The Millennial CS

Monday, 13 March 2017

Decoding Insolvency and Bankruptcy Code – Part II (cond.)

(Insolvency Resolution Professionals & Resolution Plan)

"Insolvency professional" as defined under the IBC, means a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207

Regulation 3 of IBBI (Insolvency Professionals) Regulations,2016 provides that an individual is not eligible for registration unless

a) he has passed the National Insolvency Examination

b) has passed the Limited Insolvency Exam and has 15 years of experience in management, after receiving Bachelors’ degree from a University established or recognized by law, or

c) has passed the Limited Insolvency Exam and has ten years of experience as

i. a CA enrolled as a member of the ICAI

ii. a Company Secretary enrolled as a member of the ICSI

iii. a Cost Accountant enrolled as a member of the ICAW

iv. an Advocate enrolled with a Bar Council.

Apart from the above, an individual should be a fit and proper person.

Under the IBC the AA (Adjudicating Authority) has the Power to appoint IRP (Interim Resolution Professional. This appointment is done within fourteen days from the insolvency commencement date. Where IRP is proposed by the financial creditor or corporate debtor under section 7 or section 10 of the IBC then that IRP will be appointed, if no disciplinary proceedings are pending against him. Same is the case where IRP is proposed by an operational creditor. But in cases where IRP is not proposed in the application made by the operational creditor, the AA makes a reference to the Board for the recommendation of an Insolvency Professional who may act as an IRP. Where such reference is made, the board needs to recommend the name of IRP within 10 days of such reference. The term of IRP as stated in the code should not be more than 30 days from the date of appointment.

Section 17 of the IBC deals with Management of Affairs of Corporate Debtor by the IRP and states that from the date of appointment of IRP the management of the affairs of the corporate debtor shall vest on IRP. The power of the board of directors or partners of the corporate debtor shall stay suspended and the officers and managers will report to IRP. The interim resolution professional vested with the management of the corporate debtor can —

a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;

b) take such actions, in the manner and subject to such restrictions, as may be specified by the Board;

c) have the authority to access the electronic records of the corporate debtor from information utility having financial information of the corporate debtor;

d) have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified.

It is the responsibility of the IRP to protect and preserve the value of the property of the corporate debtor, manage the operations of the corporate debtor as a going concern after collation of all claims are received against the corporate debtor, determine the financial position of the corporate debtor and also constitute a committee of creditors.

Appointment of Resolution Professional (RP) is made at the first meeting (which is held within 7 days of the constitution of the committee) by a majority vote of not less than seventy-five per cent of the voting share of the financial creditors. Either the IRP can continue as Resolution Professional if voted in favor or else an appointment of a new RP can be made by making an application to the Adjudicating Authority for the appointment of proposed RP. In the case where a new RP is appointed instead of the IRP, it is the duty of the IRP to provide all the information, documents, and records pertaining to the corporate debtor in his possession and knowledge to the newly appointed RP. It is the responsibility of the RP to conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the period. Meetings of the committee of creditors shall also be conducted by the RP. Section 28 of the Code lists few actions which can be taken by the Resolution Professional after a prior approval of the Committee. Duties of Resolution Professional will be same as IRP.

The RP needs to prepare an information memorandum which is basically a document detailing the project and project financing. Based on this memorandum the resolution applicant prepares a Resolution Plan and submits the same to the RP. The RP examines and presents the resolution plan to the Committee of Creditors. The approved Resolution Plan is then submitted to the AA. The Plan can be approved or rejected by the AA. If rejected an appeal can be made to the NCLAT.

The Code has provided the Company Secretaries with immense opportunities to act as an Insolvency Professionals and the success of the Code depends on how well we perform our functions.

References:

-Insolvency and Bankruptcy Code

(This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.)

Wednesday, 8 February 2017

Monetary Policy & Repo Rate

RBI Monetary Policy February ,2017 is what everyone is talking about today. The Newspaper’s headline today reads that - RBI has taken a neutral stand and has kept the Repo Rate unchanged at 6.25% at its first monetary policy review of 2017.

Now what is meant by monetary policy and Repo Rate? Well monetary policy are policies devised by the Central Bank of the country (RBI in case of India) to control the supply of money in the economy by controlling the interest rates to maintain price stability and achieve high economic growth. There are various instruments by which RBI controls the money flow and one such instrument is the Repo Rate and Reverse Repo rate. Where Repo rate is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds, Reverse Repo Rate is the rate at which it pays banks for depositing surplus funds. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate and increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. Repo rate is also used as a tool to control inflation. In the event of inflation, RBI increases repo rate as this acts as a disincentive for banks to borrow from RBI. This ultimately reduces the money supply in the economy and thus helps in arresting inflation. The six-member Monetary Policy Committee, headed by RBI Governor, Urjit Patel, expects inflation to rise at 5% as against the targeted 4%. Thus, the have kept the interest rates unchanged, signalling a possible end to the downward interest cycle. Though the announcement came as a big surprise and have dashed the hopes of many of a rate cut , the rupee ended 0.32% stronger against dollar.

