Upload
rahul-maganmba-finance
View
84
Download
3
Embed Size (px)
Citation preview
Insolvency and Bankruptcy Code 2016
Treasury Consulting LLP Simplifying Treasury World
www.treasuryconsulting.in
Page 2
Improve ‘Ease of Doing Business’ ranking for India.
The stressed assets in the Indian banking system have peaked at ~US$ 150 billion or over Rs 10 lakh crores (~15% of gross advances)
Heightened focus on the resolution of the problem by the Reserve Bank of India (RBI) and the Supreme Court. The previous RBI Governor had stated that “Our intent is to have clean and fully-provisioned bank balance sheets by March 2017”.
There is a dire need of capital today – not just for stressed companies but for growth in general.
Long time for resolution and recovery Doing away with a fragmented framework.
The average life of cases recommended for restructuring in 2002 was 7 years and the average life of cases recommended for winding up to the court was 6.5 years.
Improve the confidence of the International investor in the debt market.
Why is the Code an imperative today?
Page 3
Ease of Doing Business’ ranking as per World Bank
Source: www.doingbusiness.org
• As per the Doing business index 2016 released by World Bank, India continues to fare the worst amongst the BRICS nation.
• With 136th rank, India is far behind the developed economies such as UK, US, and others.
• Among several requisites of an effective insolvency regime, recovery is one of the most important parameters.
• At 25.7 cents per dollar, India is ahead only of Brazil amongst BRICS nation.
Page 4
1. Insolvency test moved from ‘erosion of net worth’ to ‘payment default’
2. Single insolvency and bankruptcy framework. Replaces Sick Industrial Companies (Special Provisions) Repeal Act, 2003 and modifies / amends some provisions of other legislations like Companies Act, 2013, SARFAESI etc.
3. Time bound resolution process
4. Clear and unambiguous process to be followed by all stakeholders. Shift of control from shareholders and promoters to creditors
5. Provide confidence to lenders of their rights and their enforcement.
6. Better symmetry of information flow between creditors and debtors
7. Shift of jurisdiction to NCLT , NCLAT and DRT
8. Government dues would rank below to those of secured creditors and unsecured financial creditors
9. In case of fraudulent diversion of assets, personal contribution can be sought imprisonment possible
10. Insolvency Professional (IP) to take over the management and operations of the borrower during the CIRP
What does the code intends to changes ?
Page 5
Introduction to Strategic Debt Restructuring (SDR):-
The concept of Strategic Debt Restructuring ("SDR") has been introduced by the Reserve Bank of India (the "RBI“ )in the SDR Scheme (the "Scheme") to help banks recover their loans by taking control of the distressed listed companies.
The Scheme has been enacted with a view to revive stressed companies and provide lending institutions with a way to initiate change of management in companies which fail to achieve the milestones under Corporate Debt Restructuring ("CDR").
The Scheme is subsequent to CDR or any other restructuring exercise under taken by the companies.
At the time of initial restructuring, the JLF must incorporate an option in the loan agreement to convert the entire or part of the loan including the unpaid interest into equity shares if the company fails to achieve the milestones and critical conditions stipulated in the restructuring package.
This option must be corroborated with a special resolution since the debt-equity swap will result in dilution of existing shareholders. Such a mandate will result in the lenders acquiring a majority (51%) ownership.
If the company fails to achieve the milestones stipulated in the restructuring package, the decision of invoking the SDR must betaken by the JLF within thirty (30) days of the review of the account during the restructuring.
Strategic Debt Restructuring (SDR)
Page 6
Journey So far !!
