The Insolvency and Bankruptcy Code 2016 is directed towards making sure that the corporate debts are paid in the fairest way possible. The provisions associated with this code can apply to the following:
- Any company that has been registered under the companies act 2013 or under any provision of the company law
- Any Company that is governed under the special act until the time the special act can be the force. However, this is only applicable if the IBC regulations and special act regulations are consistent with each other. If the provisions of these regulations clash with each other, then the IBC provisions won’t be applied to that company.
- Any LLP or Limited Liability Partnership that has been registered under the Limited Liability Partnership Act, 2006.
- Any other form of business entity of the business body incorporated under any law at the time the law is in force. In such case, the central government can specify the following for the time being:
- Personal guarantors to corporate debtors
- Partnership firms and proprietorship firms
- Individuals, other than persons that are referred to in clause C.
The above are the bodies on which the provisions of the IBC code can be implemented upon. Any of these entities can be at the receiving end of the Insolvency resolution process. This begs the question- Who can initiate the insolvency resolution process?
Persons who may initiate the insolvency resolution process
In the case where any corporate debtor has committed a default, the following can initiate the process:
- A financial creditor: A financial creditor, under the IBC, is defined as a person to whom a financial debt is owed. This definition includes the person to whom such debt has been legally assigned or transferred. In this particular instance, the relationship between the financial creditor and a corporate debtor is purely a financial contract.
- An operational creditor: An operational creditor, under the IBC, is defined as a person to whom an operational debt is owed. This definition includes the person to whom such debt has been legally assigned or transferred. In this instance, the operational creditors can be defined as the creditors whose liability from the entity comes from operational transactions or transactions of operations.
- A corporate debtor: A corporate debtor is referred to as a corporate person (can be a company) who owes debts to any person. Now, these can either be financial debts or operational debts.
The above points state that the corporate debtor can themselves start the insolvency process. If you think about it, unlike USA and UK where the Insolvency and Bankruptcy Codes are directed towards the welfare of the Insolvent entities, the IBC of India is to make sure that all the debts are paid. This presents an interesting conundrum about how the process can be initiated by a corporate debtor. Well, you would know more about it in subsequent blogs.