Insolvency and Bankruptcy Board of India

RELEVANCE – UPSC GS PRELIMS & GS MAINS -III

EXPECTED  QUESTIONS

QUES 1 . Consider the following statements about Insolvency and Bankruptcy Board of India(IBBI)-

1 . It was set up on 1st October 2016 by an executive resolution.

2 . It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies and Information Utilities.

Which among the above statements is /are correct ?

a . only 1

b . only 2

c . both 1&2

d . none of the above

Answer – b

QUES 2 .  Consider the following statements about powers and functions of Insolvency and Bankruptcy Board of India(IBBI)

1 . Registration of insolvency agencies and professionals

2 .  Specifying the regulations and standards for agencies and professionals

3 . Monitoring and carrying out inspections and investigations on these entities 

Which among the above statements is /are correct ?

a . 1 & 2

b . 1 & 3

c . 2 & 3

d . 1 , 2 & 3

Answer – d

The Insolvency and Bankruptcy Board of India was set up on 1st October 2016 under the Insolvency and Bankruptcy Code, 2016 (Code). It is a unique regulator and regulates a profession as well as transactions.

It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies and Information Utilities. It writes and enforces rules for transactions, namely, corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code.

Need for IBBI

Previously , The falling companies didn’t have the option of remaking and it was a hectic task and there was no way for the reconstruction of  falling companies and this affected creditor’s interest and corporates interest as well and the companies never got any opportunity for repaying the creditors.

The Insolvency and Bankruptcy code provides the basic legal framework to facilitate resolution process of companies.

The new code will speed up the resolution process for stressed assets in the country. It attempts to simplify the process of insolvency and bankruptcy proceedings.

Establishment Year

It was established on 1 October 2016 and given statutory powers through the Insolvency and Bankruptcy Code .

Organizational Structure Of IBBI

Total Members : 10 (Including The Chairman)

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.

Sphere of jurisdiction

It covers Individuals,Companies,Limited Liability Partnerships and Partnership firms.

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.

Responsibility Of IBBI

1 . 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.
2 . To 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.
3 . 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.
4 . To 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

Significance of the new code

The new code will speed up the resolution process for stressed assets in the country. It attempts to simplify the process of insolvency and bankruptcy proceedings.It handles the cases using two tribunals like NCLT(National company law tribunal) and Debt recovery tribunal.

What is Insolvency?

Insolvency is when an organization, or individual, can no longer meet its financial obligations with its lender or lenders as debts become due. Before an insolvent company, or person, gets involved in insolvency proceedings, it will likely be involved in informal arrangements with creditors, such as making alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in cash inflow forecasts or from an increase in expenses.

Types of Insolvency

There are two forms of Insolvency : cash-flow insolvency and balance-sheet insolvency.

1 . Cash-flow insolvency – is when a person or company has enough assets to pay what is owed, but does not have the appropriate form of payment. For example, a person may own a large house and a valuable car, but not have enough liquid assets to pay a debt when it falls due. Cash-flow insolvency can usually be resolved by negotiation. For example, the bill collector may wait until the car is sold and the debtor agrees to pay a penalty.

2 . Balance-sheet insolvency – is when a person or company does not have enough assets to pay all of their debts. The person or company might enter bankruptcy, but not necessarily. Once a loss is accepted by all parties, negotiation is often able to resolve the situation without bankruptcy.