The Insolvency and Bankruptcy Code, 2016 (IBC) was passed by the Parliament on 11 May 2016, received Presidential assent on 28 May 2016. It is expected to be implemented in early 2017. Events Date/MonthBankruptcy Law Reform Committee (BLRC) formed August 2014
Final report and draft bill submitted by BLRC November 2015
First draft presented in Parliament and then referred to Joint committee December 2015
Report of Joint committee presented to Lok Sabha April 2016
Code passed by Parliament May 2016
Responsibility for implementation given to MCA June 2016
Sections pertaining to IBBI, powers to make regulation etc. notified August 2016
IBB members appointed October 2016
Six draft rules and regulations issued for public comments:•registration of IPs•Registration of IPAs•model Bye- laws•Resolution process•Liquidation process•Application rules
October 2016
Last date to submit public comments on draft regulations 31 October 2016
Page 7
Insolvency and Bankruptcy Code ecosystem
Insolvency and Bankruptcy Code ecosystem
IBB – apex body for promoting transparency & governance in the administration of the IBC will be involved in setting up the infrastructure and accrediting IPs & IUs.IUs - Centralised repository of financial and credit information of borrowers would validate the information and claims of creditors vis-à-vis borrowers, as needed.IPAs- professional bodies registered by the Board to promote and regulate the insolvency profession these bodies will enrol IpsIPs- Licensed private professionals regulated by the Board will conduct resolution process to act as Liquidator/bankruptcy trustee appointed by creditors and override the powers of board of directors.Adjudicating Authority (AA) - would be the NCLT for corporate insolvency to entertain or dispose any insolvency application, approve/ reject resolution plans, decide in respect of claims or matters of law/ facts thereof.CoC- consists of financial creditors to who will appoint and approve actions of IPs
Insolvency and Bankruptcy Board (IBB)
Insolvency Agencies
Insolvency Professionals (IPs)
Information Utilities
(IUs)
NCL
T –
The
Adju
dica
ting
au
thor
ity
(AA)
Committeeof Creditors
(CoC)Insolvent
entity
Page 8
Corporate Insolvency Resolution Process (CIRP)
Defaultmin INR 1 lakh even a single day
Who can file the application?•Financial & Operational creditors (including Government & employees/workmen), and Corporate debtorResolution Professional (IRP/ RP)•Financial creditor and/ or corporate applicant shall propose the name of an IRP in the application•All powers of the board and management shall vest with the IRP/ RP
MoratoriumMoratorium shall prohibit:•Institution of suits•Transfer of assets•Foreclosure, recovery or enforcement under SARFAESI•Recovery of assets
Resolution planThe resolution plan must provide for:•payment of insolvency resolution process costs•repayment of the debts of operational creditors•management of the affairs of the borrower after the plan is approved•implementation and supervision of the approved plan
Committee of creditors (CoC)•Consists of financial creditors only, excluding related parties•To approve several actions of RP
Voting power•Only financial creditors have voting power in the committee in the ratio of debt owed•All decision of the committee shall be approved by 75% of financial creditors
Fast track insolvencyFor debtors as may be notified by the central government (completed in 90 days)
Page 9
Corporate Resolution Process Timeline
Filing of application to NCLT
Admission of application
014
NCLT to appoint interim resolution professional
Public announcement
16
IRP to constitute CoC and submit report.
30 to 44
51
1st CoC meeting
Application for NCLT approval
CoC’s approval of resolution plan
Initiation of liquidation
180No. of daysDay –ve 14
Preparation of IM
Submission of plan
65150 170
Declare moratorium
Appoint 2 registered valuer to calculate liquidation value
Creditors to submit claims
3721
Corporate Resolution process timeline
Key points to focus for the financial creditors:• Approval or replacement of IRP• Approve certain actions of IRP/RP• Submit resolution plan based on information memorandum prepared by the RP• It is the duty of resolution applicant and not of RP to prepare the Resolution plan therefore creditors
may have to take independent consultant’s help. • It is advisable that banks constitute a panel of industry experts whose help can be sought during
the insolvency resolution process
Corporate Insolvency Resolution Process
Corporate Insolvency Resolution Process
Corporate Liquidation Process
Page 13
Insolvency Bankruptcy Code (IBC) Waterfall
Liquidation orderLiquidation order will be passed if:•CIRP ends•Plan not submitted to NCLT•Plan not approved•Decided by CoC•Plan not properly implementedLiquidation steps•Appointment of liquidator•Formation of liquidation estate•No legal proceeding by or against the debtor•Consolidation of claims•Distribution of assets•Dissolution of debtors (to be completed within 2 years)LiquidatorLiquidator shall:•Form liquidation estate•take custody & control of all assets•consolidate, verify, admit and determine value of creditors claims•Carry on the business for its beneficial liquidation
Reporting•Preliminary report – within 30 days from the date of the order •Progress report – within 15 days after end of every period of 3 months from the date of orderInsolvency and liquidation cost•Insolvency cost include interim funding, cost of running the debtor as going concern (eg rent or salary of employees), cost of IP etc•Liquidation cost include any cost incurred by liquidator during liquidation period
Secured creditor in liquidationSecured creditor has the option to:•enforce and realise the security outside the Code, or•relinquish its security interest and receive proceeds as defined in the priority of claim•Distinction between rights of different class of secured creditors (first vs second charge, fixed vs floating charge) not clarified
Government dues (up to 2 years) and unpaid secured
creditors
Insolvency resolution process and liquidation
costs
Secured creditor & workmen dues (up to 24 months)
Other employee dues (up to 12 months)
Financial debts of unsecured creditors
Any remaining debts and dues
Preference shareholders, if any
Equity shareholders or partners, as the case may
be
Priority Waterfall of claims
Page 14
Section :Role and Responsibility of IP under the Code
Page 15
What makes a good insolvency professionals?
