[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN INDIA]
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KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER INDIAN LAW The Code:
• if an operational creditor approaches the NCLT – it must have already served a 10-day demand notice onto the corporate debtor and the corporate debtor must have failed to either pay the amount or to disclose a pre- existing bona-fide dispute; or • if a corporate debtor itself approaches the NCLT – its shareholders must have passed a resolution in such regard with 75% majority. • It is important to note that the NCLTs, the appellate tribunals and the Supreme Court of India has time and again emphasized and clarified that the sole motive and intention to incorporate the Code is to revive and rehabilitate the functioning of the corporate debtor and the Code is not a forum to recover outstanding debts. THE CIRP AND LIQUIDATION Once the NCLT is satisfied that a financial default has been committed by the corporate debtor, it directs commencement therewith of the CIRP, i.e., a 180 days’ resolution window for revival of the corporate debtor while confirming appointment of an IRP. Within this 180 days’ window (extendable by 90 days), The maximum time within which the CIRP has to be mandatorily completed, including any extension or litigation period, is 330 days. The creditors may either with 66% majority decide to revive the company, as per the resolution plan to be subsequently approved by the NCLT or decide to liquidate the corporate debtor. Failure of the creditors to take a decision also leads to liquidation of the corporate debtor. With commencement of the CIRP, the powers of management of affairs of the corporate debtor moves to the hands of the IRP, who reports to the committee of creditors, and is also entitled to take all steps to ensure that the business of
Introduction of a comprehensive insolvency and bankruptcy law in India is a recent event, with introduction of the Insolvency and Bankruptcy Code, 2016 (“ the Code ”) in the year 2016. The Code is oriented to be the umbrella legislation in India for laws relating to insolvency and bankruptcy. At present the Code only governs rehabilitation and liquidation of companies and extends to guarantors. The Code is administered through the law governing forums such as the National Company Law Tribunals (“ NCLT ”) across India, with an appellate tribunal based in New Delhi and Chennai, Tamil Nadu, and the Supreme Court of India having the final jurisdiction. The Code seeks to introduce many legal concepts as also modify the pre-existing ones. Upon admission of a case against a company under the Code, it prescribes for a mandatory Corporate Insolvency Resolution Process (“ CIRP ”) for such company (corporate debtor) within which period all efforts are to be made to revive/rehabilitate the corporate debtor. If the revival efforts fail, the corporate debtor can be put into liquidation, where the available assets are distributed against liability claims, as per the priority specified by the Code, with payments being effected to the Insolvency Resolution Professional (“ IRP ”) , the secured and unsecured creditors, workmen, Government, shareholders, etc. The CIRP can be commenced by the NCLT, upon admission by it of any application presented by any applicant (financial or operational creditor) or the corporate debtor itself with evidence of default by the corporate debtor in relation to a debt of INR 10,000,000 (USD 132,000) or above. In addition:
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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