India - Bankruptcy Code On Its way!

Ever since the Insolvency and Bankruptcy Code, 2016 (“IBC”) was passed by Parliament, the Ministry of Corporate Affairs (“MCA”) has been notifying portions of the IBC selectively as and when supporting infrastructure was created. 

Set out below are some of the major provisions of the IBC, the related Central Government Rules and the Insolvency and Bankruptcy Board of India (“IBBI”) Regulations, which have been notified.

A. Insolvency Professionals and Insolvency Professional Agencies

The IBBI notified three regulations this month: 

(1) IBBI (Insolvency Professionals) Regulations, 2016 (“IP Regulations”), which took effect on November 29, 2016.

The IP Regulations set out the categories of persons who are eligible to become insolvency professionals (“IPs”):

(a) Advocates, chartered accountants, company secretaries and cost accountants (“Regulated Professionals”) who have been in practice for more than 15 years will be automatically grandfathered to qualify as IPs on registering with an Insolvency Professional Agency (“IPA”). However, their registration will be provisional and valid for only six months, after which they will have to clear the ‘Limited Insolvency Exam’ to be held by the IBBI. 

(b) Regulated Professionals with 10 years of experience in practice must first clear the Limited Insolvency Exam. 

(c) Graduates other than Regulated Professionals with more than 15 years of experience in management must first clear the Limited Insolvency Exam. 

(d) Any person who is an Indian resident and is ‘fit and proper’ must first clear the ‘National Insolvency Exam’, which is intended to be more rigorous than the Limited Insolvency Exam.

(2) IBBI (Insolvency Professional Agencies) Regulations, 2016 (“IPA Regulations”), which took effect on November 21, 2016.

IPAs operate as self-regulatory organisations whose objective is the enrollment of IPs, regulation of IPs and the enforcement of a code of conduct for their member IPs. The IPA Regulations provide that:

(a) Only companies registered under Section 8 of the Companies Act, 2013 may be registered as IPAs;

(b) IPAs must have a minimum net worth of INR 100,000,000 (approximately USD 1,460,000) and a paid-up share capital of INR 50,000,000 (approximately USD 730,000); 

(c) At least 51% of the share capital of the IPA must be held by persons resident in India. 

The Institute of Chartered Accountants of India and Institute of Company Secretaries of India have obtained registration from the IBBI to function as IPAs.

(3) IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (“Model Bye-Law Regulations”), which took effect on November 21, 2016.

These regulations mandate that the bye-laws of IPAs must be in conformity with the Model Bye-Law Regulations. These regulations provide for the internal governance of the IPA; registration of member IPs; instituting a disciplinary procedure; and grievance redressal mechanism in respect of member IPs. 

B. Corporate Insolvency Resolution Process (“CIRP”) (Chapter II, Part II of IBC) most likely to be notified on December 1, 2016 

Sections 6 to 32 of the IBC deal with the operation of the CIRP. These sections entitle foreign and domestic creditors (both financial and operational) as well as corporate debtors to initiate a CIRP on the occurrence of a payment default of more than INR 100,000 (approximately USD 1,500).

Notably, this part deals with the triggering of CIRP, taking over of the management by the IP, creation of the committee of creditors and the submission and consideration of resolution plans for revival of the corporate debtor as a going concern. The IBBI is also notifying IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), most likely with effect from December 1, 2016. The CIRP Regulations elaborate in greater detail how an IP is appointed and how the CIRP process is conducted. 

C. Notable parts that have not been notified 

(1) Liquidation Process (Chapter III, Part II of IBC): This part deals with the provisions relating to the conduct of liquidation proceedings in respect of the corporate debtor. We understand the MCA intends to notify these parts within the next two to three weeks. The IBBI is in the process of finalizing the IBBI (Liquidation of Insolvent Corporate Persons) Regulations, 2016, which will contain the specific details of how liquidators will be appointed, their duties and remuneration.

(2) Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms (Part III of IBC): This part deals with the provisions relating to the conduct of the bankruptcy process for individuals and partnership firms. 

(3) Voluntary Liquidation of Corporate Persons (Chapter V, Part II of IBC): This part deals with provisions relating to voluntary liquidation of corporate persons i.e. instances where the corporate debtor intends to initiate a liquidation proceeding without the occurrence of a payment default.

For further information, please contact:

Zia Mody, Partner, AZB & Partners

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