#FinancialResolution

[debtrec]

Debt Recovery Under IBC

Debt recovery is a legal process begun by creditors to collect unpaid debts from individuals or businesses. The Insolvency and Bankruptcy Code (IBC) of 2016 offers India a methodical framework for managing insolvency and bankruptcy issues, guaranteeing efficient debt resolution and so protection of the interests of all those engaged.

What is Debt Recovery?

Debt recovery is the legal process that is initiated by the creditor for the accumulation of unpaid debts from individuals or businesses who are in breach of obligation on their financial outstanding debts, which can include issuing demand letters, arranging payment terms, filing a lawsuit via courts or Debt Recovery Tribunals (DRTs), and, if needed, executing security rights to get back the outstanding debt.

Insolvency and Bankruptcy Code,2016

The Insolvency and Bankruptcy Code, 2015, was referred to the Joint Committee following its introduction in the Lok Sabha on December 21, 2015. On such a referral, the Committee had submitted its recommendations and a revised Bill that was derived from its suggestions. The Insolvency and Bankruptcy Code, 2016, was enacted by both Houses of Parliament in May 2016. The primary goal of these economic reforms is to concentrate on the resolution of insolvency that is driven by creditors.

Features of Insolvency and Bankruptcy code,2016

The Insolvency and Bankruptcy Code (IBC), 2016, is a comprehensive legal framework aimed at addressing insolvency and bankruptcy issues in India, providing a structured process for the resolution of financial distress. Here are the key features of the IBC:

IBC delivers a holistic approach for handling financial distress, pertinent to companies, individuals, and partnership firms. The code established clear protocols for launching an insolvency procedure, enabling both creditors and debtors to take initiative. It is important to note that the insolvency resolution process is completed within strict deadlines, which facilitates the efficient and expeditious resolution of distressed assets.

The Insolvency and Bankruptcy Board of India (IBBI) affirms the commitment to proper monitoring and debt resolution procedures. The IBBI is instrumental in the standardization of practices and the enforcement of the IBC's provisions, as it is represented by key stakeholders such as the government, RBI, and legal specialists.

The IBC introduced the concept of licensed insolvency professionals (IPs) who are responsible for the management of insolvency proceedings. These professionals contribute impartiality and expertise to the resolution process, thereby enabling transparent and equitable outcomes. The accountability and credibility of the resolution process are improved by their oversight of debtor assets during insolvency proceedings.

The IBC establishes specialized tribunals, the National Company Law Tribunal (NCLT) and the Debt Recovery Tribunal (DRT), to effectively adjudicate insolvency matters. These tribunals offer specialized forums for the resolution of insolvency cases involving companies, individuals, and partnership firms, thereby guaranteeing the prompt and impartial resolution of disputes.

The insolvency resolution procedure is streamlined by the IBC, which offers a clear roadmap for the initiation and processing of insolvency petitions. The appointment of Insolvency Resolution Professionals (IRPs) to draft resolution plans and the prohibition of company directors during the resolution period are among the key highlights. Furthermore, provisions for liquidation guarantee a methodical approach to the liquidation of insolvent entities, thereby protecting the interests of creditors.

The IBC includes provisions that prevent defaulters and disqualified individuals from participating in the resolution process, thereby fostering accountability and integrity. The transparency and impartiality of the liquidation process are further bolstered by the prohibition of the sale of defaulter's property to disqualified individuals. The objective of these amendments is to prevent potential violations of the insolvency framework and to increase creditor confidence.

Objectives of the Code

The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted to create a streamlined and time-bound process for resolving insolvency and bankruptcy issues in India. The key objectives of the IBC are:

Ensuring that distressed assets are resolved efficiently to preserve their value and minimize losses.

Providing a structured process with strict timelines for corporate insolvency resolution (CIRP) to avoid unnecessary delays.

Encouraging businesses by offering a smooth exit mechanism for failing ventures and reducing the fear of failure.

Prioritizing the interests of creditors, especially financial creditors, by giving them control over the resolution process.

Protecting the rights of all stakeholders, including creditors, employees, and investors.

Strengthening India’s business environment by reducing risks associated with credit defaults.

Providing an effective framework to deal with bad loans and stressed assets in the banking system.

Encouraging resolution over liquidation to help businesses recover rather than shutting them down.

Replacing multiple, outdated laws (such as SICA, SARFAESI, Companies Act provisions) with a unified insolvency framework.

Enhancing investor confidence by offering a predictable and transparent insolvency resolution process.

Procedure Under the Code

In case the pending recovery amount is ₹1 crore or more, the creditor can commence the resolution process by lodging an application before the National Company Law Tribunal (NCLT). Upon approval being granted, an Interim Insolvency Professional (IRP) is given the responsibility to manage the process. The IRP oversees the debtor’s assets and disclosed financial information to creditors. This phase persists for 180 days, during which legal proceedings against the debtor are restricted.

IRP is liable to form a Committee of Creditors (CoC) that consists of financial creditors. The committee determines whether to reform the debt via a modified payment schedule or liquidate the debtor's holdings to collect outstanding payments.

If no settlement is reached within 180 days, or if revival is not viable, the debtor’s assets will be subjected to liquidation. A liquidator is designated to evaluate the value of assets and disperse the distributed proceeds to creditors in accordance with the priority order specified in the Code.

Conclusion

The 2016 Insolvency and Bankruptcy Code (IBC) offers a disciplined, time-bound framework for handling debt collection issues and insolvency. The IBC improves India's economic environment and provides a clear way to handle troubled assets by giving creditor interests first priority and pushing settlement above liquidation.

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Top 5 Financial Resolutions

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