To read the full document of Sixth Bi-monthly Monetary Policy Statement, 2016-17 kindly visit RBI’s website.

References:

-RBI

-The Economic Times 9^th February 2017

-Monetary policy of India - Wikipedia

Tuesday, 7 February 2017

Decoding Insolvency and Bankruptcy Code – Part II

(Insolvency Resolution and Liquidation for Corporate Persons)

Part II of the Insolvency & Bankruptcy Code deals with Insolvency Resolution and Liquidation for Corporate Persons, which are covered under Section 4 – Section 32.

Corporate Persons means

a company as defined in clause (20) of section 2 of the Companies Act, 2013,
a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or
any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;

Section 4 deals with the applicability of this part & states that Part II will be applicable to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees. Although CG may notify minimum or higher amount which shall not be more than 1 crore rupees.

Section 6 identifies the persons that can initiate the Corporate Insolvency Resolution Process (CIRP). These are the financial creditor, an operational creditor or the corporate debtor itself.

Here “Creditor” means any person to whom a debt is owed and includes:

a financial creditor,
an operational creditor,
a secured creditor,
an unsecured creditor and
a decree holder

The code has identified operational creditor and given him the power to initiate CIRP. “Operational Creditor” basically is a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Whereas “Operational Debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.

“Corporate Applicant” means—

(a) corporate debtor; or

(b) a member or partner of the corporate debtor who is authorized to make an application under the constitutional document of the corporate debtor; or

(d) a person who has the control and supervision over the financial affairs

of the corporate debtor;

For the purposes of this Part, Adjudicating Authority means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013

A new term “Information Utilities” have also come up in this Code which is basically the depositories of financial information. It will collect, collate, authenticate and disseminate financial information from listed companies and financial and operational creditors of companies. An individual insolvency database is also proposed to be set up with the goal of providing information on insolvency status of individuals.

Initiation of CIRP

Initiator	Financial creditor	Operational Creditor		Corporate Debtor
Section	7	8&9		10
Demand Notice	Not required	on the occurrence of a default, operational creditor will deliver a demand notice demanding payment the corporate debtor shall, within a period of ten days bring to the notice either, the existence of a dispute, if any or repayment of unpaid operational debt		Not Required
Filing Application	File application to Adjudicating Authority (AA)	After the expiry of the period of ten days, file application to AA		a corporate applicant may file an application to AA
Other Required Documents	- record of the default recorded with the information utility - the name of the resolution professional proposed to act as an interim resolution professional - any other information	- a copy of the invoice demanding payment or demand notice - an affidavit to the effect that there is no notice given by the corporate debtor - a copy of the certificate from the financial institutions maintaining accounts of the operational creditor - such other information - may propose a resolution professional to act as an interim resolution professional		- its books of account and such other documents - the resolution professional proposed to be appointed as an interim resolution professional.
Existence of Default	Adjudicating Authority within 14 days of the receipt of the application ascertain the existence of a default
Accept / Reject	Accept if - a default has occurred - the application is complete, - there are no disciplinary proceedings pending against the proposed resolution professional Reject if - default has not occurred - the application is incomplete or - any disciplinary proceeding is pending against the proposed resolution professional		Accept if - Application is complete - no repayment of the unpaid operational debt - the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; - no notice of dispute has been received or no record of dispute in the information utility - no disciplinary proceeding pending against any resolution professional Reject if - Application is incomplete - there has been repayment of the unpaid operational debt - the creditor has not delivered the invoice or notice for payment - notice of dispute has been received by the operational creditor - any disciplinary proceeding is pending against any proposed resolution professional		Accept, if Application is complete; or Reject if the application, is incomplete
	notice to the applicant by AA to rectify the defects in his application within seven days from the date of receipt of such notice
Commencement Period	CIRP shall commence from the date of admission of the application
Communication of the order	Within seven days of admission or rejection of such application

List of persons not entitled to make application.

a corporate debtor undergoing a corporate insolvency resolution process; or
a corporate debtor having completed corporate insolvency resolution process twelve months preceding the date of making of the application; or
a corporate debtor or a financial creditor who has violated any of the terms of resolution plan which was approved twelve months before the date of making of an application under this Chapter; or
a corporate debtor in respect of whom a liquidation order has been made.

Time Frame

The CIRP shall be completed within a period of 180 days from the date of admission of the application to initiate such process. Although if a resolution is passed at a meeting of the committee of creditors by a vote of 75% of the voting shares the period can be extended up to but not exceeding 90 days. It is important to note that the extension of the period shall not be granted more than once.

Declaration of Moratorium & Public Announcement of CIRP

After admission of the application the AA shall, by an order, declare a moratorium & make a public announcement of CIRP. Moratorium is a temporary prohibition of an activity. A list of such prohibition is stated in Section 14 of the Code. It is specifically stated that where at any time during the CIRP, if the Adjudicating Authority approves the resolution plan or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.

