OBJECTIVE OF IBC:
✓ consolidate and amend laws on reorganization and resolution of insolvency
✓ maximize the value of assets held by debtors,
✓ foster entrepreneurship,
✓ ensure access to credit,
✓ safeguard the interests of all stakeholders.
HISTORY OF IBC
✓ Sick Industrial Companies Act (SICA), the
✓ Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act),
✓ Securitization and Reconstruction of Financial Assets
✓ Enforcement of Security Interest Act
✓ However, these laws suffered from inefficiencies, conflicts, and prolonged timelines,
necessitating the introduction of the IBC.
MECHANISM OF IBC: INSOLVENCY RESOLUTION PROCESS
✓ Initiation can be done by either a creditor or the debtor.
✓ An interim insolvency resolution professional (IRP) is appointed to manage the debtor's
affairs.
✓ During IRP, creditor claims are invited, and the debtor's assets are managed.
✓ A resolution plan is devised by either creditors or the debtor, subject to NCLT approval.
✓ Failure to approve a resolution plan leads to liquidation, where the debtor's assets are
sold to settle creditor claims.
✓ The maximum timeline for completion of IRP is 180 days, extendable by 90 days with
NCLT approval.
IMPACT OF IBC ON CORP GOV
✓ Transparency:
✓ conduct investigations into transactions, and fraudulent trading
✓ These findings are recorded in Form CIRP 8, providing transparency regarding the
financial conduct of the corporate debtor.
✓ Accountability: corporate leaders responsible for their actions.
✓ boards of directors of corporate debtors are replaced by insolvency professionals during
the resolution process.
PROTECTION OF CREDITOR’S RIGHTS UNDER IBC
✓ entrusts complete authority over Corporate Debtors to creditors throughout the
Corporate Insolvency Resolution Process (CIRP),
✓ aimed at preventing any devaluation during the resolution process.
✓ The Committee of Creditors (CoC) represents financial creditors during insolvency
proceedings.
✓ key decisions, including approving resolution plans, appointing an insolvency
professional, and monitoring the process.
✓ to safeguard creditors' interests and ensure the efficient resolution of insolvency cases.
VOLUNTARY LIQUIDATION
✓ a solvent company, having adequate assets to cover its debts, elects to cease its
operations and distribute its assets among stakeholders
✓ objective is to ensure equitable distribution of the company's assets among its
creditors and shareholders, while facilitating a
✓ prompt and efficient exit strategy from the business landscape.
✓ specific criteria: The company must maintain solvency, indicating its ability to settle
liabilities.
✓ A special resolution passed by the shareholders must affirm the company's decision to
wind up voluntarily.
Innoventive Industries Ltd. (Corporate Debtor) v. ICICI Bank & Anr.1:
In this case, the Court made it clear that once an insolvency professional assumes management
of a company, former directors who are no longer part of the management cannot represent
1
Innoventive Industries Ltd. v. ICICI Bank - (2018) 1 SCC 407
the company in appeals. Additionally, it underscored the supremacy of the Insolvency and
Bankruptcy Code, 2016, over conflicting state laws.
M/S. Vistra ITCL (India) & Ors. v. Mr. Dinkar Venkatasubramanian & Anr.2
In a ruling from May 2023, the Supreme Court addressed the entitlement of secured creditors
to retain sale proceeds from shares pledged by a corporate debtor. It was clarified the rights of
secured creditors under Sections 52 and 53 of the IBC, ensuring their protection in insolvency
proceedings.
2
M/S. Vistra ITCL (India) & Ors. v. Mr. Dinkar Venkatasubramanian & Anr. (2023) 7 SCC 324
