Insolvency & Bankruptcy Code (IBC) 2016 🆕
Why IBC? Before 2016, insolvency laws were scattered, slow, and ineffective.
- Took 4-5 years to resolve.
- Recovery rate: Only 20-25% (Very low).
- Debtors would delay and drag cases.
IBC 2016: One unified law for time-bound insolvency resolution.
Motto: "Resurrection over Death" - Try to save company first, liquidate only if necessary.
Key Principles 🎯
- Time-Bound: Resolution must happen in 330 days (max).
- Creditor-in-Command: Creditors decide fate (not debtor).
- Professional Management: Insolvency Professionals handle process.
- Revival Focus: Aim to keep company alive with new management/investors.
Corporate Insolvency Resolution Process (CIRP) 🔄
The main process under IBC.
Trigger (How it Starts):
Financial Creditor (Banks/FIs), Operational Creditor (Suppliers), or Corporate Debtor itself can file application with NCLT.
Threshold: Default of ₹1 Crore or more.
Process (Step-by-Step):
Day 0: Application filed with NCLT.
Day 1-14: NCLT admits application (or rejects).
Day 1: Moratorium begins (Stay on all recovery actions).
- Creditors cannot sue.
- Assets cannot be sold.
- Company gets breathing space.
Day 1-14: Interim Resolution Professional (IRP) appointed.
- Takes control from directors.
- Manages company as "going concern".
Day 30: Committee of Creditors (CoC) formed.
- Financial creditors (75% voting power can decide).
Day 30-180: Resolution Plans invited.
- Potential buyers/investors submit plans (acquisition, debt restructuring, etc.).
Day 180-270: CoC votes on best plan (75% majority needed).
Day 270-330: If plan approved, NCLT approves.
- Company saved! New management takes over.
If NO plan approved: Liquidation ordered.
- Company sold off (assets distributed to creditors).
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Liquidation under IBC 💀
If CIRP fails (no viable plan), NCLT orders liquidation.
Liquidator appointed → Assets sold → Creditors paid → Company dissolved.
Waterfall (Priority):
- Insolvency Resolution Process costs
- Workmen's dues (24 months wages)
- Secured creditors
- Unsecured creditors
- Government dues
- Shareholders (Last, usually nothing)
IBC vs Old System 🆚
| Feature | Before IBC (Companies Act) | After IBC 2016 |
|---|---|---|
| Timeline | 4-5 years | 330 days (max) |
| Recovery Rate | 20-25% | 40-45% (improving) |
| Focus | Liquidation | Revival first, liquidation last |
| Control | Court/Debtor could delay | Creditor-driven, time-bound |
| Forums | Multiple laws, multiple forums | One code, one forum (NCLT) |
Key Institutions 🏛️
- NCLT: National Company Law Tribunal (Adjudicating Authority).
- NCLAT: Appellate Tribunal (Appeal from NCLT).
- IBBI: Insolvency and Bankruptcy Board of India (Regulator).
- Insolvency Professionals (IP): Conduct the process.
Quiz Time! 🎯
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💡 Final Wisdom: "IBC changed the game. From 'Promoters Paradise' (delay forever) to 'Creditors Democracy' (time-bound resolution)!" ⏱️⚖️
🎉🎉🎉 CONGRATULATIONS! 🎉🎉🎉
You have completed ALL 52 Lessons of Business Laws!
From Contract Act to IBC 2016. From Caveat Emptor to Corporate Governance. From Patents to Proxies.
You are now a Business Laws Expert! 🏆📚⚖️