Chapter 21 Fresh Start Process – Corporate Restructuring Insolvency Liquidation & Winding Up Notes is designed strictly as per the latest syllabus and exam pattern.
Fresh Start Process – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material
Question 1.
Sun Finserve Ltd., a financial-cum-operational creditor to a corporate debtor is aggrieved by the action of the resolution professional. Suggest the measures available to the company under the Insolvency and Bankruptcy Code, 2016. (Dec 2019, 3 marks)
Answer:
Section 217 of the Insolvency and Bankruptcy Code, 2016 deals with complaints against insolvency professional agency or its member or information utility. It states that,
“Any person aggrieved by the functioning of an insolvency professional agency or insolvency professional or an information utility may file a complaint to the Board in such form, within such time and in such manner as may be specified.”
Further, Model Bye Laws of Insolvency Professional Agencies also have Grievance Redressal Mechanism for redressing grievances against the agency or any member of the agency.
Question 2.
Describe the general duties of a debtor under Fresh Start Process. (Dec 2021, 3 marks)
Answer:
Section 88 the Insolvency and Bankruptcy Code, 2016 lists out the genera! duties of the debtor. According to section 88, the debtor shall –
a. make available to the resolution professional all information relating to his affairs, attend meetings and comply with the requests of the resolution professional in relation to the fresh start process.
b: inform the resolution professional as soon as reasonably possible of –
- any material error or omission in relation to the information or document supplied to the resolution professional; or
- any change in financial circumstances after the date of application, where such change has an impact on the fresh start process.
Question 3.
State the eligibility requirement for a debtor for the purpose of making an application for a fresh start process under the Insolvency and Bankruptcy Code, 2016. (June 2022, 5 marks)
Question 4.
What do you mean by Qualifying debt?
Answer:
According to section 79(19) of the Code, a “qualifying debt” means amount due, which includes interest or any other sum due in respect of the amounts owed under any contract, by the debtor for a liquidated sum either immediately or at certain future time and does not include
(a) an excluded debt;
(b) a debt to the extent it is secured; and
(c) any debt which has been incurred three months prior to the date of the application for fresh start process.
Question 5.
What is the eligibility for making an application for fresh start?
Answer:
Who may file application for fresh start – Section 80(1) lays down that a debtor, who is unable to pay his debt and fulfils the conditions specified in sub-section (2) of section. 80, shall be entitled to make an application for a fresh start for discharge of his qualifying debt under Chapter II of Part III of the Code.
Conditions for filing application for fresh start – Sub-section (2) lays down conditions for filing of an application for fresh start. Sub-section (2) provides that a debtor may apply, either personally or through a resolution professional, for a fresh start under Chapter II of Part III of the Code in respect of his qualifying debts to the Adjudicating Authority if –
(a) the gross annual income of the debtor does not exceed sixty thousand rupees;
(b) the aggregate value of the assets of the debtor does not exceed twenty thousand rupees;
(c) the aggregate value of the qualifying debts does not exceed thirty-five thousand rupees;
(d) he is not an undischarged bankrupt;
(e) he does not own a dwelling unit, irrespective of whether it is encumbered or not;
(f) a fresh start process, insolvency resolution process or bankruptcy process is not subsisting against him; and
(g) no previous fresh start order under this Chapter has been made in relation to him in the preceding twelve months of the date of the application for fresh start.
Question 6.
Can application against Decision of Resolution Professional be filed. Comment.
Answer:
The debtor or the creditor who is aggrieved by the action taken by the resolution professional under section 86, may, within ten days of such decision, make an application to the Adjudicating Authority challenging such action on any of the following grounds, namely:
(a) that the resolution professional has not given an opportunity to the debtor or the creditor to make a representation; or
(b) that the resolution professional colluded with the other party in arriving at the decision; or
(c) that the resolution professional has not complied with the requirements of section 86.
Question 7.
What are the general duties of debtor?
Answer:
Section 88 lists out the duties of the debtor. According to section 88, the debtor shall-
(a) make available to the resolution professional all information relating to his affairs, attend meetings and comply with the requests of the resolution professional in relation to the fresh start process.
(b) inform the resolution professional as soon as reasonably possible of –
- any material error or omission in relation to the information or document supplied to the resolution professional; or
- any change in financial circumstances after the date of application, where such change has an impact on the fresh start process.
Question 8.
What is discharge Order?
Answer:
- Section 92 provides for the passing of a discharge order by the adjudicating authority at the end of the moratorium period for discharge of the debtor from the qualifying debts.
- Further, the discharge order shall also provide for the discharge of penalties, penal interest and other sums owed under any contract, in respect of the qualifying debts, from the date of the application for fresh start to the date of the discharge order.
- The discharge order shall be forwarded to the Board for the purpose of recording an entry in the register.
