The insolvency legal process in India has undergone a significant transformation in recent years, thanks to the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016.
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Insolvency Legal Process in India Introduction The insolvency legal process in India has undergone a significant transformation in recent years, thanks to the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016. This landmark legislation has streamlined and modernized the insolvency resolution process, making it more efficient, transparent, and conducive for both creditors and debtors. In this blog, we will delve into the ins and outs of the insolvency legal process in India, shedding light on the key elements, steps, and stakeholders involved. Understanding the Insolvency and Bankruptcy Code (IBC) The Insolvency and Bankruptcy Code, 2016, commonly referred to as the IBC, is the cornerstone of India insolvency legal framework. It aims to provide a comprehensive and time-bound mechanism for resolving insolvency and bankruptcy issues, thereby promoting ease of doing business in the country. The IBC is applicable to individuals, partnership firms, limited liability partnerships, corporate entities, and other entities capable of being a debtor. Key Stakeholders 1)Corporate Debtor: The entity facing financial distress is termed the "corporate debtor." This can be a company, partnership, or LLP, and it is the party whose insolvency is being resolved. 2)Financial Creditor: Lenders, banks, and other financial institutions holding financial claims against the corporate debtor fall into this category. They play a crucial role in the insolvency process. 3)Operational Creditor: Suppliers, service providers, and other operational entities with outstanding dues from the corporate debtor are referred to as operational creditors. 4)Insolvency Professional (IP): These are licensed professionals who manage the insolvency resolution process. They are appointed by the Adjudicating Authority. 5)Adjudicating Authority: The National Company Law Tribunal (NCLT) is the designated authority responsible for handling insolvency cases. Key Steps in the Insolvency Legal Process 1)Initiation of the Process: The insolvency process begins when a financial or operational creditor files an application with the NCLT, stating the default by the corporate debtor. The NCLT reviews the application for its validity. 2)Appointment of Interim Resolution Professional: Once the application is admitted, an interim resolution professional (IRP) is appointed to take control of the corporate debtor assets and operations. The IRP manages the company during the insolvency process. 3)Moratorium: A moratorium is declared, which temporarily restricts the corporate debtor from disposing of its assets or taking any actions that may affect the insolvency process. 4)Committee of Creditors (CoC): The CoC is formed, consisting of all financial creditors. They play a crucial role in decision-making during the insolvency process, such as selecting the resolution professional or deciding on the resolution plan. 5)Resolution Plan: Resolution applicants submit plans to the CoC for approval. The plan may involve restructuring the debt, selling the business as a going concern, or liquidating the corporate debtor assets. 6)Approval of Resolution Plan: The CoC evaluates and approves a resolution plan by a 66% majority vote. The approved plan is then submitted to the NCLT for its sanction. 7)Liquidation: If a resolution plan is not approved within the specified time frame or does not result in the revival of the corporate debtor, the entity may undergo liquidation. The assets are sold, and the proceeds are distributed among creditors. 8)Discharge: Upon successful implementation of the resolution plan or the conclusion of liquidation, the corporate debtor is discharged from its debts, and the insolvency process concludes. Conclusion The insolvency legal process in India, under the Insolvency and Bankruptcy Code, has brought about a paradigm shift in the way insolvency cases are managed. It emphasizes a time-bound and efficient resolution mechanism that aims to balance the interests of both creditors and debtors. By understanding the key stakeholders and steps involved in this process, individuals and entities can navigate the insolvency landscape more effectively. The IBC continues to evolve and improve, making it a critical part of India economic and legal framework.
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