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Insolvency and Bankruptcy: The Road Ahead

Updated: May 17

Insolvency representative plays a central role in the effective and efficient implementation of an insolvency law, with certain powers over debtors and their assets and a duty to protect those assets and their value, as well as the interests of creditors and employees, and to ensure that the law is applied effectively and impartially.

⇒ UNCITRAL Legislative Guide on Insolvency Law


The Insolvency and Bankruptcy Code is a transformational piece of legislation as it seeks to establish an ecosystem for handling Insolvency & Bankruptcy issues. The Code received Presidential Assent on 28th May, 2016 when the landmark Bill introduced in the Lok Sabha in November 2015 finally became an Act. It is a landmark legislation consolidating erstwhile SICA, 1985 and some provisions of the Companies Act. Existing laws governing Revival, Rehabilitation, Restructuring were covered under Sick Industrial Companies Act (SICA) and Companies Act (Winding Up). Four different forums i.e. High Courts, CLB (now NCLT, effective from 1.6.2016), BIFR and the DRTs, with overlapping jurisdiction, gave rise to the systemic delays and complexities in the process of recovery. The Code consolidates and amend laws relating to revival, restructuring and winding up of the sick or debt oriented industries and companies as well as time bound resolution of corporate and individual bankruptcy. It is a game changer in which the Bankers, Courts, Investors and the initiators of insolvency proceedings will have to work in harmony for devising either a survival plan or liquidation of sick units and others facing debt default.

The corporate insolvency resolution process envisaged under the Code, 2016 is prominently a creditor-driven process, whereby the decision to let the debtor survive or to liquidate the same rests on a collective body of the creditors, i.e. the committee of creditors, after collation of all claims. It is also a double-edged sword. Where on one hand, the predominant objective of the code is to see whether there are reasonable prospects for revival of the business and if it not, the business be put in liquidation mode and assets be liquidated in a time bound manner.

The Code thus creates a new institutional framework which consists of adjudicatory bodies, a regulator, Insolvency Professionals and information utilities where it does not make any distinction between the rights of international and domestic creditors or between classes of financial institutions.


The provisions of the Code are applicable to

  • Companies, 

  • Limited Liability Entities, 

  • Firms and 

  • Individuals

(i.e. all entities other than financial service providers).

Corporate Insolvency includes two processes within its ambit,

(i) Insolvency Resolution and 

(ii) Liquidation


  • Waterfall mechanism for payment of debt in the event of liquidation 

  • Aims to develop a detailed system between various constituents of the process 

  • Balanced approach between rehabilitation and recovery 

  • Offers a finite time-limit within which the debtor’s viability can be assessed 

  • Provides for an insolvency professional to take control of the Corporate Debtor 

  • Immediate Suspension of Board of Directors and promoter’s powers 

  • To Address the NPA situation decisively


The corporate insolvency resolution process can be initiated by

  • the corporate debtor itself – Person to whom Operational Debt is owed and includes any person to whom such debt may have been legally assigned or transferred, 

  • the financial creditors – Person to whom ‘Financial Debt’ is owed, and includes a person to whom such debt may have been legally assigned or transferred in accordance with law, or 

  • the operational creditors – Shareholder of the entity, an individual who is in-charge of managing the overall operations, a person who has the control, supervision or oversight of the financial affairs of the Corporate Debtor.

For the purpose of the Code, financial creditors and operational creditors include persons resident outside India.

A case can be filed if there is a default of Rs. 1 Crore.


It is a position of trust and confidence. In administering the resolution outcomes, the role of the IP encompasses a wide range of functions, which include adhering to procedure of the law, as well as accounting and finance related functions. The latter include the identification of the assets and liabilities of the defaulting debtor, its management during the insolvency proceedings if it is an enterprise, preparation of the resolution proposal, implementation of the solution for individual resolution, the construction, negotiation and mediation of deals as well as distribution of the realization proceeds under bankruptcy resolution. In performing these tasks, an IP acts as an agent of the adjudicator. He prepares the information memorandum which serves as an input for the formulation of the resolution plan, which confirms the certain minimum requirements laid down.


  • The I.P occupies a unique position and acts as an intermediary between the debtor/creditors on the one hand and the Adjudicating Authority on the other and functions under the watchful eyes of the Agency and the Board. 

  • A spectrum full of secretarial, legal, finance, management activities in relation to the business of the debtor and the assessment of assets and liabilities of the debtor, valuation and sale of assets etc. 

  • A strong and robust institutional framework – ‘administrator’, ‘trustee’, ‘liquidator’, ‘supervisor’, ‘receiver’ and so on, by whatever name called. 

  • Establishment of adequate and proper infrastructure facility by the insolvency professional. 

  • Adequate human resources and experts in the field of finance, valuation of assets, security enforcement, taxation etc. are required. 

  • Clarity in presentation of cases 

  • Effective dealing with Debtors and Creditors 

  • Understanding of business dynamics and business recovery 

  • Enhancing the value of assets by challenging questionable transfers of assets or creation of obligations. 

  • To preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.


Each resolution plan should

  • provide for the payment of insolvency resolution process costs in priority to the repayment of other debts of the corporate debtor and identify specific sources of funds to pay the same; 

  • provide for the repayment of the debts of operational creditors which shall not be less than the liquidation value due to operational creditors in priority to any financial creditor and before the expiry of thirty days after the approval of a resolution plan by the adjudicating authority; 

  • provide for the repayment of the liquidation value due to dissenting financial creditors before any recoveries are made by the financial creditors who voted in favour of the resolution plan. 

  • provide for the management and control of the affairs of the corporate debtor after approval of the resolution plan; 

  • ensure the implementation and supervision of the resolution plan; 

  • ensure that it does not contravene any of the provisions of the law for the time being in force.

The Code is in its infancy currently, and is a bold and imaginative step forward for insolvency resolution in India, and has great potential to succeed. The expertise and resources of the IP to ensure appropriate use of judicial time and ensure that the NCLTs are not pushed with an unmanageable caseload ab initio, is what shall make the Code effective and a success.


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