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Insolvency and Bankruptcy Code — IBC-BOON OR BANE

Introduction

The Insolvency and Bankruptcy Code (IBC), 2016 has been enacted to merge the existing laws related to insolvency and bankruptcy. The IBC involves standard steps which is viable and understandable. So, everyone, be it creditors, debtors, companies, or shareholders etc. shall have a standard perform for any matters relating to insolvency.

“The IBC has been a real game changer in the Indian economy’s business reform initiatives in the last twenty five years. Ease of doing business is ironically the base premise for enacting the comprehensive Code to exit from the business.”

The IBC has made a spectacular progress in short span. The recent orders issued by the Adjudicating Authorities are beginning to have profound impact on defaulting business owners as the message is loud and clear “settle dues or cede control”.

Why was IBC enacted?

Initially there was Presidency Towns Insolvency Acts, 1909 which was applicable in Kolkata, Chennai and Mumbai and the Provincial Insolvency Act 1920 for the rest of India, for regulating the insolvency laws. The Act applied to individuals and partnerships but exempted corporations from within its ambit. Post Independence, the bankruptcy and insolvency were specified in Constitution and with the passage of time there were numerous acts which governed Insolvency and bankruptcy issues such as the Sick Industrial Companies (special provision) Act, 1985 (“SICA”), SARFAESI Act, 2002, the Recovery of Debts due to Banks and financial institutions Act, 1993 (“RDDBFI Act”), Companies Act, 1956 as well as Companies act, 2013.

But these regulations have not yielded satisfactory results. These regimes were high fragmented, borne out of multiple judicial forums resulting in lack of clarity and certainty of jurisdiction. Further, we had various adjudicatory bodies/Tribunals to deal with such issues and matters under different Acts stated above.

So, this led to the unclear knowledge about the authority as to whom the parties should approach in the related matters. Hence, this resulted in overlapping of decisions. There was no common regulatory authority to regulate the rights of the secured or unsecured creditors, employees etc. or to determine the priority of their claims. Large number of stressed assets such as NPAs with low recovery rates due to a lack of enabling environment for the enforcement of creditor’s rights. Moreover there was no adequate or credible data regarding the assets, indebtedness etc. of companies which further heighten the problems. Hence large number of legislations and non-statutory guidelines have made the recovery of debt a complex and time consuming process.

The IBC is a welcome overhaul which has directly addressed in resolving the insolvency and bankruptcy issues of corporates and simultaneously serving creditors and public financial institutions by helping them in recovery of bad and distress loans and ultimately tackling Non Performing Assets. The Main objective of Code is distribution of the effects of a debtor in the most expeditious, equal and economical mode. The Code lays down the complete procedure of Insolvency Resolution process which involves collating claims and reviewing the requisite financial and other relevant records of the company. The introduction of this Code has brought in ample opportunities for professionals ranging from being appointed as official liquidator to managing the financial health of corporates in case of distressed assets.

Present Scenario

Today we have IBC, 2016, which provides a…

Read more: https://www.acquisory.com/ArticleDetails/52/Insolvency-and-Bankruptcy-Code--IBC-BOON-OR-BANE

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Bitcoins – A Disruptor Or Portent For Future

What is Bitcoin?

Bitcoin is a digital currency released by Satoshi Nakamoto which is used to make payments of any value without fees. It runs on the block chain, a decentralized ledger kept running by “miners” whose powerful computers crunch transactions and are rewarded in bitcoins.

Understanding bitcoins

A bitcoin is a virtual medium of exchange, a type of cryptocurrency, which is created and tracked online and is secured using cryptography. It is based on blockchain technology, which makes the transactions irreversible, decentralised and publicly verifiable. Blockchain maintains an audit trail, making the transactions quite transparent. A key feature associated with bitcoins is the absence of a centralised authority to issue, exchange, monitor and regulate the currency.

These also offer anonymity, as the currency holder is known by her account ID (wallet ID), and the know-your-customer (KYC) processes may not always be implemented. The transactions done are faster and not bound by geographical limitations, which can help in cost savings on currency conversion charges and other transaction fees. All these aspects create a unique position for bitcoins, possessing both pros and cons, depending on the consumer’s point of view.

Bitcoins versus digital currency

Currently, there is a fair amount of ambiguity around the terms ‘virtual’ and ‘digital’, with many often using them interchangeably. However, the distinction between both these terms can be explained, taking into account some key parameters.

