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What is Bankruptcy? Procedure for Bankruptcy
Money is one of the essential things for the survival of a business. Money can be raised through banks, financial institutions, the sale of shares, selling assets and so on. After raising money and us
Money is one of the essential things for the survival of a business. Money can be raised through banks, financial institutions, the sale of shares, selling assets and so on. After raising money and using it for the essential purpose. The borrower of money has to repay it back to the lender. In case of default of the procedure, the debtor files for bankruptcy, to obtain the money lent to the debtor.
What is Bankruptcy?
Bankruptcy is a legal proceeding involving a person or a business entity that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor, on behalf of the creditors. The debtor's assets will be measured and evaluated, and all the assets may be used to repay a portion of the outstanding debt.
Bankruptcy
Bankruptcy provides an opportunity for an individual or business organization a chance to start fresh by forgiving debts that cannot be paid by the borrower. It offers creditors a chance to obtain some measure for the repayment based on the individual's or business assets which are available for liquidation purpose.
How did the term Bankruptcy evolve?
The word Bankruptcy is derived from the Italian word banca rotta, which means "broken bank."
What is Insolvency and Bankruptcy Code of 2016?
The Insolvency and Bankruptcy Code of 2016, is a bankruptcy law of India which seeks to consolidate the existing framework by creating a single rule for insolvency and bankruptcy. The Insolvency and Bankruptcy code was introduced in Lok Sabha in December 2015. It was passed in Lok Sabha on May 5, 2016.
It is one of the one-stop solutions for resolving insolvencies which at present is a long process and does not offer a viable economic arrangement. The code helps to protect the interest of the small investors and simultaneously supports the process of doing business a less cumbersome operation in India.
Key Features of Insolvency and Bankruptcy Code
The following are the critical features of Insolvency and Bankruptcy Code are
1. Insolvency Resolution
It outlines separate resolution process for individuals, companies and partnership firms. The method may be initiated by debtor or creditor. Maximum time limit for the completion of the insolvency process has been set for corporates and individuals.
The process will take 180 days for companies, and it may extend up to another 90 days if the creditor does not agree with the plan of action.
For startups, small companies and other companies whose asset value is less than Rs 1 crore, the resolution process will be completed in 90 days of initiation of the request, sometimes it may be extended by another 45 days.
Key Features of Insolvency and Bankruptcy Code
2. Insolvency Regulator
The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and it regulates the entities registered under it. The Board will consist of 10 members, including representatives from the Ministries of Finance and Law and the Reserve Bank of India.
Key Features of Insolvency and Bankruptcy Code
3. Insolvency Professionals
The insolvency process will be managed by the licensed professionals. These people will also control the assets of the debtor during the insolvency process.
Key Features of Insolvency and Bankruptcy Code
4. Bankruptcy and Insolvency Adjudicator
The code proposes two separate tribunals to oversee the process of insolvency resolution, one for individuals and one for companies.
I. The National Company Law Tribunal for Companies and Limited Liability Partnership firms
II. The Debt Recovery Tribunal for individuals and partnerships.
Procedure for Bankruptcy In India
• A plea for insolvency will be submitted to the adjudicating authority by financial or operation creditors or by the corporate debtor.
• The maximum time allowed to accept or reject the plea is 14 days.
• In case if the request is received, then the tribunal has to appoint an Insolvency Resolution Professional (IRP) to draft a resolution plan within 180 days, following which the court initiates the Corporate Insolvency Resolution process (CIRP).
• During 180 days, the Board of Directors of the company stand suspended and the promoters do not have there say in the management of the company.
• The IRP, if required can seek the support of the company's management to manage day-to-day operations.
• If CIRP fails to revive the company, then liquidation process will be initiated.
List of Companies which recently filed for Bankruptcy in India
• Bhushan Steel Ltd
• Lanco Infratech Ltd
• Essar Steel Ltd
• Bhushan Power and Steel Ltd
• Alok Industries
• Amtek Auto Ltd
• Monnet Ispat and Energy Ltd
• Electrosteel Steels Ltd
• Era Infra Engineering Ltd
• Jaypee Infratech Ltd
• ABG Shipyard Ltd
• Jyoti Structures Ltd
