All you need to know, Insolvency and Bankruptcy Code
Posted by Unimarks on November 16th, 2019
Insolvency is the one word that haunts all business personals. Every single entrepreneur is afraid of this word mostly because they don’t understand or know much about insolvency and the procedures required to get your self out of it. So to give you a little more clarity on insolvency and bankruptcy processes we bring you this article.
First, let’s understand what insolvency is? Insolvency is the state of a company that has debt that it is unable to pay via its yield. You normally take debts for improving the yield of your business but when the business is dropping so low that it could not even pay the interests then it is said to touch that scary place called insolvency or bankruptcy. There are two different types of insolvencies:
When a person has his company slipped into insolvency but yet he has enough money via assets to pay off the debts then it is considered to be cash-flow insolvency. Balance-sheet insolvency is a state close to bankruptcy when the company is under more debt then the assets it has. A company that is at balance-sheet insolvent may still have enough cash to pay its next bill on time. However, most laws will not always let the company pay that bill unless it will directly help all their creditors. Let me give you an example if you own a company under insolvency and you require more manpower for making more yield, investors will be ok to pay for them as it will help them to get back their debts.
India got its code for insolvency and bankruptcy in the year 2016. The so-called Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the very existing framework by creating one single law for all insolvency and bankruptcy issues. The bankruptcy code is a one-stop solution for resolving insolvencies which previously had a long and difficult process that does not offer any economically viable arrangements. The code aims to protect the interests of all small investors and make the process of doing business much simpler and reliable. Now let’s take a look at all the features of these laws and how they are better from the previously practiced ones.
> the National Company Law Tribunal for Companies and Limited Liability Partnership firms
>the Debt Recovery Tribunal for individuals and partnerships.
The procedure is pretty simple for this code. A plea for insolvency should be submitted to the adjudicating authority (NCLT in case of corporate debtors) by the financial or operational creditors or few corporate debtor’s itself. The maximum time allowed to either accept or reject that plea is 14 days. If the plea is accepted, the tribunal has to be appointed to an Insolvency Resolution Professional (IRP) to draft a resolution plan within 180 days (extendable by 90 days). Following the Corporate Insolvency Resolution process is initiated by the court. For this period, the board of directors of the company would stand suspended, and the promoters legally do not have any say in the management of the company. The IRP, if required, could seek the support of the company’s management for the day-to-day operations. If the CIRP fails in reviving the company that has initiated the liquidation process.
These new laws have been bought by the government to reduce the length of the insolvency cases and reducing the risks of the investors as well. These are the new laws and procedures in the aspect of insolvency. So if you are in fear of insolvency of your company or if you’re the investor of a company that you suspect may fall insolvent then I feel this would have given you an idea of what you would have to do in such cases. Even though this covers the law totally, you should have an attorney advise on such cases.
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About the AuthorUnimarks
Joined: November 6th, 2019
Articles Posted: 15
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