Transparency in transactions:

There is more transparency in digital currency as compared to cash, but tracing source of funds and historical transactions can often be cumbersome. Bitcoins offer higher transparency, with the chain of historical transactions available.

Potential fraud risks:

Digital currency has higher susceptibility, if key information is compromised. In case of fraud, banks may sometimes offer protection of assets. Bitcoins are comparatively less prone to fraud loss. The risk lies at the user’s end, unless the wallet is compromised by hackers.

Speed of execution:

Digital currency transactions tend to be quick but adding the beneficiaries may take some time. Bitcoin transactions are relatively quicker.

Volatility in value:

The value of digital currency is mostly stable and is determined by macroeconomic factors. For bitcoins, it is very volatile as it is not backed by any reserves.

Supply:

While it may seem that…

Read more: https://www.acquisory.com/ArticleDetails/53/Bitcoins-%E2%80%93-A-Disruptor-Or-Portent-For-Future

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Crowdfunding — A Concept to be Gauged

Crowdfunding is described as “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the internet. It’s a new go-to-strategy for budding startups. It is the practice of pooling in of resources by numerous people, thus the term ‘crowd’, to fund prospective projects. It is an alternative finance system where funds are raised through mediums like internet-mediated registries, mail order subscriptions, and benefit events and the like.

Crowdfunding is a popular concept that emerged in the US and the UK. As of now, it has become an emerging way of raising capital entailing the use of social media networks — Facebook, Twitter, LinkedIn and some dedicated websites. The modern business environment considers crowdfunding as a way of connecting investors with the modest business startups and projects, using an online transaction portal that eliminates all the possible barriers to entry.

Crowdfunding has become a serious source of capital to kick-start new ventures and is by far the most disruptive innovation of the 21st century. As an industry, crowdfunding has developed steadily into a primary tool for entrepreneurs and creative people to assess the potential for their ideas, engage with specific people who would be interested in these ideas, and also attract the funding which is pivotal to the success of any project. There are various types of crowdfunding, namely: reward, donation, peer-to-peer, and equity-based. Out of which the Equity based crowd funding is not legalized in India.

“Crowdfunding is a general process of asking people for donations, which is then used as the capital by startups. As crowdfunding involves pitching ideas directly to the internet users, offering financial banking, entrepreneur and small business owners can leverage it as an option to bypass venture capitalists and angel investors. It also provides, a unique opportunity to validate the concept and scope of a project in the targeted markets.”

Donation Crowdfunding — this kind of crowdfunding denotes solicitation of funds for social, artistic, philanthropic or other purpose, and not in exchange for anything of tangible value.

Reward Crowdfunding — It refers to solicitation of funds, wherein investors receive some existing or future tangible reward (such as an existing or future consumer product or a membership rewards scheme) as consideration.

Peer-to-Peer Crowdfunding — In Peer-to-Peer lending, an online platform matches lenders/investors with borrowers/issuers in order to provide…

Read more: https://www.acquisory.com/ArticleDetails/54/Crowdfunding-%E2%80%93-A-Concept-to-be-Gauged

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Real Estate- GST to Streamline Transactions

With the Goods and Service Tax (GST) intended to replace multiple levels of taxation, it is time to look at how it will affect the Real Estate Sector — from home loans and housing purchase to rentals, across various segments and in addition the grey areas that affect GST will have on final price for a home seeker. GST seeks to transform India with its “One Nation, One Market, One Tax” principle, and all signs indicate that India’s real estate sector won’t be left out of the transformation.

Real Estate has always been sector riddled with litigation owing to multiplicity of taxes and dual administration mechanism, thereby exposing it to the conundrums of both Central and State levies. Currently, certain activities in this sector command a cumulative tax levy on effectively 140% of the actual transaction value owing to cascading effect. Further there are long standing issues which have not been concluded till date.

“Inclusion of real estate in GST will bring more transparency and reduce the cascading of taxes. Bringing the real estate sector under GST may take time as this will require several legislative processes to be completed.”

GST on Immovable Asset

In real estate, since land is an immovable asset, the industry has been given a 33 per cent abatement on the 18 per cent GST. Therefore, the effective charge on the sector is now 12 per cent as against the listed 18 per cent. During the period of construction, when the developer collects money from the consumers, pays different vendors and service providers and gets the asset constructed, the under construction product is considered a service and therefore, comes under the purview of GST. It also gets input credit from many of the 267 allied industries. Once the input credit starts flowing in there would be clarity on how much the prices can drop by.

