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What is Insolvency and Bankruptcy Code 2016?
- The Insolvency and Bankruptcy Code is applicable to companies, partnerships, and individuals
- IBC establishes a time-bound procedure for resolving insolvency
- Under IBC, companies must finish the whole insolvency process in 180 days
The Insolvency and Bankruptcy Code (IBC) 2016 was implemented by an act of Parliament after receiving Presidential approval in May 2016. The legislation was necessary due to the massive accumulation of non-performing bank loans and the delay in debt settlement.
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Insolvency resolution in India required an average of 4.3 years, compared to other nations such as the United Kingdom (1 year) and the United States of America (1.5 years), which is hoped to be lowered in addition to expediting the settlement of large-ticket loan accounts.
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IBC is applicable to companies, partnerships, and individuals. It establishes a time-bound procedure for resolving insolvency. When a debtor fails to repay, creditors seize possession of the bankrupt’s assets and must make decisions to resolve the insolvency. Under IBC, both the debtor and the creditor can initiate recovery actions against each other.
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Under IBC, companies must finish the whole insolvency process in 180 days. If creditors do not object to the extension, the deadline may be extended. The whole insolvency process for smaller companies, including startups, with an annual turnover of Rs 1 crore must be completed in 90 days, however, the deadline may be extended by 45 days. The company proceeds with liquidation if debt settlement is not achieved.
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As a regulator, the Insolvency and Bankruptcy Board of India has been appointed and can monitor these procedures. IBBI consists of ten members drawn from the Finance Ministry, the Law Ministry, and the Reserve Bank of India.
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A licenced professional oversees the settlement process, manages the debtor’s assets, and provides information to creditors to help them make decisions.
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The National Companies Law Tribunal (NCLT) hears cases involving companies, while the Debt Recovery Tribunal (DRT) hears cases involving individuals.
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The courts authorise the initiation of the resolution procedure, the appointment of an insolvency professional, and the final decision of creditors. The Insolvency and Bankruptcy Board monitors insolvency professionals, insolvency professional agencies, and information utilities established under the Code.
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