Insolvency and Bankruptcy 2016

What is the Insolvency and Bankruptcy Code, 2016?

The Insolvency and Bankruptcy Code, 2016 (IBC) is an Indian law that consolidates and amends the laws relating to insolvency and bankruptcy. It was enacted in May 2016 and came into force on December 1, 2016. The IBC applies to all corporate persons, partnership firms, and individuals in India.

What are the objectives of the IBC?

The objectives of the IBC are to:

  • Provide a time-bound and transparent framework for insolvency resolution of corporate persons, partnership firms, and individuals.
  • Promote entrepreneurship and availability of credit.
  • Balance the interests of all stakeholders, including creditors, employees, and shareholders.
  • Prevent fraudulent activities in the insolvency process.

What are the key features of the IBC?

The key features of the IBC include:

  • A two-track process for insolvency resolution:
    • A corporate debtor can be either:
      • Restructured through a process called insolvency resolution, or
      • Liquidated through a process called liquidation.
  • A new institution called the Insolvency and Bankruptcy Board of India (IBBI) to regulate and supervise the insolvency process.
  • A new set of professionals called insolvency professionals to be appointed to oversee the insolvency process.
  • A new set of creditors’ committees to represent the interests of creditors in the insolvency process.
  • A new set of debtor’s rescue mechanisms, such as debtor in possession (DIP) and strategic debt restructuring (SDR).

Multiple choice questions:

  1. Which of the following is not a key feature of the IBC?
    • A two-track process for insolvency resolution
    • A new institution called the IBBI
    • A new set of professionals called insolvency professionals
    • A new set of creditors’ committees
    • A new set of debtor’s rescue mechanisms

The answer is Debtor’s rescue mechanisms. Debtor’s rescue mechanisms are not a key feature of the IBC. They are additional mechanisms that can be used in some cases, but they are not essential to the insolvency process.

  1. What is the role of the IBBI?

The IBBI is the regulator and supervisor of the insolvency process in India. It is responsible for:

  • Licensing and registering insolvency professionals
  • Approving insolvency resolution plans
  • Liquidating corporate debtors
  • Overseeing the insolvency process
  1. What is the role of an insolvency professional?

An insolvency professional is a person who is licensed by the IBBI to undertake insolvency proceedings. Insolvency professionals can be appointed as:

  • Liquidators
  • Resolution professionals
  • Creditors’ committee members
  • Debtor in possession (DIP) managers
  1. What is the role of a creditors’ committee?

A creditors’ committee is a group of creditors appointed to represent the interests of creditors in the insolvency process. The creditors’ committee has a variety of powers, including:

  • Approving the insolvency resolution plan
  • Approving the liquidation process
  • Appointing and removing insolvency professionals
  1. What is the difference between insolvency resolution and liquidation?

Insolvency resolution is a process through which a corporate debtor can be restructured and revived. Liquidation is a process through which a corporate debtor’s assets are sold and the proceeds are distributed to creditors.