Impact on Buyers & Investors

Under the earlier law, buyers were….

Read more: https://www.acquisory.com/ArticleDetails/56/Real-Estate-GST-to-Streamline-Transactions

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Registered Valuer And Valuation Rules Provisions Notified By Mca- Rules Laid Out

In the recent issue of World Bank’s Doing Business Report 2018, India’s ranking jumps 30 positions from 130th in 2016 to the 100th spot in 2017 in the World Bank’s — Ease of Doing Business Index 2018. India has seen the improvement in 6 out of 10 indicators on the World Bank’s Doing Business Report 2018. This jump can be attributed to major improvement in significant parameters such as starting a business, dealing with construction permits, resolving insolvency, getting electricity and getting credit, among other parameters.

This comes as a positive news after 2016, when India moved up only by a single position from 131 to 130.5. Additionally, India’s combined or Distance-to- Frontier (DTF) score also witnessed a spike — from 56.05 in the previous year to 60.76 now, which reflects the country has improved in absolute terms as well.

“Among the 190 countries surveyed in World Bank’s Doing Business 2018 report, India saw the biggest rise in its ranking. While the rise in India’s ease of doing business rank from 130th in 2017 to 100th in 2018 is welcome move. This jump can be attributed to major improvement in significant parameters such as starting a business, dealing with construction permits, resolving insolvency, getting electricity and getting credit, among other parameters”

The main area of parameters/reforms that helped India jump up 30 places in World Bank’s Doing Business Report 2018 :

Dealing with Construction Permits:

The introduction of online single window has reduced the number of procedures as well as the time required to obtain a construction permit. This streamlined process has contributed significantly to this unprecedented jump in overall rankings

Resolving Insolvency:

The Insolvency and Bankruptcy Code, 2016 — the landmark reform that helps dissolve businesses without much complication — has been an instrumental contribution in building a conducive business climate.

India has moved up 33 places from the previous year with regard to resolving insolvency in this year’s Doing Business Index. This drastic jump can be credited to the enactment of the landmark Insolvency and Bankruptcy Code that was approved by Parliament in May 2016, with certain provisions imposed in August 2016 to bring India’s legal and institutional machinery in line with the global standards for dealing with the issue of debt default. With the enactment of the IBC, there has been renewed interest in entrepreneurship and a positive shift in the access to credit. All the laws related to reorganisation and insolvency Resolution of various entities, such as, companies and limited liability entities, unlimited liability partnerships and individuals have been consolidated to ensure a clear, coherent and speedy process.

Getting credit:

This is one of the three indicators in which India figures among the top 50 economies, registering a rank of 29. This is primarily due to strengthening of legal rights of borrowers and lenders with respect to secured transactions.

India has strengthened access to credit by…

Read More: https://www.acquisory.com/ArticleDetails/59/Registered-Valuer-And-Valuation-Rules-Provisions-Notified-By-Mca-Rules-Laid-Out

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Brief Overview On The India’s Ranking In World Bank’s Doing Business Report 2018

In the recent issue of World Bank’s Doing Business Report 2018, India’s ranking jumps 30 positions from 130th in 2016 to the 100th spot in 2017 in the World Bank’s — Ease of Doing Business Index 2018. India has seen the improvement in 6 out of 10 indicators on the World Bank’s Doing Business Report 2018. This jump can be attributed to major improvement in significant parameters such as starting a business, dealing with construction permits, resolving insolvency, getting electricity and getting credit, among other parameters.

This comes as a positive news after 2016, when India moved up only by a single position from 131 to 130.5. Additionally, India’s combined or Distance-to- Frontier (DTF) score also witnessed a spike — from 56.05 in the previous year to 60.76 now, which reflects the country has improved in absolute terms as well.

