The Insolvency and Bankruptcy Code, 2016 (IBC) is a transformative law in India designed to streamline the resolution of insolvency and bankruptcy for companies, partnership firms and individuals. It consolidates previously fragmented laws into a single framework, aiming to resolve financial distress efficiently, maximize asset value and promote entrepreneurship. For those looking to understand this law, an insolvency and bankruptcy code question bank is an excellent tool to grasp its key concepts and processes. This article provides a detailed insolvency and bankruptcy code question bank with 10 short questions and answers for quick learning and 5 long questions with in-depth explanations, written in a clear and simple style for a general audience. Whether you're a student, professional or curious learner, this question bank will help you navigate the IBC's provisions.
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What is Insolvency and Bankruptcy Act, 2016
Introduced in the Lok Sabha in December 2015 and passed in May 2016, the IBC received presidential assent on May 28, 2016. It was driven by the Bankruptcy Legislative Reforms Committee (BLRC), chaired by T.K. Viswanathan in order to address rising non-performing assets (NPAs) and streamline debt recovery. The IBC’s objectives include
Consolidating insolvency laws.
Resolving insolvency within 180 days (extendable by 90 days).
Maximizing asset value.
Promoting entrepreneurship and credit availability.
Balancing stakeholder interests.
The insolvency and bankruptcy code question bank below covers these objectives and more along with offering insights into the IBC’s practical application.
Key Features of the IBC
The IBC introduces several innovative features:
Time-Bound Process: Companies must complete CIRP within 180 days, with smaller firms (turnover up to ₹1 crore) given 90 days, extendable by 45 days.
Adjudicating Authorities: The NCLT handles corporate insolvency, while the Debt Recovery Tribunal (DRT) oversees individual cases.
Insolvency Professionals: Professionals like the Resolution Professional manage the process, ensuring impartiality.
Information Utilities: These store and authenticate financial data, aiding transparency.
Insolvency and Bankruptcy Board of India (IBBI): Established on October 1, 2016, the IBBI regulates professionals and processes.
Also read about Section 12A of IBC, 2016.
Short Questions on Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 (IBC) is a landmark Indian legislation that consolidates and streamlines the process for resolving insolvency and bankruptcy along with aiming to maximize asset value and ensure timely resolution for distressed businesses. It establishes a framework for corporate insolvency resolution, liquidation and individual bankruptcy, promoting creditor confidence and economic efficiency. These short questions provide a quick overview of the IBC's key provisions, ideal for revision or foundational learning.
1. When was the Insolvency and Bankruptcy Code, 2016 notified?
Answer: The IBC was notified on May 28, 2016.
2. What is the primary motive of the Insolvency and Bankruptcy Code?
Answer: To consolidate insolvency laws, maximize asset value and enhance credit availability.
3. To whom does the Insolvency and Bankruptcy Code apply?
Answer: It applies to companies under the Companies Act, 2013, LLPs and personal guarantors.
4. Which legislations were repealed by the IBC?
Answer: The Presidency Towns Insolvency Act, 1909 and the Sick Industrial Companies Act, 1985.
5. Which enactment was not amended by the IBC?
Answer: The Limitation Act, 1963.
6. What is the definition of a Corporate Debtor under the IBC?
Answer: A corporate person (company or LLP) that owes a debt to any person.
7. Who can initiate the Corporate Insolvency Resolution Process (CIRP)?
Answer: Financial Creditors, Operational Creditors or the Corporate Debtor itself.
8. What is not considered a financial service under the IBC?
Answer: Payment of wages to employees.
9. What is the definition of debt under the IBC?
Answer: A liability or obligation, including financial and operational debt.
10. What services do Information Utilities provide under the IBC?
Answer: They create, store and authenticate financial information related to debts and defaults.
Find out What Insolvency is
Long Questions on Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016, streamlines corporate and individual insolvency resolution in India, aiming for time-bound processes. Key questions include its effectiveness in resolving non-performing assets and challenges in implementing the corporate insolvency resolution process.
