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Last Updated : Jun 14, 2017 03:01 PM IST

Explainer: What lies behind the Insolvency and Bankruptcy Code

The RBI has identified 12 NPA accounts to be taken up under the Insolvency and Bankruptcy Code. Here's a quick look at what the IBC entails.

Beena Parmar @BeenaParmar

The Reserve Bank of India (RBI) Tuesday identified 12 non-performing accounts or assets (NPAs), totaling 25 percent of India's gross NPAs, which can be immediately taken up under the Insolvency and Bankruptcy Code (IBC).

These 12 accounts together constitute Rs 1.9 lakh crore of the nearly Rs 7.7 lakh crore overall gross NPA of the banking system.

The RBI has evaluated the top 500 exposed accounts, partially or wholly classified as NPAs. The criteria for cases referred under IBC are those where exposure is over Rs 5,000 crore and more than 60 percent has been declared as NPA as on FY16 by the lending bank.

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What is IBC?

IBC is an Act which helps troubled corporates, partnership firms and individuals in debt to re-organise and opt for insolvency resolution in a time-bound manner to maximise value of its assets.

The IBC, passed by the Parliament on May 11, 2016, received Presidential assent on May 28 2016 and was notified in the official gazette on the same day.

What is the IBC process?

Application on default – Any creditor(s) can apply for insolvency on corporates that default on debt or interest payment. These are referred to the National Company Law Tribunal (NCLT) on priority under the IBC.

Appointment of Insolvency Professional (IP) – An IP is to be appointed by the regulator and approved by the creditor committee. IP will take over the running of the Company along with the control and power from the company’s Board of Directors. IP shall have immunity from criminal prosecution and any other liability for anything done in good faith.

Moratorium period – The IP gets 180 days (six months) to come up with a workable solution for the company to enable it to repay its loans. The period can be extended by another 90 days. No action can be taken against the company or its assets during these 270 days or the 9-month period. The key focus of the IP will be running the Company on going-concern basis. A resolution plan will have to be prepared and approved by the Committee of creditors.

Credit committee - A credit committee comprising creditors will be constituted. Related party will be excluded from the committee. Each creditor will vote according to voting share assigned. Any plan of resolution can be implemented only if 75 percent of creditors approve it.

Liquidation - If the company under the IP fails to come up with a solution within the 270 days, a liquidator will be appointed and all the assets will be liquidated to repay the debt. The company also goes into liquidation if 75 percent of the creditors do not come to a conclusion on likely resolution.

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First Published on Jun 14, 2017 03:01 pm
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