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It replaces several outdated laws and regulations that were previously used to address corporate and individual bankruptcy, including the Sick Industrial Companies (Special Provisions)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 The previous laws and regulations related to insolvency and bankruptcy were fragmented, outdated, and ineffective in addressing the growing number of non-performing assets (NPAs) and stressed assets in the Indian banking sector.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
The Insolvency and Bankruptcy Code (IBC) is a significant legislation enacted by the Government of India to address the issues of insolvency and bankruptcy in the country.
The IBC provides a comprehensive framework for the resolution of stressed assets, aiming to promote a healthy business environment, protect the interests of creditors and stakeholders, and facilitate the efficient allocation of resources.
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
Insolvency Resolution Process
The IBC provides for two distinct insolvency resolution processes:
Corporate Insolvency Resolution
Under the corporate insolvency resolution process (CIRP), the IBC empowers financial and operational creditors to initiate insolvency proceedings against a defaulting corporate debtor. The process involves the appointment of an insolvency professional, constitution of a committee of creditors, formulation of a resolution plan, and its approval by the committee of creditors and the adjudicating authority.
Individual Insolvency Resolution
The IBC also introduces a mechanism for the resolution of insolvency in respect of individuals, including personal guarantors to corporate debtors. The individual insolvency resolution process (IIRP) provides an opportunity for individuals to seek a fresh start and address their financial difficulties. The process involves the appointment of a resolution professional, preparation of a repayment plan, and its approval by the adjudicating authority.
Committee of Creditors
The committee of creditors (CoC) is a pivotal element of the insolvency resolution process under the IBC. It comprises financial creditors who have lent money to the corporate debtor. The CoC plays a crucial role in decision-making during the resolution process, such as the approval of a resolution plan. The IBC emphasizes the collective decision-making by the CoC, considering the voting share of each financial creditor.
Insolvency professionals (IPs) are licensed professionals appointed to manage and administer the insolvency resolution process. They act as intermediaries between the debtor and the creditors, ensuring compliance with the provisions of the IBC and facilitating the smooth conduct of the resolution process. IPs possess specialized knowledge and expertise in insolvency and play a critical role in the successful resolution of distressed assets.
The adjudicating authority under the IBC is the National Company Law Tribunal (NCLT) for corporate insolvency cases and the Debt Recovery Tribunal (DRT) for individual insolvency cases. These authorities are responsible for admitting or rejecting insolvency applications, approving resolution plans, and overseeing the insolvency resolution process.
If a resolution plan fails or is not approved within the prescribed timeline, the insolvency process may lead to the liquidation of the corporate debtor’s assets. The liquidation process involves the sale of assets and distribution of proceeds to the stakeholders in a specified order of priority. The IBC aims to ensure an orderly and time-bound liquidation process, minimizing delays and maximizing value realization.
The IBC also addresses cross-border insolvency through its provisions on cooperation with foreign jurisdictions. It enables the Indian authorities to enter into agreements with other countries for the effective resolution of cross-border insolvency cases. This ensures better coordination and cooperation among different jurisdictions, facilitating the resolution of complex cross-border insolvency matters.
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
The IBC provides a simplified, time-bound, and effective insolvency resolution process for companies, individuals, and partnership firms in India.
The CoC comprises of the financial creditors of the company and participates in the decision-making process during the insolvency resolution process.
The IBC has increased the confidence of investors, both domestic and international, and encouraged entrepreneurship and innovation.
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.
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.