Lecture Notes: Presentation on IBC and Liquidation

Overview of the Session

• Mood and Context: Presenter starts on a lighter note, emphasizing the intense preparation needed for exam-focused study.
• Disclaimer: Focus on important parts; skip detailed PRP (Prescribed Reading Procedure) since other resources cover them.

Insolvency and Bankruptcy Code (IBC)

Key Concepts

1. Insolvency Framework: Differences noted regarding influences on corporate insolvency resolution processes (CIRP).
2. Four Pillars:
   • Insolvency Professional Agency (IPA)
   • Insolvency and Bankruptcy Board of India (IBBI)
   • Information Utility (IU)
   • Adjudicating Authority (AA)

Applicability

• Entities covered: Individuals, firms, Limited Liability Partnerships (LLP), corporate debtors, personal guarantors to corporate debtors.
• Entities not covered: Financial Service Providers (FSP) except notified ones like NBFCs, housing finance companies with asset size ≥ 500 crores.

Key Sections

1. Section 7: Application by Financial Creditor
   • Default ≥ 1 crore; Financial creditor submits application with evidence of default and proposals for Interim Resolution Professional (IRP).
2. Section 9: Application by Operational Creditor
   • Operational creditors provide a demand notice; in case of non-payment or dispute, they may proceed to adjudicating authority.
3. Section 10: Voluntary Initiation by Corporate Applicant
   • Corporate defaults; detailed application procedure.

CIRP Eligibility

• Criteria for Financial Service Providers and other exceptions specified under the code.

Important Procedures

1. Information Memorandum: Preparation, contents, and limitations on sharing confidential information.
2. Committee of Creditors (COC): Formation, voting, and roles; exclusive inclusion of financial creditors.
3. Liquidation Process
4. Fast Track CIRP: Criteria for smaller, listed or asset-light companies and their specific timelines.

Liquidation under IBC

Initiation of Liquidation

1. Failure to submit Resolution Plan: Regulated timeline breaches can lead to liquidation order by adjudicating authority.
2. Rejection of Resolution Plan: Non-compliance with section 31 criteria leads to liquidation.
3. COC Consensus: 66% voting share can decide liquidation even during CIRP.
4. Contravention During Implementation: Adjudicating authority may pass liquidation order if plan implementation fails.

Liquidation Process

1. Public Announcement: Notify stakeholders about liquidation order and registered authority.
2. Discharge of Employees and Officers: Immediate termination unless business continuation is required.
3. No new suits or proceedings: Suspension of all against the corporate debtor.
4. Asset Custodian Duties: Liquidator to consolidate and take custody of all assets.
5. Verification of Claims: Check and confirm claims submitted by creditors.
6. Distribution of Assets: In order of priority — insolvency resolution cost, secured creditors, workmen dues, employees, unsecured creditors, government dues, shareholders.

Liquidator Roles and Powers

1. Asset Valuation: Assessing and liquidating the assets systematically.
2. Information Requests: Obligation of stakeholders to provide necessary details.
3. Consulting Stakeholders: Decision-making involvement but not binding.
4. Undervalued Transactions: Reporting any undermined transactions within specified look-back periods & reversing them.

Legal and Compliance Aspects

1. Appeals and Rejections: Framework for contesting rejected claims.
2. Suspension of Liabilities: Under CIRP, pre-commencement debts obligation suspension.
3. Voluntary Liquidation: Criteria and procedural requirements for voluntary dissolution.

Section 35, 36, and 43-51 Review

• Detailed review of avoidable transactions, preferential, and undervalued transactions, including regulatory implications.

Closing Remarks

• Importance of thorough preparation, understanding priorities, and timely review to succeed in the exam.

Keytakeaway: Preparation and revision critical to handle the topic thoroughly in exams.