Debt Recovery through Insolvency and Bankruptcy Proceedings

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From Crisis to Debt Recovery through Insolvency and Bankruptcy Proceedings

With the growing economy in India, corporate insolvency cases are also increasing in massive numbers. To overcome such insolvency cases, debt recovery through insolvency and bankruptcy proceedings are introduced. IBC has empowered the creditor to recover the outstanding debt from the debtor through a National Company Law tribunal. The NCLT has been instrumental in resolving various debt recovery under various laws like the IBC and the Companies Act.

Unlike the traditional method of a civil suit, a debt recovery through insolvency and bankruptcy proceedings is faster as it has a time frame where the debtor has to complete the payment of the debt to the concerned creditor, whereas the civil suit through a civil procedure code is time-consuming as it has involved various stages of arguments, evidence, pleadings, etc. Thus, Debt Recovery through Insolvency and bankruptcy is preferable by companies for solving insolvency cases in India.

Debt Recovery through Insolvency and bankruptcy proceedings is easier and provides faster relief as the proceeding is not sequential like any other traditional court proceedings, and steps can be taken concurrently along with other case proceedings as well.

At Enterslice, we assist companies in overcoming debt for both creditors and corporate debtors. We are a consultancy company comprising various services like legal advisory, compliance and regulations, audit and assurance, etc. Overall, we have a team of expert professionals comprising lawyers, accountants, chartered accountants, company secretaries, etc. Our company not only provides a service, but we craft solutions.

What is Insolvency and Bankruptcy Debt Recovery

The IBC, or Insolvency and Bankruptcy Code, 2016, is the bankruptcy law in India that aims to resolve insolvency. Debt Recovery through Insolvency and bankruptcy is a time-bound procedure where creditors gain control over the debtor's asset when there is a default in repayment of a loan. Both creditor and debtor can start debt recovery through Insolvency and bankruptcy proceedings. Insolvency and Bankruptcy Code applies to companies, partnerships, and individuals registered under the laws and regulations in India.

Usually, the timeframe to complete the Debt Recovery through Insolvency and bankruptcy has to be within 180 days, according to the IBC. However, the said deadline could be extended if there are no such objections from the creditors. Debt Recovery through Insolvency and bankruptcy proceedings is conducted under the Insolvency and Bankruptcy Board of India, comprising 10 members and its chairman. An insolvency resolution for Debt Recovery through Insolvency and bankruptcy is looked after by a licensed professional who shall administer the management of the debtor asset and accordingly provide information to the creditors, assisting them in making an informed decision.

Key features of Debt Recovery through Insolvency and bankruptcy

The IBC, or Insolvency and Bankruptcy Code, came into force in 2016 after a presidential assent; this law has been introduced to overcome the burden of insolvency and bankruptcy cases in India and to promote faster resolutions in insolvency. Given below are some of the important key features of debt recovery through insolvency and bankruptcy.

  • Companies, instead of choosing different legal forums or laws, can now choose an IBC for faster resolutions since the other legal forums like Sick Industrial Companies Special Provisions Act, 1985(SICA), the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and the companies act 2013 are more time consuming than a debt recovery through insolvency and a bankruptcy proceeding.
  • The Insolvency Bankruptcy Code (IBC), unlike any other law, provides a faster resolution with a maximum time of 180 days for solving insolvency cases. However, such a time frame of 180 days could be extended up to 90 days under certain circumstances. Thus, Debt Recovery through Insolvency and bankruptcy ensures that the interests of the company stakeholders, partners, creditors, debtors, and employees are protected promptly.
  • Debt Recovery through Insolvency and bankruptcy through IBC's main focus is to provide a resolution to the company's insolvency cases rather than liquidation. IBC helps the debtor's assets maximize alignment with the company's stakeholders' interests. Such resolution under the IBC is conducted by the RP or resolution professional appointed under the IBC, who shall manage the debtors' operations at the time of resolution proceeding.
  • In this global market scenario, where many Indian companies have business operations abroad, debt recovery through insolvency and bankruptcy allows the companies to raise issues on cross-border insolvency that have not been covered by other laws. Debt Recovery through Insolvency and bankruptcy allows the Indian courts to cooperate with foreign courts.
  • A professional team of resolution professionals, insolvency professional entities, and insolvency professional agencies are provided under the IBC to proceed with the insolvency resolution. The professionals are experienced in handling debt recovery through insolvency and bankruptcy, handling all the affairs of the debtor during the resolution process.