Practical working knowledge of :
Company law Banking/ Finance Cash flow management
Insolvency law Stake holder management Negotiation skills
Taxation Valuation / Sale of assets
Commercial and business
Page 16
1. The appointed resolution professional IP shall exercise all the powers of the board of directors of the corporate debtor.
• The powers of the board of directors of the corporate debtor, shall stand suspended and be exercised by the IRP / IP
• The officers and managers of the corporate debtor shall report to the IRP / RP and provide access to such documents and records of the corporate debtor as may be required
• The IRP / IP shall act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents
2. Key powers and duties of Resolution professional
• form Committee of creditors• Chain Committee of creditors• prepare the information memorandum (IM) and invite resolution plans• investigate the financial affairs of the company
3. Key powers and duties of Liquidator
• receive, verify and value claims of all the creditors, and settle such claims• take into his custody or control all the assets, and sell the assets• carry on the business of the corporate debtor for its beneficial liquidation• form an estate of the assets which will be called the liquidation estate • apply to the Adjudicating Authority for avoidance of transactions
Key Powers, Roles & Responsibilities
Page 17
Regulations on Insolvency Professionals
The IBBI had notified “Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016” on 23rd Nov 2016. Salient features of the regulations are:Insolvency Professionals Examination
• The Board shall conduct a ‘National Insolvency Examination’ and ‘Limited Insolvency Examination’. The syllabus, format and frequency of the ‘Limited Insolvency Examination’, including qualifying marks, shall be published on the website of the Board at least one month before the examination
Eligibility and Qualification for registration of insolvency professionals(Reg 5)
• Any person resident of India who:• has passed National insolvency examination or• has passed the Limited Insolvency Examination, and has 15 years of
experience in management, after graduation or• has passed the Limited Insolvency Examination and has ten 10 years
of experience as a member of ICCA ICSI ICAI (Cost) and Bar council
Application for registration
• An individual enrolled with an insolvency professional agency may make application in to Board in form A with application fee of Rs 10,000
Registration for a limited period (Reg 9)
• an individual who has been “in practice” for 15 years as a CA, CS, CA (Cost), and advocate
• Valid for a period of 6 months• This is notwithstanding Regulation 5 (i.e without exams)
Recognition of IP Entities (Reg 12)
• LLP, partnership firm, or a company if:• a majority of the partners of the LLP or partnership firm or a majority of
whole time directors of the company are registered as insolvency professionals.