Fresh Start Process Notes
Qualifying debt
According to section 79(19) of the Code, a “qualifying debt” means amount due, which includes interest or any other sum due in respect of the amounts owed under any contract, by the debtor for a liquidated sum either immediately or at certain future time and does not include
(a) an excluded debt;
(b) a debt to the extent it is secured; and
(c) any debt which has been incurred three months prior to the date of the application for fresh start process.
Eligibility for making an application
Who may file application for fresh start – Section 80(1) lays down that a debtor, who is unable to pay his debt and fulfils the conditions specified in sub-section (2) of section 80, shall be entitled to make an application for a fresh start for discharge of his qualifying debt under Chapter II of Part III of the Code.
Conditions for filing application for fresh start – Sub-section (2) lays down conditions for filing of an application for fresh start. Sub-section (2) provides that a debtor may apply, either personally or through a resolution professional, for a fresh start under Chapter II of Part III of the Code in respect of his qualifying debts to the Adjudicating Authority if –
(a) the gross annual income of the debtor does not exceed sixty thousand rupees;
(b) the aggregate value of the assets of the debtor does not exceed twenty thousand rupees;
(c) the aggregate value of the qualifying debts does not exceed thirty-five thousand rupees;
(d) he is not an undischarged bankrupt;
(e) he does not own a dwelling unit, irrespective of whether it is encumbered or not;
(f) a fresh start process, insolvency resolution process or bankruptcy process is not subsisting against him; and
(g) no previous fresh start order under this Chapter has been made in relation to him in the preceding twelve months of the date of the application for fresh start.
Application for Fresh Start Order
- interim-moratorium shall commence on the date of filing of said application in relation to all the debts and shall cease to have effect on the date of admission or rejection of such application, as the case may be.
- the application under section 80 shall be in such form and manner and accompanied by such fee, as may be prescribed.
Appointment of Resolution Professional
An application for fresh start may be made by the debtor either personally or through a resolution professional. In the former case, the Insolvency and Bankruptcy Board nominates a resolution professional for the fresh start process and in the latter case, the adjudicating authority seeks confirmation from the Insolvency and Bankruptcy Board that there are no disciplinary proceedings against the resolution professional who has filed the application.
Examination of Application by Resolution Professional
- Section 83 prescribes the manner in which the resolution professional should make a report either recommending acceptance or rejection of the application for fresh start.
- the resolution professional shall examine the application made under section 80 within ten days of his appointment, and submit a report to the Adjudicating Authority, either recommending acceptance or rejection of the application.
- resolution professional may call for such further information or explanation in connection with the application as may be required from the debtor
Admission or Rejection of Application by Adjudicating Authority
- the Adjudicating Authority may within fourteen days from the date of submission of the report by the resolution professional, pass an order either admitting or rejecting the application
- The order shall state the amount which has been accepted as qualifying debts by the resolution professional and other amounts eligible for discharge
Effect of Admission of Application
- On the date of admission of the application, the moratorium period shall commence in respect of all the debts.
- During the moratorium period, any pending legal action or legal proceeding in respect of any debt shall be deemed to have been stayed and the creditors shall not initiate any legal action or proceedings in respect of any debt
Objections by Creditor and their Examination by Resolution Professional (Section 86)
Section 86 gives the creditors a right to object to the inclusion of their debt as a qualifying debt for discharge or object to any material inconsistency in the details of such debt, by filing an application to the resolution professional.
Application against Decision of Resolution Professional
The debtor or the creditor who is aggrieved by the action taken by the resolution professional under section 86, may, within ten days of such decision, make an application to the Adjudicating Authority challenging such action on any of the following grounds, namely:
(a) that the resolution professional has not given an opportunity to the debtor or the creditor to make a representation; or
(b) that the resolution professional colluded with the other party in arriving at the decision; or .
(c) that the resolution professional has not complied with the requirements of Section 86.
General Duties of Debtor
Revocation of Order Admitting Application Application to Adjudicating Authority by resolution professional – The resolution professional may submit an application to the Adjudicating Authority seeking revocation of its order made under section 84 on the following grounds, namely:
(a) if due to any change in the financial circumstances of the debtor, the debtor is ineligible for a fresh start process; or
(b) non-compliance by the debtor of the restrictions imposed under sub-section (3) of section 85; or
(c) if the debtor has acted in a mala fide manner and has wilfully failed to comply with the provisions of this Chapter. [Section 91 (1)]
Order by Adjudicating Authority – The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (1), may by order admit or reject the application.
Discharge Order
- Section 92 provides for the passing of a discharge order by the adjudicating authority at the end of the moratorium period for discharge of the debtor from the qualifying debts.
- Further, the discharge order shall also provide for the discharge of penalties, penal interest and other sums owed under any contract, in respect of the qualifying debts, from the date of the application for fresh start to the date of the discharge order.
- The discharge order shall be forwarded to the Board for the purpose of recording an entry in the register