What are the Methods of Debt Recovery in India

Some of the most common methods of Debt Recovery in India are

Negotiation settlement

Creditors can directly approach the debtor before approaching any legal authority by negotiating with the creditor and debtor to repay the outstanding debt by way of instalment or a lump sum, depending on the negotiation agreement.

Legal Notice

A creditor, through a lawyer, can draft a notice seeking repayment of the debt from a debtor within a specific time frame or else a condition when the legal actions will be initiated if the debt remains unpaid.

Civil Suit

A civil suit may also be initiated by the creditor before the appropriate district court under the civil procedure code. A civil suit may be filed after serving a legal notice to the debtor demanding the outstanding debt, and only after such notice does not comply with a civil suit being initiated by the creditor following the civil procedure, and then the respective court shall adjudicate the matter depending on the evidence, legal arguments presented by both creditors and debtors and thus a final order is given by the court on debt recovery compensation.

Summary Suit

A summary suit under CPC (Civil Procedure Code) order 37 is also available for creditors to take action against a debtor whose debt does not exceed a certain limit as per the legal requirements. This is a civil suit with a shorter period for the debtor to respond, and thus, failing to do it, a concerned court will pass a judgment presuming the creditor's claim is valid.

Enterslice Approach to Insolvency and Bankruptcy Debt Recovery

Enterslice is a consultancy company that provides various services to companies, individuals, start-ups, etc. We have a dedicated team of professionals crafting solutions for our clients to meet their requirements. Enterslice is an expert in handling complex financial situations and has dozens of experiences in insolvency and bankruptcy debt recovery of various companies.

Choose us to accelerate your bed debt recovery and relieve your financial stress. Given below are some of the common, comprehensive approaches by our professional teams on insolvency and bankruptcy debt recovery proceedings of a company

  • We shall conduct due diligence on the financial condition of the said debtor and thus evaluate the financial status of the debtor and the possibilities to repay the debt after certain examinations in the nature and functioning of the debtor's company.
  • Our dedicated teams of lawyers will assist the respective company in aligning with all the legal requirements under the IBC (Insolvency and Bankruptcy Code) and filling out all the important documentation before proceeding with debt recovery through insolvency and bankruptcy.
  • We also assist companies in negotiating to settle the debt between the creditors and debtors with mutually agreed terms and conditions. Thus helping businesses rescue and restore the debtor's company business operations.
  • Our expert team of legal professionals with a sound knowledge of IBC shall also assist distressed companies in drafting a resolution plan for restructuring the business operation, facilitating the best outcomes for the respective companies.
  • We also guide a company on how debt recovery through insolvency and bankruptcy proceedings is conducted in India according to the various legal frameworks. Our team of lawyers shall assist the court proceedings before various platforms like NCLT (National Company Law Tribunal).
  • We shall also help organizations recover various assets from the debtors through laws and regulations applicable according to the kind of business the organization is engaged with.
  • Lastly, we shall also help companies restructure their debt recovery for the smooth functioning of their operations and assist them in meeting all the compliance requirements after debt recovery through insolvency and bankruptcy.

What is the role of the National Company Law Tribunal in Debt Recovery through Insolvency and bankruptcy?

NCLT, also known as the National Company Law Tribunal, is an authorized tribunal or court to adjudicate matters under the Companies Act 2013 and the Insolvency and Bankruptcy Code (IBC). This act was established in 2016 in India. Debt Recovery through Insolvency and bankruptcy proceedings is the platform where the companies or creditors approach the recovery of debt from the debtor.

A creditor or a company has to approach NCLT to initiate debt recovery from the debtor by filling an application to the National Company Law Tribunal. Such application shall include the details of the debtor, the amount, and reasons for non-payment, and thus, accordingly, the concerned NCLT shall send a notice to such debtor, and then the Debt Recovery through Insolvency and bankruptcy proceedings will start.

It is the responsibility of the NCLT to appoint an IRP (Interim resolution professional) who shall be responsible for managing the debtor's operations affairs during the debt recovery proceeding. He shall prepare a resolution plan on behalf of the debtor, proposing the debt repayment to the creditors. This resolution plan prepared by IRP is to be submitted to the respective NCLT for final approval.

After the said resolution plan is approved by the concerned NCLT, the debtor company has to implement the resolution plan drafted by the IRP and repay the debt amount to the creditor, and in case of failure to implement the plan, the respective NCLT may initiate the liquidation process. This liquidation process is a procedure where the debtor company's assets are sold off to repay the creditor's amount.