Page 18
Liquidation Remuneration Table (LRT)
Slab (in INR) Percentage for first six months
Percentage for 6-12 months
Percentage for 12-24 months
Realisation ofLess than 1 crore 5% 3.75% 2.50%
1 crore, and up to any amount less than 10 crores 3.75% 2.80% 1.875%
10 crores and up to any amount less than 50 crores 2.5% 1.875% 1.25%
50 crores and up to any amount less than 100 crores 1.25% 0.94% 0.675%
100 crores and above 0.25% 0.19% 0.125%
And distribution of Less than 1 crore 5% 3.75% 2.50%
1 crore, and up to any amount less than 10 crores 3.75% 2.80% 1.875%
10 crores and up to any amount less than 50 crores 2.5% 1.875% 1.25%
50 crores and up to any amount less than 100 crores 1.25% 0.94% 0.675%
100 crores and above 0.25% 0.19% 0.125%
The draft Insolvency and bankruptcy (liquidation of insolvent corporate persons) regulations 2016 specifies that remuneration of liquidator shall be determined by the Committee of creditors. However where the committee does not determine the remuneration, the Adjudicating Authority shall determine the remuneration of the Liquidator, which shall at the maximum of the below table:
Page 19
While the new tribunals can deal with all company disputes, excluding criminal prosecution as under the Companies Act, their powers are currently limited. Issues relating to the investigation of a company’s accounts, freezing of assets, class action suits, and conversion of a public company to a private one will be decided by the NCLT, while appeals will be looked at by the NCLAT rather than the High Courts. Issues related to compromise, amalgamation, and capital reduction will continue to be decided by the courts. The aim is to gradually allow other issues including reduction of share capital, merger, de-mergers, and settlement to be transferred to the NCLT.
For the NCLT, the government has appointed 11 Benches – two in Delhi and one each in Ahmedabad, Bangalore, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata, and Mumbai to use its powers. The NCLT also has two classes of members – Judicial and Technical members. The NCLAT will have eleven members for hearing appeals. Selection of members is done by a selection committee headed by the Secretary of the MCA.
The Tribunals So Far
While the tribunals were made effective on June 1, they only started functioning from July 1, which left many lawyers confused as to which forum to approach. In addition, there was little clarity on the transfer of cases from the CLB to the NCLT. Nevertheless, recent reports show that around 4,000 cases were transferred to the NCLT after the CLB was dissolved. Lawyers have stated that at the moment the NCLT is hearing previous cases from the Company Law Board and high courts as well as some new cases but maintain that it is still early to comment. Changes will come about slowly given the multiple jurisdictions involved. Nevertheless, the infrastructure is now in place.
Presence of NCLT ( India )
Institutional Framework
The Insolvency Code provides for the following institutional framework:-
The Insolvency and Bankruptcy Board of India (the “Board”)
Insolvency Professional Agencies
Insolvency Resolution Professionals
Information Utilities
Adjudicating Authorities:-
National Company Law Tribunal (“NCLT”)
National Company Law Appellate Tribunal (“NCLAT”)
Debt Recovery Tribunal (“DRT”)
Debt Recovery Appellate Tribunal (“DRAT”)
Supreme Court.
Page 21
Powers with NCLT
Page 22
The NCLT or “Tribunal” is a quasi-judicial authority created under the Companies Act, 2013 to handle corporate civil disputes arising under the Act. It is an entity that has powers and procedures like those vested in a court of law or judge. NCLT is obliged to objectively determine facts, decide cases in accordance with the principles of natural justice and draw conclusions from them in the form of orders. Such orders can remedy a situation, correct a wrong or impose legal penalties/costs and may affect the legal rights, duties or privileges of the specific parties. The Tribunal is not bound by the strict judicial rules of evidence and procedure. It can decide cases by following the principles of natural justice.
NCLAT or “Appellate Tribunal” is an authority provided for dealing with appeals arising out of the decisions of the Tribunal. It is formed for correcting the errors made by the Tribunal. It is an intermediate appellate forum where the appeals lie after order of the Tribunal. The decisions of Appellate Tribunal can further be challenged in the Supreme Court. Any party dissatisfied by any order of the Tribunal may bring an appeal to contest that decision. The Appellate Tribunal reviews the decisions of the Tribunal and has power to set aside, modify or confirm it.
The NCLT has primary jurisdiction whereas NCLAT has appellate jurisdiction. NCLAT is a higher forum than NCLT. Evidence and witnesses are generally presented before NCLT for taking the decisions and NCLAT generally reviews decisions of NCLT and checks it on a point of law or fact. Fact finding and evidence collection is primarily a task of Tribunal whereas the Appellate Tribunal decide cases based on already collected evidences and witnesses.
NCLT vs. NCLAT
Page 23
Thanks YOU
Page 24
Connect with us via our Brand – Foreign Exchange Maverick Thinkers ( FEMT )
Treasury Consulting LLP Simplifying Treasury World
Connect with us :-
91-9899242978 (Handheld) , Skype ~ Rahul5327 , Twitter @ Rahulmagan8
www.treasuryconsulting.in