Objectives of the IBC

1. Time-bound Resolution: The IBC emphasizes a fast-track approach to resolving insolvency cases, ideally within 180 days.
2. Creditor Hierarchy: It establishes a clear hierarchy for debt repayment, ensuring that secured creditors are prioritized.
3. Transparency: The code promotes transparency in the insolvency process, benefiting all stakeholders.
4. Promoting Entrepreneurship: By providing a structured exit route, the IBC encourages entrepreneurship and risk-taking.

Key Features of the IBC

1. Corporate Insolvency Resolution Process (CIRP)

The CIRP is a critical feature of the IBC, initiated when a corporate debtor defaults on its financial obligations. Here are the steps involved in the CIRP:

• Application: The process begins with the filing of an application for insolvency by either the corporate debtor or a financial creditor before the National Company Law Tribunal (NCLT).
• Admission: Upon admission, the NCLT appoints an Interim Resolution Professional (IRP) to manage the company.
• Committee of Creditors (CoC): The IRP constitutes a CoC consisting of financial creditors, who will vote on the resolution plan.
• Resolution Plan: A resolution plan is proposed, and if approved by a minimum of 66% of the CoC, it is submitted to the NCLT for approval.
• Implementation: Once approved, the resolution plan is implemented, and the company can continue its operations.

2. Liquidation Process

If the resolution plan is not approved within the stipulated time, the company enters the liquidation process. This process involves the following steps:

• Appointment of Liquidator: The NCLT appoints a liquidator to manage the assets of the company.
• Asset Liquidation: The liquidator sells the assets and distributes the proceeds to creditors in accordance with the hierarchy established under the IBC.
• Dissolution: Upon completion of the liquidation process, the company is dissolved.

3. Personal Insolvency

The IBC also addresses personal insolvency, allowing individuals and partnerships to undergo a similar resolution process. Key features include:

• Application: Individuals can file for insolvency through the NCLT.
• Resolution: A resolution process is initiated, leading to the settlement of debts through the sale of assets.

Recent Developments in IBC

Amendments to the IBC

Over the years, the IBC has undergone several amendments aimed at improving its efficiency. Key amendments include:

• Regulation of Homebuyers: Recent amendments have clarified the status of homebuyers as financial creditors, allowing them to participate in the CoC.
• Threshold Limit for Default: The minimum default amount for initiating CIRP has been revised, impacting the initiation of insolvency proceedings.

Impact of COVID-19 on IBC

The COVID-19 pandemic has had a profound impact on insolvency proceedings in India. The government suspended the initiation of insolvency proceedings for a certain period to provide relief to businesses affected by the pandemic. The suspension aimed to prevent the economic fallout from the crisis, allowing companies to recover without the immediate threat of insolvency.

NCLT and NCLAT Rulings

Recent rulings by the NCLT and the National Company Law Appellate Tribunal (NCLAT) have shaped the application of the IBC. Key judgments include:

• Validation of Resolution Plans: Courts have upheld the validity of resolution plans that prioritize operational creditors, balancing the interests of all stakeholders.
• Enforcement of Guarantees: The NCLAT has clarified the position regarding personal guarantees, emphasizing the importance of enforcing such guarantees during insolvency proceedings.

Challenges in the IBC Framework

While the IBC has made significant strides in addressing insolvency matters, several challenges remain:

1. Delays in the Process

Despite the time-bound nature of the IBC, delays in the resolution process persist due to various factors, including litigation and procedural complexities.

2. Lack of Awareness

Many stakeholders, including creditors and debtors, lack awareness of the IBC, hindering effective implementation.

3. Operational Creditor Rights

The rights of operational creditors remain a contentious issue, with calls for greater representation in the CoC and prioritization in the repayment hierarchy.