By Shreya Maheshwari, Intern, Lex Maven

Abstract: The insolvency and Bankruptcy Code, 2016 (‘Code’) re-conceptualized the framework for insolvency resolution in Asian nation. It provides a mechanism for the insolvency resolution of debtors in associate degree extremely time certain manner to change maximization of the value of their assets, with a browse to plug entrepreneurship, accessibility of credit and balance the interests of all the stakeholders. The Code separates business aspects of monetary condition and bankruptcy proceedings from judicial aspects and empowers and facilitates the stakeholders and Adjudicating Authority to come back to a choice matters among their numerous domain efficiently. It envisages a market mechanism to rescue corporations in financial distress and to facilitate closure of corporations in economic distress, in accordance with the processes at a lower place the Code and rules and laws created there at a lower place. associate economic legislation is typically a skeleton structure. Judicial pronouncements provide flesh and blood thereto and resolve grey areas. It takes a few years, generally decades, for a heavy economic law to calm down and for there to be complete clarity, certainty and certainty for stakeholders. The Adjudicating Authority, the appellant Authority and judiciary square measure at the forefront of the implementation of the Code. they have settled several abstract and contentious issues efficiently and delivered several landmark orders, conveyance in clarity on what is permissible and what is not, and streamlining the tactic for the end of the day.

Introduction: The Code was enacted in 2016 following decades of recommendations suggesting enhancements to the previous insolvency regime, that was fragmented, fraught with delays and resulted in poor recoveries for creditors. The Code aims to supply a time-bound resolution and worth maximization of assets of the company individual. Another objective of the Code is to safeguard and promote the money and different help provided by the creditors, which has each Operational and money Creditors.
While IBC solely provides for  insolvency  resolution once the creditors create the appliance underneath Section seven or nine or by the company individual himself underneath Section ten of the Code. It limits itself in providing a framework wherever there’s a resolution of insolvency before the prevalence of a default or wherever the debtors and therefore the creditors have interaction themselves with the resolution of the distressed assets at Associate in Nursing earlier stage before any default happens or before any application is created to NCLT. Hence, the Code does not acknowledge the construct of out of court resolution of the company individual.

Advantages:

1. Retaining business in the hands of existing management: A crucial role is compete by the prevailing management of the corporate because the negotiations and talks crop up before the commencement of insolvency  proceedings. It will incentivize the prevailing management associated promoters of the corporate to initiate the pre-pack proceedings before the prevalence of a default or at an earlier stage of default. It will facilitate the business to retain its current management and would be in agreement by the creditors as they typically conform to hold on to the prevailing management.
2. Speedy & Cheaper Resolution: Pre-packs area unit typically a less expensive and fewer long methodology than the correct insolvency  and bankruptcy proceedings as all the necessities of the CIRP area unit done before hand just like the negotiation and acceptance of resolution arrange and conjointly selection on an equivalent. It reduces the legal value concerned within the formal procedure and conjointly the insolvency  skilled value.
3. Certainty: Creditors area unit bound regarding compensation of the quantity given as loans to the person that isn’t within the case wherever CIRP is initiated, and also the share to every individual depends upon the resolution arrange submitted by the made resolution someone. Confidentiality: pre-pack transactions area unit thus confidential that it does not hurt or reduces the worth of the business of the company person, and thus, it remains a going-concern.
4. The business remains a going-concern: Under this method, the business of the company soul remains as a foundering the management of the prevailing management, that isn’t the case once the resolution takes place when the filing of the applying as there exists a chance of the corporate been sent for the liquidation if there’s no thriving resolution arrange for restructuring or reorganization of the business of the company soul.
5. The ultimate authority to proceed remains with the Court: For a pre-packed set up (be it for pre-pack insolvency resolution or pre-arranged sales) to be binding, it needs the approval of the suitable authority (in Indian situation, if enforced then, NCLT). Hence, solely that resolution set up can get approval and can be binding that satisfies the necessities of the resolution set up given below the law. within the Indian situation, if enforced, solely those plans can get approval from the NCLT that satisfies the necessities given below Section thirty of the Code.
6. Reduction of the burden on the courts (NCLT): if enforced in Republic of India, the pre-pack schemes can scale back the already burdened NCLT’s as already there’ll exist a resolution arrange.

Disadvantages

1. A loss to the unsecured creditors: Due to the confidentiality of the method, the method receives approval solely from the secured creditors and punctually ignores the interest of the unsecured creditors. because of the shortage of transparency, the unsecured creditors become tuned in to the dealings once it’s been dead. It means the worth that at the start belongs to unsecured creditors won’t be allotted or captured by the opposite stakeholders. This concern will increase within the cases wherever the sale is dead to the parties associated with the company mortal.
2. Lack of good corporate government if the connected parties execute the sales then there may arise the difficulty of dangerous company governance, and a fake restructuring or resolution arrange because the existing management can retain the business of the corporate while not bearing the liability to repay the debts.
3. Increase in undervalued or preferential transactions: this can conjointly go against the elemental objective of any economic condition law, that is to maximize the assets of the company mortal. There could arise some things whereby the assets are sold-out to the third party or connected party at an undervalued value or whereas execution advantageous transactions.
4. Circumvention of Insolvency laws: There can even arise a state of affairs whereby the administrators or the promoters to regain their lost management over the corporate would possibly come in a roundabout manner through pre-pack. And since, it’s a person initiated method before the initiation of the CIRP, the pertinence of Section 29A of the Code won’t be created into result.
5. No advantage of the moratorium: under the pre-pack scheme there will be a shield of the moratorium, unlike the case where an application is filed under section 7, 9 or 10. It will make the company vulnerable as the creditors can enforce their rights and remedies anytime while the corporate debtor is negotiating a pre-pack resolution.  

Impact of COVID-19 On IBC : The unfold of novel Corona Virus (herein once COVID-19 pandemic) has left associate adverse impact on economies round the world. Bharat being one among the foremost promising nations in terms of economic development and growth has seen a loss larger than ever. small little and Medium enterprises specifically are the worst casualty of Covid-19 elicited imprisonment. Considering the halt in economic activity over the past few weeks, it’s unfathomable that an enormous range of MSMEs are going to be obstructed, maybe to the purpose of permanent closure. As a counter live, the government has taken steps not solely to facilitate offer of adequate credit however conjointly the revival of the stressed enterprises through an efficient financial condition framework.

Conclusion: The provisions of the Code pertaining to initiation of the corporate insolvency resolution process, voting in the committee of creditors, distribution in liquidation, withdrawal of the corporate insolvency resolution process, disqualification from submitting a resolution plan, information utilities and powers of the resolution professional have been held valid.