January 2019

INSOLVENCY RESOLUTION PROFESSIONAL – JOURNEY AND ACCOUNTING AND TAX ASPECTS

Dhinal Shah
Chartered Accountant

1.     INTRODUCTION


1.1.  The introduction of the Insolvency and Bankruptcy Code, 2016 (“Code”) ushered in a new era in the distressed asset landscape and was undoubtedly a significant reform. Prior to introduction of the Code, multiple regulations, at times not in congruence, were leading to disputes and defaults thus invariably delaying the entire process. The laws addressing the revival and financial reconstruction were provided for under different Acts. These different laws were implemented in different judicial forums, namely (i) Provincial Insolvency Act, 1920 (ii) Presidential Towns Insolvency Act, 1909 (iii) Winding up provisions of the Companies Act, 1956 (iv) Sick Industrial Companies (Special Provisions) Act, 1985 (v) Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the (vi) Securitisation & Reconstruction of Financial Assets, Enforcement of Security Interests Act, 2002 which often led to delay in achieving the end objective of resolution/reconstruction.

 

1.2.  The defining aspect of the Code is the strict adherence to timelines, an aspect which was relatively absent in previous legislations. The Code explicitly provides for a 180-day period of resolution of the corporate debtor with an extension of 90 days. The lapse of 180/270 days leads to the compulsory liquidation of the corporate debtor. The Code has ushered in a change from the existing situation of “debtor in possession” to “creditor in control”. This overhaul has empowered the creditors to take decisions for the benefit of the corporate debtor and the creditors with relatively less opposition from the promoters or the erstwhile directors of the corporate debtor whose powers have been suspended during the period of moratorium, which lasts during the period of the Corporate Insolvency Resolution Process.

 

1.3.  The Code has given significant headroom to indebted companies reeling under pressure to meet their obligations and has facilitated the lenders to expedite recovery and resolution of stressed assets. The Code stipulates a strict 180-day window (extendable to 270 days) for running and completing the Corporate Insolvency Resolution Process (CIRP). The time-bound nature of the process is a unique feature that provi

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