Insolvency and Bankruptcy Code, 2016 – Part-2
Introduction : In previous article we have explained the procedure relating to Insolvency and Bankruptcy Code, 2016; Which are the applications that are liable to be rejected, who are the person that can apply for Insolvency and Bankruptcy Code, 2016 and what are the documents that are required to be furnished. In this article we will cover other relevant provision relating to IBC.
Initiation of Moratorium Period : Once the application for insolvency is approved by adjudicating authority, corporate insolvency resolution process will be initiated during this adjudicating authority will declare moratorium period; The moratorium will be there for 180 days or till approval of resolution plan, whichever is earlier.
What is Moratorium Period?
During this period all the pending litigation/suits against corporate debtor will be temporarily suspended; to give time to corporate debtor to resolve its status.
Further during Moratorium period following transactions are prohibited:
Being exception of above transaction below mentioned transactions are permitted even during moratorium period.
Illustration : NCLT has approved application for Corporate Insolvency Resolution Plan for Dry & Solutions Private Limited. It has also declared Moratorium period starting from 5th October, 2019; after the declaration following transaction has taken place
- R has supplied Goods Worth Rs. 50,000/- to Dry & Solutions Private Limited
- Owner of building where registered office of corporate debtor is situated has demanded to vacant the property
- One of the creditors who is succeeded in case against the corporate debtor has demanded payment and is forcing company to follow the order of court.
- D & Solutions Private Limited sold their old machinery.
- Desai has instituted fresh proceeding against D & Solutions.
Which are the actions, that will be allowed and will be valid in law?
In the above illustration only action taken by Mr. R is valid; i.e. supply of essential goods or services; all other action undertaken by corporate debtor are invalid as per section 14 of Insolvency and Bankruptcy Code, 2016.
Conditions to be fulfilled for being Resolution Professional :
Illustration : Mr. R is partner in audit firm who is auditor of Hariram Private Limited; Recently Hariram Private Limited has defaulted in payment to some of its creditors; creditors filed suit against Hariram Private Limited and also approved their application for Corporate Insolvency Resolution. Mr. R has told that he is eligible to be appointed as Resolution Professional.
Whether Mr. R is eligible?
In the given case Mr. R will not be eligible as one the condition is for the last three financial years; he is not an employee or proprietor or partner of firm of auditor or secretarial auditors or cost auditors of the corporate debtor. Due to violation of this condition Mr. R will not be eligible to be appointed as Resolution Professional.
What if Mr. R was not the singing partner?
In that case also Mr. R will still not be eligible to be appointed as Resolution Professional. As there is no exception to above rule for non-signing partners.
What if Mr. R is retired from the said firm of auditor and now he is not the partner; Whether now he will be eligible to be appointed?
Whenever condition is checked it is to be checked for previous three year even if Mr. R is presently not partner but in last three financial years he was the partner and therefore, he will not be eligible to be appointed.
Whether any person appointed as who is appointed as resolution professional can be replaced?
Yes, person who is appointed as resolution professional can be replaced; following procedure is required to be followed:
- Committee of Creditor has to conduct a meeting in which they are required to pass the resolution with at least sixty-six per cent of voting shares. Along with this written consent will be obtained from proposed resolution professional.
- Committee of Creditor will forward the name of person proposed to be appointed to Adjudicating Authority.
- Adjudicating Authority may make the reference to Insolvency and Bankruptcy Board and thereafter if Board approves the proposed name then procedure for appointment of resolution professional will begin.
What if Board is not approving the name of proposed resolution professional?
In after reference is made by adjudicating authority to board, If within 10 days, proposed name is not approved then adjudicating authority will direct Interim resolution professional to continue to his duty till board is not approving the name.