It is important to note that during the period of moratorium the supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted

In my next blog, I will discuss about appointment, tenure, duties of an Interim Resolution Professionals, Committee of creditors & appointment of Resolution professionals and their duties

References:

-Insolvency and Bankruptcy Code

- http://www.arthapedia.in/index.php?title=Insolvency_and_Bankruptcy_Code,_2016#ref4

(This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.)

Monday, 6 February 2017

Decoding Insolvency and Bankruptcy Code 2016 – Part I

(Introduction)

Insolvency and Bankruptcy code is very much in vogue these days. A new era of insolvency resolution has arrived and soon the Code shall be fully operational with its complete institutional infrastructure in place. The scope of Company Secretaries has increased manifold after the enactment of this code, as we have been recognized as Insolvency Professionals and can be appointed to conduct the corporate insolvency resolution process. Since the Law is new and at its inception, many of us have very little knowledge about it. I, through my blog, intend to explore the code and share my knowledge with professionals, stakeholders and people who want to know more about it.

Law of Insolvency owes its origin to the English law. Before the British came to India, there was no indigenous Law of Insolvency in the country. Its need was first felt in the Presidency towns, which were, Calcutta, Madras and Bombay. Presidency-Town’s Insolvency Act, 1909 and Provisional Insolvency Act 1920 dealt with insolvency of an individual and unincorporated entities and Companies Act and SICA were the acts which dealt with Corporate insolvency. But even though there were various acts that dealt with insolvency, many difficulties had to be faced by the corporates and individuals during the process of insolvency. It was found that there were a lot of hindrances in revival or quick disposal of companies due to multiplicity of litigation at different forums. On 31^st October, 2015, total 5141 winding up petitions were pending of which 1479 were more than 2 decades old. India though ranked at 130 out of 189 countries in ease of doing business, it stands at 136 for resolving insolvency, according to the world bank index report. There was a need of a uniform & comprehensive insolvency legislation. Various Committees such as Tandon Committee, Tiwari Committee, Goswami `Committee, Eradi Committee & J.J Irani Committee had earlier recommended creative restructuring, quick disposal, rehabilitation & revival and formation of Insolvency Tribunal. Owing to the need of a single insolvency framework The Code received the assent of the President of India on 28 May 2016. After the enactment of The Code, Presidency-Town’s Insolvency Act, 1909, Provisional Insolvency Act 1920 & SICA has been repealed. Further 11 legislations have been amended to fall in line with the Insolvency and Bankruptcy Code. Much of the code has come into operation at present due to the fast release of notification & rules in the last quarter of 2016. The last legs of the institutional framework for insolvency resolution and liquidation of corporate persons are under process and the Insolvency and Bankruptcy Board of India (IBBI) has invited public comments on draft regulations on IUs (Information utilities – which we will study later) by February 7, 2017. “The code will help improve the ease of doing business as well as develop the debt market” - says IBBI chairperson M.S. Sahoo, a Company Secretary himself.

The Insolvency & Bankruptcy law aims to consolidate the existing laws into a single framework to facilitate reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner.

Usually, Insolvency and Bankruptcy are used interchangeably but there is a thin line differentiating the two. Insolvency, in legal terms, means a situation where the liabilities of a person or firm exceed its assets. It is a situation where an organization or an individual is unable to pay their debts to the lender(s). Whereas Bankruptcy is when the individual/organization is declared incapable of paying their dues and payable bills. It is interesting how the word Bankruptcy originated. In Italy, there was a famous medieval bridge over the Arno, where different merchants used to display their goods on a table. When a merchant could not pay his debts, their table (the "Banca") was physically broken ("rotta") by soldiers and thus the word Bankruptcy came into origin. Insolvency if handled correctly can prevent the debtor from becoming bankrupt. This is also the primary objective of IBL, to address the insolvency in a timely manner so as to provide the debtor with rehabilitation if possible.

The Code contains 255 sections (where section 245-255 relates to amendments to the various act) 5 parts, 7 chapters & 11 schedules. The 5 parts of the code are divided as follows:

Part I	Preliminary
Part II	Insolvency Resolution and Liquidation for Corporate Persons
Part III	Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms
Part IV	Regulation of Insolvency Professionals, Agencies and Information Utilities
Part V	Miscellaneous

IBBI is the Regulatory body . NCLT/NCLAT is the Adjudicating Authority which will deal with the insolvency of Corporates whereas DRT/DRAT is the Adjudicating Authority which will deal with the insolvency of individuals and unlimited partnership. Insolvency agency, Insolvency Professionals and Information Utilities are the regulators in the code. (It is to be noted that the financial services sector are excluded in the code)

As corporate professionals, the important concept which we need to understand in detail is “Insolvency Resolution and Liquidation for Corporate Persons”. In my next blog, we will discuss more about it and some important definitions.

References:

-Webinar by ICSI

-Mondaq (Commencement Of A New Era Of Corporate Insolvency Resolution- The Insolvency And Bankruptcy Code, 2016 Close To Being Fully Implemented)

(This is a personal blog. Any views or opinions represented in this blog are personal and belong solely to the blog owner and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.)