Final Report of the Bankruptcy Law Reform Committee and the Insolvency and Bankruptcy Code, 2016
Designing a new insolvency and bankruptcy legislation for India
The Bankruptcy Law Reform Committee issued its final report along with a draft bill in November, 2015. The Committee recommended a harmonized statute for resolving both corporate and personal insolvencies. It came to be known as the Insolvency and Bankruptcy Code, 2016 (IBC or the Code). The corporate insolvency resolution process under the Code provides for an objective trigger for entry into the process and displacement of the debtor’s management by an insolvency professional if the case gets admitted.
The Code also provides for a stay or moratorium on admission of a case such that no other legal proceedings are initiated against the debtor while it is undergoing the insolvency resolution process. The insolvency professional is entrusted with the responsibility of running a claims collection process and constituting a committee of creditors. The committee comprises financial creditors of the debtor, decides whether to recue or liquidate it and take other commercial calls during the process.
If the committee decides to rescue the debtor, external bids are invited from resolution applicants interested in submitting resolution plans. A resolution plan can propose multiple approaches for resolving the debtor, including debt restructuring and reorganization of its affairs and capital structure. The committee then votes to accept or reject plans. A plan approved by the committee has to be eventually approved by the National Company Law Tribunal for it to be binding on all affected stakeholders. The entire process has to be completed within strict time-lines, failing which the debtor is to be liquidated. This (automatic liquidation upon failure to complete the process within stipulated time-lines) is one of the most unique features of the Code.
The Code also establishes an insolvency regulator that is responsible for regulating the insolvency professionals and making regulations for some of the Code processes.
The personal insolvency provisions of the Code provide for insolvency resolution and bankruptcy of individuals. The primary purpose of this regime is to provide bankrupt individuals an opportunity to get their unsustainable debts discharged for restarting their lives.
The IBC Bill was tabled in the Parliament in December, 2015. It was then referred to a Joint Committee of the Parliament and got enacted in May, 2016. The IBC has transformed India’s insolvency regime.
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About the Contributors
Debanshu is one of Vidhi’s Co-Founders. He has over a decade of experience in commercial laws and the financial sector and has advised the Government of India on several legislative projects in this space. He was instrumental in advising the Government on the design and drafting of the Insolvency and Bankruptcy Code and its subsequent implementation. He has developed and curated Vidhi’s work on insolvency law, corporate law, financial regulation, and competition law and conceptualized its Bankruptcy Research Program. He has served as a member of a Government-appointed committee for operationalizing the National Company Law Tribunal and deposed before two Parliamentary committees examining financial sector legislation. He has also worked as a teaching fellow at Harvard Law School. He is an alumnus of the Harvard Law School, the University of Oxford, and Hidayatullah National Law University. He attended Harvard as a Fulbright Scholar and was awarded the Irving Oberman Memorial Prize in Bankruptcy and the Dean’s scholar prize in Corporations. He was also awarded a Distinction for his graduate studies at Oxford. In 2017, he was selected for NYU School of Law’s Hauser Global Scholarship, which he waived. His academic work has been published in peer-reviewed journals and an edited book published by Cambridge University Press, New York. He has been consulted by and mentioned in global business publications, such as IFR Asia and The Economist. Earlier, Debanshu practiced as an M&A and regulatory lawyer with AZB & Partners at its Mumbai and New Delhi offices.
Shreya is a Senior Resident Fellow and Lead, Law, Finance and Development. Her areas of interest are company law, insolvency law, corporate governance and responsible business conduct, fintech and financial inclusion. At Vidhi, she has worked on a diverse range of projects including research and drafting of the Insolvency and Bankruptcy Code, 2016 and consequent amendments and subordinate legislation, review of offences under the Companies Act, 2013 and drafting of the National Action Plan on Business and Human Rights. Shreya completed her B.B.A. LL.B. (Hons.) from the National Law University, Jodhpur in 2012 and her LLM from the Queen Mary University of London on a Chevening Scholarship in 2019, where her dissertation focused on peer-to-peer lending. She also worked as a Legal Consultant in the Financial Law Unit of the Legal Transition Team at the European Bank for Reconstruction and Development, London in 2019. Prior to joining Vidhi, she worked as an associate at Luthra & Luthra Law Offices, Delhi in the mergers & acquisition and real estate team.
Anjali worked as a Project Fellow at the Vidhi Centre for Legal Policy.
