Insolvency means, the condition when a person is unable to pay off the debts at a given point of time. Bankruptcy, on the other hand, is a legal process that serves the purpose of resolving the issue of insolvency.
The Insolvency and Bankruptcy Code, 2016 (“IBC”) is the bankruptcy law that amends the laws relating to re-organization of corporate persons, partnership firms and individuals. The Government of India has set up the Insolvency & Bankruptcy Board of India (“IBBI”) as the Regulator under the Code. Under IBC, 2016, the Insolvency Resolution Professional (“IRP”) is one who is registered with IBBI and is responsible to assess the financial position of the company, partnership, LLPs, individual etc. and act on behalf of them and ensure smooth process of its dissolution. A plea for insolvency is submitted to the adjudicating authority that is National Company Law Tribunal (“NCLT”). The object of this Code is to resolve Insolvency in less time, lesser loss in recovery and to maximize the value of assets so as to promote entrepreneurship and to increase the availability of credit. Under this Code, there is an alteration in the order of payment of dues, the workmen’s dues are paid first and then the Government dues are paid off.
One of the most successful IBC case is, where one of the renowned multinational steel making company (herein after referred as acquirer company) made a resolution plan of Rs. 35,200 Crore to take over the assets of another steel making company (herein after referred as acquired company) which was undergoing bankruptcy proceedings. This enabled the company to acquire a 72.65% stake in the acquired company. The Company was acquired on May 18, 2018, consolidating its financial statements from the quarter ending June 2018. There after the acquired company was able to deliver the operating profit that same quarter. The operating performance of the acquired company continued to improve under the acquirer’s management. This brings hopes for banking and other industrial sectors to recover the funds.
The IBC has made progress in addressing the insolvency cases quickly. CRISIL estimates the banking sector’s gross NPA (aggregate) has declined to 10% in the end of March 2019 from 11.5% in the previous year.
Thus, the basic intention of the Code is revival of the company rather than letting it go for liquidation to recover the debts.