Section 5 IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) serves as a watershed in the landscape of India's economic jurisprudence. It consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. An understanding of the terms defined under Section 5 of the IBC is instrumental in comprehending the code’s operational framework. This blog post endeavors to meticulously elucidate the terms delineated in Section 5, thus serving as a primer for legal practitioners, academicians, and other stakeholders in the domain of insolvency and bankruptcy law.

Adjudicating Authority: The term "Adjudicating Authority" refers to the National Company Law Tribunal (NCLT) constituted under section 408 of the Companies Act, 2013. The NCLT plays a critical role in overseeing insolvency proceedings and ensuring compliance with the provisions of the Insolvency and Bankruptcy Code.

Auditor: The auditor is defined as a chartered accountant certified to practice by the Institute of Chartered Accountants of India under section 6 of the Chartered Accountants Act, 1949. The auditor's role is crucial in evaluating the financial health of a corporate debtor.

Base Resolution Plan (Amended in 2021): Introduced through an amendment, a "base resolution plan" refers to a resolution plan provided by the corporate debtor under clause (c) of sub-section (4) of section 54A. This amendment facilitates a corporate debtor-driven approach in the resolution process.

Chapter: A "Chapter" refers to a specific section within this Part of the Code. Each Chapter elaborates on different aspects of the insolvency process, ensuring a structured elucidation of the Code's provisions.

Constitutional Document: This term refers to the legal documents that form the basis of a corporate person's structure, including its Articles of Association, Memorandum of Association in the case of a company, and the incorporation documents of a Limited Liability Partnership (LLP). These documents are fundamental for understanding the governance and operational framework of the corporate person.

Corporate Applicant: A "corporate applicant" encompasses various entities who can make an application for the initiation of the corporate insolvency resolution process. This includes the corporate debtor itself, a member or partner of the corporate debtor who is authorized as per the constitutional document of the corporate debtor, an individual managing the operations and resources of the corporate debtor, and a person overseeing the financial affairs of the corporate debtor. An amendment in 2021 extended the definition to include the pre-packaged insolvency resolution process.

Corporate Guarantor (Amended in 2018): Introduced through an amendment, a "corporate guarantor" is defined as a corporate person who acts as a surety in a contract of guarantee to a corporate debtor, elucidating the role of guarantors in the financial obligations of the corporate debtor.

Dispute: A "dispute" includes a suit or arbitration proceedings relating to:

a. The existence of the amount of debt;

b. The quality of goods or service;

c. The breach of a representation or warranty.

This definition provides a scope for identifying disagreements that could arise, potentially affecting the insolvency proceedings.

Financial Creditor A Financial Creditor is any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred. The financial creditors play a significant role in the insolvency resolution process as they form part of the committee of creditors which decides the fate of a distressed company.

Financial Debt Financial Debt refers to a debt along with interest, which is disbursed against the consideration for the time value of money. This could include money borrowed against the payment of interest, amounts raised under various financial instruments, liabilities under lease or hire purchase contracts among others. This term was further elaborated by an amendment in 2018 which clarified that any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing.

Financial Position: This term refers to the financial information of a person as on a certain date. It's a snapshot of a person or entity's financial health which could be crucial in the insolvency resolution process.

Information Memorandum: The Information Memorandum is a document prepared by the resolution professional under sub-section (1) of section 29. This document contains relevant information to assist the committee of creditors in making informed decisions regarding the resolution process.

Initiation Date: The Initiation Date is the date on which a financial creditor, corporate applicant, or operational creditor makes an application to the Adjudicating Authority for initiating the corporate insolvency resolution process. An amendment in 2021 expanded this definition to include the pre-packaged insolvency resolution process as well.

Insolvency Commencement Date: This term refers to the date of admission of an application for initiating the corporate insolvency resolution process by the Adjudicating Authority. The term was amended in 2019 to omit a provision regarding the appointment of the interim resolution professional.

Insolvency Resolution Process Costs: These costs include the amount of any interim finance and costs incurred in raising such finance, fees payable to the resolution professional, costs incurred by the resolution professional in running the business of the corporate debtor as a going concern, costs incurred at the expense of the Government to facilitate the insolvency resolution process, and other costs as specified by the Board.

Insolvency Resolution Process Period: This refers to the period of 180 days beginning from the insolvency commencement date and ending on the 180th day. This period is critical as it's the timeframe within which the insolvency resolution process needs to be completed.

Interim Finance: Refers to any financial debt raised by the resolution professional during the insolvency resolution process period or by the corporate debtor during the pre-packaged insolvency resolution process period, and other debt as may be notified.

Liquidation Cost: Refers to any cost incurred by the liquidator during the period of liquidation, as specified by the Board.

Liquidation Commencement Date: The date on which proceedings for liquidation commence as per Section 33 or Section 59.

Liquidator: An insolvency professional appointed as a liquidator in accordance with the provisions of Chapter III or Chapter V of this Part.

Officer: For the purposes of Chapter VI and Chapter VII of this Part, it means an officer who is in default as defined in clause (60) of section 2 of the Companies Act, 2013, or a designated partner as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008.

Operational Creditor: A person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

Operational Debt: Refers to a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government, or any local authority.

Personal Guarantor: An individual who is the surety in a contract of guarantee to a corporate debtor.

Personnel: Includes the directors, managers, key managerial personnel, designated partners, and employees, if any, of the corporate debtor.

Preliminary Information Memorandum: A memorandum submitted by the corporate debtor under clause (b) of sub-section (1) of section 54G.

Pre-packaged Insolvency Commencement Date: The date of admission of an application for initiating the pre-packaged insolvency resolution process by the Adjudicating Authority under clause (a) of sub-section (4) of section 54C.

Pre-packaged Insolvency Resolution Process Costs: Costs associated with the pre-packaged insolvency resolution process, such as the amount of any interim finance, fees payable to the resolution professional, and other related costs.

Pre-packaged Insolvency Resolution Process Period: The period beginning from the pre-packaged insolvency commencement date and ending on the date on which an order under sub-section (1) of section 54L, or sub-section (1) of section 54N, or sub-section (2) of section 54 O, as the case may be, is passed by the Adjudicating Authority.

Related Party: In relation to a corporate debtor, it includes a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor, among others, as detailed in the section.

Related Party in relation to an individual: This term includes a person who is a relative of the individual or a relative of the spouse of the individual, a partner of a limited liability partnership, or a limited liability partnership or a partnership firm, in which the individual is a partner, among others, as detailed in the section.

Resolution Applicant: A person who, individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-section (2) of section 25 or pursuant to section 54K, as the case may be.

Resolution Plan: A plan proposed by the resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II. It may include provisions for the restructuring of the corporate debtor, including by way of merger, amalgamation, and demerger.

Resolution Professional (27): An insolvency professional appointed to conduct the corporate insolvency resolution process or the pre-packaged insolvency resolution process, and includes an interim resolution professional.

Voting Share (28): The share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor.

This exhaustive dissection of the terms defined under Section 5 of the IBC provides a solid grounding for understanding the intricate legal and procedural framework of insolvency and bankruptcy law in India. Through a meticulous examination of these terms, this blog post aims to serve as a comprehensive resource for legal practitioners, academicians, and other stakeholders keen on delving deep into the realm of insolvency and bankruptcy law in India.