Bankruptcy Code and Voluntary Liquidation Vinod Kothari Vinod Kothari Consultants Private Limited Kolkata New Delhi Mumbai 1006-1009 Krishna Building A/11, Hauz Khas, 403-406, 224 AJC Bose Road New Delhi 110016 175 , Shreyas Chambers, Kolkata – 700017 Phone:011-41315340/ D.N. Road, Fort, Phone:033-22811276/ 65515340 Mumbai – 400 001 22813742/7715 E: [email protected] Phone: 022 22614021/ 30447498 E: [email protected] E: [email protected] www.vinodkothari.com / www.india-financing.com Email: [email protected] / [email protected] Copyright • The presentation is a property of Vinod Kothari Consultants Private Limited. No part of it can be copied, reproduced or distributed in any manner, without explicit prior permission. • In case of linking, please do give credit and full link. 3 Highlights 4 Need for bankruptcy law reforms AND the Bankruptcy law reforms committee & its reports 5 Insolvency regime in India • Multiple laws – multiple fora • Lack of holistic remedy • Insolvency resolution framework for Individuals stagnant for over 100 years! ▫ The Presidency Towns Insolvency Act, 1909, covers the insolvency of individuals and of partnerships and associations of individuals  The 1861 Indian High Courts Act led to the setting up of the High Court system in place of the Presidency towns Supreme Courts, which also has jurisdiction over insolvency ▫ The Provincial Insolvency Act, 1920, is the insolvency law for individuals in areas other than the Presidency towns, deals with insolvency of individuals, including individuals as proprietors • Framework for resolution of Corporate bankruptcy is vegetating too ▫ Winding up provisions under the Companies Act, 1956 unchanged for nearly 6 decades; ▫ Limited liability partnerships are registered under the Limited Liability Partnership Act, 2008 ▫ The Micro, Small and Medium Enterprise Development Act, 2006, registers MSMEs but does not have provision for insolvency and bankruptcy 6 Insolvency regime in India Other laws in place . . . The SARFAESI Act, 2002 ▫ Enforcement of security interests by creditors is based on a “might is right” principle; ▫ Interests of stakeholders other than creditors get subdued • The RDDBFI Act, 1993 ▫ Grants special rights to banks for recovery of debts • SICA ▫ Revival – a central theme ▫ Applies to industrial companies only ▫ Moratorium provisions of SICA were widely used by defaulters to ward-off creditors’ action ▫ Amendments pursuant to SARFAESI made SICA virtually irrelevant • ARC Business Model ▫ Also based on “might is right” principle • Informal framework (prominently based on RBI Guidelines) ▫ Corporate Debt Restructuring ▫ Joint Lenders Forum ▫ Strategic Debt Restructuring ▫ Scheme for Sustainable Structuring of Stressed Assets 7 Notified Sections and Regulations • On May 28, 2016, the Code received President’s assent • Proviso to section 1 (2) of the Code provides for piecemeal enforcement i.e., different dates may be appointed for different provisions of the Code. • Till date, the Ministry of Corporate Affairs has issued 7 notifications notifying the provisions of the Code • Regulations and Rules notified so far are – ▫ Corporate Persons Regulations ▫ Liquidation Process ▫ Voluntary Liquidation Process ▫ Application to Adjudicating Authority Rules ▫ IP Regulation ▫ IPA Regulation ▫ Model-Bye Law Regulation 8 Scenario of laws prior to the Code 9 Scenario of the laws post Code 10 When entities go into red Informal Management Formal workout with Liquidation workout workout creditors