“Among the 190 countries surveyed in World Bank’s Doing Business 2018 report, India saw the biggest rise in its ranking. While the rise in India’s ease of doing business rank from 130th in 2017 to 100th in 2018 is welcome move. This jump can be attributed to major improvement in significant parameters such as starting a business, dealing with construction permits, resolving insolvency, getting electricity and getting credit, among other parameters” The main area of parameters/reforms that helped India jump up 30 places in World Bank’s Doing Business Report 2018 :

Dealing with Construction Permits:

The introduction of online single window has reduced the number of procedures as well as the time required to obtain a construction permit. This streamlined process has contributed significantly to this unprecedented jump in overall rankings

Resolving Insolvency:

The Insolvency and Bankruptcy Code, 2016 — the landmark reform that helps dissolve businesses without much complication — has been an instrumental contribution in building a conducive business climate.

India has moved up 33 places from the previous year with regard to resolving insolvency in this year’s Doing Business Index. This drastic jump can be credited to the enactment of the landmark Insolvency and Bankruptcy Code that was approved by Parliament in May 2016, with certain provisions imposed in August 2016 to bring India’s legal and institutional machinery in line with the global standards for dealing with the issue of debt default. With the enactment of the IBC, there has been renewed interest in entrepreneurship and a positive shift in the access to credit. All the laws related to reorganisation and insolvency Resolution of various entities, such as, companies and limited liability entities, unlimited liability partnerships and individuals have been consolidated to ensure a clear, coherent and speedy process.

Getting credit:

This is one of the three indicators in which India figures among the top 50 economies, registering a rank of 29. This is primarily due to strengthening of legal rights of borrowers and lenders with respect to secured transactions.

India has strengthened access to credit by amending the rules on priority of secured creditors outside reorganization proceedings and adoption of a new insolvency and bankruptcy code that introduced a reorganization procedure for corporate debtors. Secured creditors, such as…

Read More: https://www.acquisory.com/ArticleDetails/61/Brief-Overview-On-The-India%E2%80%99s-Ranking-In-World-Bank%E2%80%99s-Doing-Business-Report-2018

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Financial Resolution and Deposit Insurance Bill, 2017- Government as an Effective Overseer

The Financial Resolution and Deposit Insurance Bill, 2017 (FRDI), seeks to create a framework for resolving bankruptcy in financial firms (such as banks and insurance companies). The Bill repeals the Deposit Insurance and Credit Guarantee Corporation Act, 1962 and amends 12 other laws.

The Bill was introduced as a specialized law in order to create a framework for effective resolution of financial firm and to tide over multiple regulatory agencies with overlapping authorities.

In this context, the Financial Resolution and Deposit Insurance Bill, 2017 was introduced in Lok Sabha on August 10, 2017. The Bill seeks to establish a Resolution Corporation to monitor financial firms (along with regulators), and resolve them in case of failure. The Bill will apply to financial firms, and any other financial service provider designated as a ‘systemically important financial institution’ by the central government.

“FRDI Bill, 2017 seeks to protect and enhance the depositors’ existing rights and bring in a comprehensive and efficient resolution regime for financial firms. Bill replace the existing resolution regime by providing a comprehensive resolution regime that will help ensure that, in the rare event of failure of a financial service provider, there is a system of quick, orderly and efficient resolution in favour of depositors.”

Read more: https://www.acquisory.com/ArticleDetails/62/Financial-Resolution-and-Deposit-Insurance-Bill_-2017-Government-as-an-Effective-Overseer

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A Paradigm Shift in Insolvency & Bankruptcy Code, 2017

Background

The Insolvency and Bankruptcy Code, 2016 was enacted to consolidate insolvency related laws and provide a time bound process to resolve insolvency among companies and individuals.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2017 amends the Insolvency and Bankruptcy Code, 2016 and replaces an Ordinance promulgated in November, 2017. The code provides a time bound process to resolve insolvency of companies and individuals. Whereas compared to process under the 2016 code upon default, the insolvency professional manages the defaulter’s assets and constitutes a creditors committee.

Creditors committee decides to either: i) approve a resolution plan to restructure the defaulter’s loans, or ii) liquidate (sell) its assets to recover the outstanding amount. If no decision is taken within 180 days (extendable by 90 days), the defaulter’s assets will be liquidated.

“The Bill prohibits certain persons from submitting a resolution plan in case of defaults. These include: (i) wilful defaulters, (ii) promoters or management of the company if it has an outstanding non-performing debt for over a year, and (iii) disqualified directors, among others. Further, it bars the sale of property of a defaulter to such persons during liquidation.”

Read More: https://www.acquisory.com/ArticleDetails/63/A-Paradigm-Shift-in-Insolvency-and-Bankruptcy-Code_-2017