1. Explain the process of initiating the Corporate Insolvency Resolution Process (CIRP) under the IBC, 2016.
Answer: The CIRP is a structured process in order to resolve corporate insolvency. It begins when a Financial Creditor (e.g., banks), Operational Creditor (e.g., suppliers) or the Corporate Debtor files an application with the NCLT upon a default of at least ₹1 lakh (recently raised to ₹1 crore for certain cases). The application must include proof of default, such as unpaid loan documents or invoices. The NCLT has 14 days to verify and admit the application. Once admitted, a moratorium is imposed, which halt legal actions against the debtor. An Interim Resolution Professional (IRP) is appointed to manage the debtor’s operations and form a Committee of Creditors (CoC) within 7 days. The CIRP must conclude within 180 days, extendable by 90 days with CoC approval. If no resolution plan is approved, the debtor may face liquidation.
2. Discuss the composition and functions of the Committee of Creditors (CoC) in the CIRP.
Answer: The CoC is made up of all the financial creditors of the corporate debtor. Each creditor has a certain number of votes based on how much debt they have. Its jobs include keeping an eye on the CIRP, picking the Resolution Professional (RP), judging resolution plans and deciding what will happen to the debtor. For routine decisions, 51% of the votes must be cast but for important decisions like approving a resolution plan, 66% must be cast. The CoC makes sure that everything is clear and fair and it tries to maximise asset value while also protecting creditors' rights. This is a very important part of the IBC's creditor-driven approach.
3. What are the key features of the moratorium period under the IBC, 2016?
Answer: The moratorium begins upon CIRP admission and lasts until its completion or liquidation. It prohibits legal actions against the debtor including lawsuits or asset recovery except in the ordinary course of business. Secured creditors can enforce security interests outside the CIRP but cannot initiate legal proceedings. The moratorium protects the debtor’s assets which allows the Resolution Professional to focus on restructuring or finding a resolution plan. It ensures a stable environment for resolution, preventing creditor interference.
4. Describe the role and responsibilities of the Resolution Professional in the CIRP.
Answer: The CIRP is run by the Resolution Professional (RP), who is chosen by the CoC. The RP takes over the debtor's property, makes sure it stays in business and gathers financial information from places like Information Utilities. The RP invites and evaluates resolution plans, sets up CoC meetings and makes sure that the IBC is followed. The RP reports to the CoC and NCLT in an unbiased way which keeps things open. The RP's job is very important for keeping assets' value and making sure that the resolution process is fair.
5. Explain the concept of resolution plans under the IBC, 2016.
Answer: A resolution plan is a proposal by a resolution applicant to resolve the debtor’s insolvency. It may involve debt repayment, business restructuring or asset sales, aiming to maximize value. The plan must be feasible, legally compliant and address stakeholder interests. The CoC evaluates and approves it with a 66% voting share, followed by NCLT approval. Once approved, the plan binds all parties and resolves the debtor’s debts as per its terms. This process is central to reviving viable businesses under the IBC.
Summary
This bankruptcy and insolvency code question bank is a thorough way to learn about the IBC, 2016. It gives readers the skills they need to understand the insolvency framework by covering both basic and advanced topics. Even though the IBC is always changing due to new laws and court rulings, this question bank is still an important tool for students, professionals and anyone else interested in India's bankruptcy laws.
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Insolvency and Bankruptcy Code Question Bank: FAQs
Q1. What is the Insolvency and Bankruptcy Code (IBC)?
The IBC is a law in India that helps resolve financial distress of businesses and individuals by managing insolvency and bankruptcy cases efficiently.
Q2. Who can initiate insolvency proceedings under IBC?
Creditors (financial or operational), the debtor company or its authorized representatives can start insolvency proceedings if there’s a default in debt repayment.
Q3. What is the role of the Insolvency Professional?
An Insolvency Professional manages the insolvency process, oversees the debtor’s assets and works to resolve the case while ensuring fairness to all stakeholders.
Q4. How long does the IBC process take?
The corporate insolvency resolution process (CIRP) is designed to be completed within 180 days, extendable up to 330 days in complex cases.
Q5. What happens if resolution fails under IBC?
If no resolution plan is approved, the company may go into liquidation, where its assets are sold to repay creditors as per the IBC’s priority rules.
