Guide to Insolvency & Bankruptcy Code 2016

The Parliament's Insolvency and Bankruptcy Code is a welcome reform of the existing framework on business, entity, partnership and other insolvency. This paves the way for much-needed reforms when concentrating on creditor-driven insolvency resolution.

Insolvency and Bankruptcy Code 2016 was passed in May by both the Parliament houses after making modifications based on the recommendations and suggestions made to the Joint Committee to the Insolvency and Bankruptcy Code 2015, which was passed in Lok Sabha on December 21, 2015.

The Insolvency and Bankruptcy Code 2016 in India is an advanced step in the resolution of the legal position on financial failures and insolvencies. The Code has significant value for all the stakeholders including various Government Regulators to provide easy exit through a painless mechanism in the event of insolvency of both individuals and the company. This code is introduced and overlaps provisions in various laws have been eliminated:

• Sick Industrial Companies (Special Provisions) Act, 1985
• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
• The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
• The Companies Act, 2013

Applicability of the Code:

Insolvency, liquidation, voluntary liquidation or loss of existing companies shall be subject to the provisions of the Code:

1. Every company established under or under any previous law under the Companies Act of 2013.
2. Any company other than the provisions of such special act, governed by any special act currently in force, is not in conformity with those provisions.
3. Limited liability partnership in accordance with the LLP Act 2008.
4. Any other body currently in force in accordance with any other law, as specified by the Central Government in this respect
5. Partnership companies and persons

The Code's smooth functioning relies on the working of new entities such as insolvency specialists, professional insolvency companies and information services. The proper functioning of the system would allow certain institutions to evolve over time. However, the National Companies Law Tribunal (NCLT), which adjudicates corporate insolvency, has not yet been created, and the Debt Recovery Tribunal (DRTs) are flooded with pending cases.