Insolvency and Bankruptcy code

Why in news?

The Supreme Court had has revived the insolvency case against Byju's, suspending the National Company Law Appellate Tribunal's order that had quashed bankruptcy proceedings against the company.

About IBC, 2016:

• It is thebankruptcy law of India which seeks to consolidate the existing framework by creating asingle law for insolvency and bankruptcy.
• Itprovides for atime-bound process to resolve insolvency.
• Applicability: The provisions of the Code are applicable tocompanies, limited liability entities, firms, and individuals (i.e. all entities other than financial service providers).

Timeframe for completion of the exercise:

• Companieshave to complete the entireinsolvency exercisewithin180 days under the IBC. The deadlinemay be extended if the creditors do not raise objections to the extension.
• For smaller companies, including startups with an annual turnover of Rs 1 crore,the whole exercise of insolvencymust be completed in 90 days, and the deadlinecan be extended by 45 days.
• If debt resolution doesn't happen, thecompany goes for liquidation.

Who regulates the IBC proceedings?

• The Insolvency and Bankruptcy Board of India (IBBI) has been appointed as a regulator and it can oversee these proceedings.
• IBBI has10 members appointed by the Central Government.
• IBBIregulates insolvency professionals,insolvency professional agencies,andinformation utilities set up under the Code.

Who facilitates the insolvency resolution?

• Alicensed professional administerthe resolutionprocess, manage the assets ofthedebtor, andprovide information for creditorsto assist them in decision-making.

Who adjudicates over the proceedings?

• The proceedings of the resolution process will be adjudicatedby the National Companies Law Tribunal (NCLT) for companies and theDebt Recovery Tribunal for individuals.
• Thecourts approve initiating the resolution process,appointing theinsolvency professional, andgiving nod to the final decision of creditors.

What is the procedure to resolve insolvency under the Code?

• When a default occurs, theresolution process may beinitiated by the debtor or creditor.
• Theinsolvency professional administers the process.
• Theprofessional provides financial information of the debtorfrom the information utilities to the creditor and manages the debtor’s assets.
• This processlasts for 180 days, andany legal action against the debtor is prohibitedduring this period.

What does the committee of creditors do?

• Acommittee consisting of thefinancial creditors who lent money to the debtoris formed by the insolvency professional.
• The creditors' committeedecides the future of the outstanding debt owed to them.
• Theymay choose to revive the debt owed to themby changing the repayment schedule or selling the assetsof the debtorto get their dues back.
• If a decision is not taken in 180 days, the debtor’sassets go into liquidation.

What happens under liquidation?

• If the debtor goes into liquidation, aninsolvency professional administers the liquidation process.
• Proceeds from the sale of the debtor’s assetsare distributed in the followingorder:
• First, insolvency resolution costs,including theremuneration to the insolvency professional;
• second, secured creditors, whose loans are backed by collateral; andthird, dues to workers, other employees;forth, unsecured creditors