1)© -
The date on which the proceedings for
voluntary liquidation commence as
per section 59(5) and Regulation 3(4)

6 Stakeholders Regulations
2(1)(k)
- “stakeholders” means the
stakeholders entitled to
distribution of proceeds
under section 53.
Regulations 2(1)(f) -
“stakeholders” mean the
stakeholders entitled to
proceeds from the sale of
liquidation assets under
section 53.
7. Creditor’s Approval There is no question of approval
of creditors in a regular
liquidation process from section
33 to 54, though it can be
initiated by them
Section 59 – Regulations
Proviso to Regulation 3(1)© -
Creditors representing 2/3rds
of the value of debt shall
approve within seven days from
the date of passing of the
resolution

8 Initiation of
Liquidation Process
Liquidation of a Corporate Person
Is Initiated under Section 33 of
IBC, 2016 by an order of the
Adjudicating Authority
- When Resolution plan is not
received or
- When the Resolution Plan is
rejected
- Decision of the Committee of
Creditors to liquidate the
Corporate Debtor
- On Contravention of the
Resolution Plan approved by
AA, application to AA by those
whose interest is affected
Voluntary Liquidation
Proceedings of a corporate
person is initiated by a
declaration, resolution, approval
and information
-Of a company given under
Section 59 (3) of the IBC 2016
-Other than a company under
Regulation 3
9 Appointment of
Liquidator
Section 34 of the IBC, 2016
- Resolution Professional appointed
for CIRP under Chapter II of Part
II shall act as a Liquidator
Resolution passed in the General
meeting for Voluntary liquidation and
appointment of the Liquidator

10 Replacement of
Liquidator
Under section 34(4) of the IBC,
2016 the AA replaces the liquidator
on two grounds
- The Resolution plan submitted
u/s 30 fails to meet the
requirement
- The board recommends
replacement of liquidator
No specific provision
11. Liquidator’s Fee Section 34(9) states that the
Liquidator’s fee shall be paid from the
proceeds of liquidation estate.
According to Regulation 4
- Fee agreed upon by the
Committee of Creditor before
Liquidation order passed under
33(1)(a) and 33(2). (Reg 4(2))
- Fee as a percentage of assets
realized in all other cases (Reg
4(3))
According to regulation 7 the
liquidator remuneration will form
part of Liquidation Cost

12 Powers and Duties of
the Liquidator
Section 35 of the IBC 2016 Section 35(1) (a) to (o) defines 15 duties
and powers of the Liquidator
Chapter III covering regulations 5-11
1. Reporting
2. Books to be maintained
3. Appointment of Professionals
4. Consultation with Stakeholders
5. Personnel to extend co-operation
6. Disclaimer of Onerous property
7. Extortionate Credit transactions
Chapter IV covering regulations
8-14
1. Reporting
2. Books to be maintained
3. Appointment of Professionals
4. Consultation with Stakeholders
5. Extortionate Credit transactions
6. Public Announcement
13 Power of the Liquidator to
access information
Section 37 of the IBC 2016 Notwithstanding anything contained in any
other law for the time being in
force, the liquidator can access information
from
- an information utility
- credit information systems
- agency of Central, State or Local
Government
- Financial/Non- Financial information
utility
- Information systems for securities
- Database of the board
- Any other source specified by the
board
Same thing applicable for Voluntary
liquidation due to application of section
59(6)

14 Liquidation Estate Section 36 (1) to (4) – The
liquidator holds it in a
fiduciary capacity
Estate of the assets listed under section
36 mainly those on which it has
ownership rights. It also includes assets
that do not form part of the assets under
36(4) mainly assets owned by a third
party
Section 59 (6) - The provisions of
sections 35 to 53 of Chapter III shall
apply to
voluntary liquidation proceedings for
corporate persons with such
modifications as may be
necessary.
15 Consolidation and Verification
of Claims
Section 38 & 39 of the IBC
2016
- The liquidator shall receive or collect
claims within 30 days from the date of
commencement of Liquidation
- Both financial and operational
creditors shall submit claims with
supporting documents
- Financial creditor (Form
- Claims can be withdrawn within 14
days from the date of submission
- The claims are verified and further
supporting evidence may be requested
by the liquidator
- Same provisions- Section 59(6)
- Claims shall be proved by the
stakeholder (Reg 15)
Following forms are submitted
- Operational Creditor Form B of
Schedule I (Reg 16)
- Financial Creditor Form C Schedule I
(Reg 17)
- Workmen and employees – Form D
of
- Schedule I (Reg 18)
- Other stakeholder Form E of
Schedule I
- The claimant shall bear the cost of
proving its claims
- Foreign Currency debts are
converted into Indian Rupees on the
liquidation commencement date
- The claims shall be verified within 30
days by the liquidator
- The liquidator shall prepare a list of
stake holders within 45 days from

Transfer of Proceedings from High Court to
Tribunal
COMPANIES (TRANSFER OF PENDING PROCEEDINGS) RULES, 2016 clarifies as follows
 Winding up proceedings pending before High Court (HC) on account of inability to pay
debts
 All proceedings pending before HC as on 15th December, 2016
 And the notice for which has not been served on the respondent
 Shall stand transferred to the respective Bench of the Tribunal having jurisdiction
 And shall be dealt with according to the PROVISIONS OF THE CODE
 Winding up proceedings pending before High Court (HC) on account of other than
inability to pay debts
 All proceedings pending before HC as on 15th December, 2016
 And the notice for which has not been served on the respondent
 Shall stand transferred to the respective Bench of the Tribunal having jurisdiction
 And shall be dealt with according to the provisions of the COMPANIES ACT, 2013

Transfer of Proceedings from High Court to
Tribunal…
 Winding up proceedings pending before High Court (HC) relating
to Voluntary Winding Up
 All proceedings pending before HC as on 1st April, 2017
 Shall continue to be dealt with by the High Courts
 In accordance with the provisions of the COMPANIES ACT, 1956
Winding up
Proceedings
transferred to NCLT
Inability to Pay Debt IBC, 2016
Other than Inability
to Pay Debt
Companies Act, 2013

Resolution Professional / Liquidator
“Resolution Professional", for the
purposes of this Part, means
 an insolvency professional
 appointed to conduct the corporate
insolvency resolution process and
 includes an interim resolution
professional
“Liquidator" means
 an insolvency professional appointed
as a liquidator
 in accordance with the provisions of
Chapter III or Chapter V of this Part.

470f76csk_insolvency_rajkot_sc_ppt.ppt

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