Advancement towards implementation of code Resolution of corporate insolvency Comment
The start of December 2016 saw major developments regarding ease of doing business in India:
- The Ministry of Corporate Affairs MCA notified various provisions and the rules for submitting applications to the adjudicating authority for corporate persons.
- The Insolvency and Bankruptcy Board of India enacted the regulations pertaining to corporate insolvency resolution and registration of intermediaries functioning under the Insolvency and Bankruptcy Code 2016, thus giving a major impetus to the resolution of corporate insolvency under the code.
The code, which has been greatly anticipated, seeks to provide a consolidated platform for insolvency resolution, liquidation and bankruptcy of corporate persons, partnership firms and individuals in a timely and effective manner.
Advancement towards implementation of code
Within six months of its enactment in May 2016, the code has become partially operational, with the implementation of:
- various provisions on August 5 2016,1 August 19 2016,2 October 1 2016,3 November 1 2016,4 November 15 20165 and November 30 2016,6 respectively;
- the final rules for applying to the adjudicating authority for corporate persons and model bylaws and the governing board of insolvency professional agencies;7
- regulations for the registration of insolvency professional agencies8 and insolvency professionals;9 and
- regulations on the insolvency resolution process for corporate persons.10
The code comprises 255 sections, divided into five parts, out of which about 100 provisions have been notified to date. It is commendable that the board, after its constitution under chair MS Sahoo in October 2016, has within only two months:
- implemented the aforesaid regulations;
- granted certificates of registration to three insolvency registration agencies11 which has already enrolled about 21 insolvency professionals12;
- issued eligibility criteria for insolvency professionals;13 and
- last but not the least, issued the syllabus, format and frequency of limited insolvency examination.14
The latest notification issued by the MCA on November 30 201615 implemented nearly all provisions pertaining to the corporate insolvency resolution process, except for provisions relating to the voluntary winding up of a company, which will come into force with effect from April 1 2017.16
Simultaneously, on the same day ie, November 30 2016, the board released final regulations on the insolvency resolution process for corporate persons,17 which lay down a comprehensive procedure for insolvency resolution of a debt-ridden company. Moreover, through the notification issued on November 15 2016, among other provisions, Section 255 of the code was implemented. Section 255 makes suitable and corresponding changes to the provisions regarding the winding up of companies under the Companies Act 2013. Further, under the December 7 2016 notification, certain provision of the Companies Act - including those relating to the winding up of companies - were implemented and will come into force from December 15 2016.18 Alongside this, under a notification dated November 25 2016, the Ministry of Finance Department of Financial Services repealed the Sick Industrial Companies Special Provisions Act 1985 with effect from December 1 2016, thereby dissolving the Board for Industrial and Financial Reconstruction and the Appellate Authority for Industrial and Financial Reconstruction, which were the erstwhile adjudicating authorities responsible for adjudicating the revival schemes of sick companies in terms of the Sick Industrial Companies Act.19 Under the code, the adjudicating authority in relation to companies, for all purposes, is the National Company Law Tribunal.
Last but not the least, on December 7 2016 the MCA issued the Companies Removal of Difficulties Fourth Order 2016 which will come into force from December 15 2016. Among other things, it has been stated that Sections 33 to 54 of the code which deal with liquidation of corporate person, the provisions of Chapter XV relating to compromise, arrangements and amalgamations and Chapter XX relating to winding up of the Companies Act 2013 will come into force from December 15 2016.20 Therefore, with the release of the aforesaid notifications, coupled with the regulations on corporate insolvency resolution process, the new insolvency regime pertaining to corporate persons is set to be implemented in practice.
With the enactment of many of the provisions of the code and regulations, the code has been sufficiently developed to operate in practice and provide speedy resolutions to companies undergoing a debt crisis. Further, the remarkable pace of implementation of the code in the past six months reflects the central government's commitment to making the code operational as soon as possible. It appears that the code should become fully operational in the coming months, thus overhauling and improving India's business and commercial environment significantly.
7 Regulation IBBI/2016-17/GN/REG003, dated November 21 2016.
8 Regulation IBBI/2016-17/GN/REG002, dated November 21 2016.
9 Regulation IBBI/2016-17/GN/REG003, dated November 23 2016.
10 Regulation IBBI/2016-17/GN/REG, dated November 30 2016.
16 Rule 12, read with Rule 4, of the Companies Transfer of Pending Proceedings Rules 2016.
This article was first published in the December 2016 issue of the International Law Office's Insolvency & Restructuring – India Newsletter
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.