Enterslice has a very dedicated team of company lawyers with vast knowledge and experience who will assist the companies in Debt Recovery through Insolvency and bankruptcy proceedings very efficiently. Our team is often exposed to the National Company Law tribunal since we have been handling dozens of insolvency cases in India for various institutions for a decade.

Benefits of Insolvency and Bankruptcy Debt Recovery Legal Framework on Debt Recovery in India

Debt recovery through insolvency and bankruptcy is one of the major cornerstones for the enforcement of commercial contracts under the Indian legal system. Multiple laws deal with the recovery of debt in India, depending on the nature of the debt and its terms and conditions in the said loan. A list of laws and tribunals or courts that deal with the respective laws are

Recovery of Debts due to the Bank and Financial Institutions Act, 1993

Under this law, a Debt Recovery Tribunal (DRT) and Debt recovery Appellate Tribunal are established to look after the NPA (Non-Performing Assets) accounts of the customers and the recovery of debts due to banks and other financial institutions spread in the states of India.

Securitization and Reconstruction of Financial Assets and Enforcement Security Interest (SARFAESI) Act, 2002

The SARFAESI Act empowers banks to take action against NPA accounts without the intervention of Indian courts. This act helps the financial assets for securitization and selected secured creditors to take control over the collateral properties under relevant jurisdictions or courts where the said collateral is located.

Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016 is a law that helps companies, partnership firms, and individuals to recover a debt from the debtor in a time bound by maximizing the insolvent entity of the debtor so that debt is repaid to the concerned creditor within a stipulated time. Thus, IBC resolved corporate insolvency, corporate liquidation, Individual bankruptcy, and insolvency.

Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Act, 2016

This act came into force in 2016 to bring an amendment under various laws such as the SARFAESI Act, RDBFI Act, Depositors Act, and certain sections of the ESIRDA Act.

Services Offered by Enterslice

We at Enterslice provide end-to-end services to companies, partnership firms, etc, to meet their requirements; our service is globally available, comprising expert professionals in the fields of legal, company secretary, chartered accountant, compliance and regulations, and so on. Services offered by Enterslice are company registrations, advisory on tax planning, business plans, due diligence, financial audits, licensing services, accounting services, design registration, debt Recovery through Insolvency and bankruptcy, hazard management, crowdfunding, etc.

Frequently Asked Questions

A recovery of debt and insolvency refers to a situation where the company or an individual owes an outstanding debt to the concerned creditor. Therefore, a creditor, through various laws in India, resolves such insolvency cases by approaching the concerned authorities.

Recovery of debts and bankruptcy rules under the Indian bankruptcy code help financial institutions and companies to recover debt from the debtor within a stipulated time frame before the concerned tribunals and courts established under the IBC.

Debt recovery application under IBC or bankruptcy act is a procedure where the creditor files an application form under IBC before the National Company Law Tribunal in a respective company jurisdiction, mentioning the details of the debtor company, its debt amount, reasons for non-payment, etc. Accordingly, the concerned NCLT will send a notice to the said debtor.

A debt recovery procedure is a system where financial institutions like banks approach the concerned debt recovery tribunal by filling out an application seeking the outstanding debt amount from the debtor. Thus, a tribunal follows the procedure, and accordingly, after a certain evaluation of the case, a judgment is passed.

Documents required for debt recovery are a bank statement, sanction letter, documents that show the circumstances when the debt has started, bank draft, Indian postal order, authorization letter, etc.

The most common examples of debt recovery are when the customers are unable to pay back the loan amount to the concerned bank, when the customer account becomes an NPA or non-performing asset, and when the companies violate the contractual agreement by not paying the debt amount to the creditor.

Reserve Bank of India emphasizes fair practice and does not oppress the borrowers. According to the RBI guidelines, borrowers have a right to know the details of their outstanding debt.

The main objective of debt recovery is to maintain a balance between the creditor and the debtor by ensuring a legitimate legal framework so that debtors are not oppressed by unjust and excessive practices.

A debt recovery means debts that are written off by the concerned creditor due to the failure of the debt and which are considered uncollectible.

Debt recovery in banking is a procedure of how a bank collects debt loans from customers through various laws and regulations such as debt recovery tribunal, NCLT, national company law tribunal, etc.

Banks recover bad debts by selling off their collateral or by taking various legal actions.

Banks may forgive the debt of the debtor once they meet certain eligibility, and accordingly, the bank will forgive a portion of the outstanding debt.

Yes, bad debt is taxable. When the bad debt that was written off the creditor company later is recovered with the expected amount, then it will be considered as revenue of the respective company.

Yes, bad debts recovered are considered a credit in the creditor's account since bad debts are treated as a loss when not recoverable.

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