India’s corporate regulatory system for the resolution or reconstruction of falling companies and their liquidation were done with the aid of some fragmented laws previously. In the absence of a well-tailored corporate insolvency and bankruptcy regulation, remaking of failing companies became a difficult task. This has adversely affected the interest of the both creditors and the affected corporate. Sick companies never got an opportunity to exit their business by compensating their creditors. In this context, to change the situation, the government enacted Insolvency and Bankruptcy Code 2016.
The IB Code just provides the basic legal framework to facilitate resolution process of companies. Along with this legal foundation, an ecosystem or arrangements including a Bankruptcy Board, Insolvency Agencies and Insolvency Professionals etc. are needed to make the Code effective.
Insolvency and Bankruptcy Board of India (IBBI)
The Insolvency and Bankruptcy Board of India (IBBI) is the most important institutional arrangement for the new insolvency and bankruptcy regime. It was created as the refereeing institution with multiple tasks including creation of regulations and control of agencies and professionals involved in the insolvency and bankruptcy business.
The IBBI was established on October 1, 2016 in accordance with the provisions of the ‘Insolvency and Bankruptcy Code, 2016’. It was constituted as a Technical Committee under the IBBI regulations 2017.
Responsibility of IBBI
The IBBI’s primary responsibility is to create and amend laws relating to reorganization as well as insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.
It must create regulations for insolvency procedures, institutions and professionals. So far, the IBBI has produced three sets of regulations. These include – regulations for Insolvency Professionals, Insolvency Agencies and Model Bye-Laws and Governing Board of Insolvency Professional Agencies.
The IBBI regulations aims to create a complete framework for the voluntary liquidation of any corporate person. The term corporate person includes any company incorporated under the Companies Act and includes limited liability partnership or any other person incorporated with limited liability but does not include any financial service provider.
The regulations specify the procedure for public announcement, receipt and verification of claims of stakeholders, reports and registers to be maintained and submitted by the liquidator, realization of assets and distribution of proceeds to stakeholders, distribution of residual assets, and finally dissolution of corporate person.
The IBBI will be assisted by two advisory panels for providing inputs on various issues.
According to the IBBI stipulations, the insolvency professionals should be from advocates, chartered accountants, company secretaries and cost accountants given they meet the conditions set by IBBI. Regarding Insolvency Professional Agencies, not-for-profit companies with a turnover of at least Rs 10 crore can apply for Agency license.
Powers and functions of IBBI
The IBBI has wide powers for administering the insolvency and bankruptcy regime in the country. These include – registration of insolvency agencies and professionals, levying fees from them, specifying the regulations and standards for agencies and professionals, monitoring and carrying out inspections and investigations on these entities etc.
Organizational structure of IBBI
The IBBI has a ten-member board including a Chairman. Following is the structure of the IBBI.
- One Chairperson
- Three members from Central Government officers not below the rank of Joint Secretary or equivalent.
- One nominated member from the RBI.
- Five members nominated by the Central Government; of these, three shall be whole-time members.
More than half of the directors of its board shall be independent directors. MS Sahoo was appointed as the first Chairman of IBBI.