If you’re curious about the term “IBC” and what it stands for, you’ve come to the right place. In this article, we will explore IBC full form and its meaning, or the Insolvency and Bankruptcy Code of India. From its background and objectives to the legal framework and procedures, we will cover everything you need to know about IBC.
IBC = Insolvency and Bankruptcy Code
What is IBC Full Form?
The Insolvency and Bankruptcy Code (IBC) is a comprehensive legislation enacted by the Indian government in 2016 to streamline and expedite the insolvency and bankruptcy process in India.
It replaces several outdated laws and regulations that were previously used to address corporate and individual bankruptcy, including the Sick Industrial Companies (Special Provisions) Act, 1985, and the Recovery of Debt Due to Banks and Financial Institutions Act, 1993.
Background and Objectives of IBC
The introduction of IBC was a significant step towards improving the ease of doing business in India and attracting foreign investments. The previous laws and regulations related to insolvency and bankruptcy were fragmented, outdated, and ineffective in addressing the growing number of non-performing assets (NPAs) and stressed assets in the Indian banking sector.
The primary objectives of IBC are to:
- Provide a time-bound process for resolving insolvency and bankruptcy cases in a transparent and efficient manner.
- Protect the interests of all stakeholders involved in the insolvency resolution process, including creditors, debtors, and employees.
- Promote entrepreneurship and innovation by enabling a fresh start for insolvent individuals and businesses.
- Minimize the losses incurred by creditors and maximize the value of assets during the insolvency resolution process.
Key Features of IBC
The key features of IBC include:
- Establishment of the Insolvency and Bankruptcy Board of India (IBBI) to oversee the implementation and administration of IBC.
- Categorization of all creditors into two groups: financial creditors and operational creditors.
- Introduction of the concept of the Insolvency Resolution Process (IRP) to resolve insolvency cases within a time-bound period of 180 days, with a one-time extension of 90 days if necessary.
- Appointment of Insolvency Professionals (IPs) to manage the insolvency resolution process and ensure maximum value realization for creditors.
- Provision for a moratorium period of 180 days to prevent any legal action against the debtor during the IRP.
- Option for the debtor to propose a resolution plan for approval by the creditors, or for the creditors to initiate the liquidation process if a resolution plan is not feasible.
Understanding the IBC Code
If you want to understand the complete IBC Code, here is the complete code in PDF format. You can download the same and study the entire code in detail.
Advantages of IBC
- Time-bound and efficient insolvency resolution process
- A single law for insolvency and bankruptcy of all entities
- Clear and transparent process
IBC and COVID-19
The COVID-19 pandemic has severely impacted the Indian economy, and many businesses have faced insolvency issues due to the economic slowdown.
The Indian government has provided relief to businesses facing financial distress by suspending the initiation of insolvency proceedings for a certain period.
Liquidation Process under IBC
If a resolution plan is not feasible or if the CoC does not approve any resolution plan, the liquidation process is initiated. The following are the key steps in the liquidation process:
- Appointment of a Liquidator to manage and sell the debtor’s assets.
- Formation of a Liquidation Estate comprising all the debtor’s assets that will be sold to repay the creditors.
- Distribution of the proceeds from the sale of assets among the creditors in a pre-determined order of priority, with secured creditors being paid first followed by unsecured creditors and then the operational creditors.
FAQs on IBC
- What is the purpose of the Insolvency and Bankruptcy Code (IBC)?
- The IBC provides a simplified, time-bound, and effective insolvency resolution process for companies, individuals, and partnership firms in India.
- What is the Committee of Creditors (CoC) under the IBC?
- The CoC comprises of the financial creditors of the company and participates in the decision-making process during the insolvency resolution process.
- How has the IBC impacted the Indian economy?
- The IBC has increased the confidence of investors, both domestic and international, and encouraged entrepreneurship and innovation.
- What are the advantages of the IBC?
- The IBC provides a time-bound and efficient insolvency resolution process, a single law for insolvency and bankruptcy of all entities, and a clear and transparent mechanism for the distribution of assets to creditors.
- What are the disadvantages of the IBC?
- The lack of infrastructure and professionals to handle the insolvency resolution process has slowed down the process in some cases. The IBC has also faced criticism for being biased towards creditors and neglecting the interests of other stakeholders, such as employees.
The Insolvency and Bankruptcy Code (IBC) is a comprehensive law that has simplified the insolvency and bankruptcy resolution process in India.
It has brought significant changes to the Indian business environment, increased investor confidence, and encouraged entrepreneurship and innovation.
While the IBC has faced some challenges during its implementation, it has a promising future and is expected to play a crucial role in the growth of the Indian economy.