The meaning of IBC - Insolvency and Bankruptcy Code. Learn how IBC impacts businesses and insolvency proceedings in India. The IBC prioritises the interests of all stakeholders, including creditors, debtors, and employees.

Learning the full form of IBC in the Indian context is crucial. In India, insolvency and bankruptcy were regulated under various laws, like the Indian Contract Act, the Presidency Towns Insolvency Act of 1909, the Provincial Insolvency Act of 1920, the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), and the Companies Act of 1956. IBC was designed to replace these multiple legislations with a single code of legal provisions.

The full form of IBC is the Insolvency and Bankruptcy Code. Introduced in 2016, the IBC is an umbrella legislation for insolvency resolution in India. It seeks to consolidate the existing legal framework for insolvency and liquidation with a single unified code that streamlines and simplifies insolvency proceedings.

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Understanding the full form of IBC in business within the Indian context is essential for both corporate entities and investors. This code offers a legal framework to provide efficient resolution of insolvency issues. It is applicable to individuals and corporate entities. The IBC provisions dealing with insolvency of corporate persons were put into effect on 1 December 2016, while those regarding bankruptcy resolution of personal guarantors to corporate debtors were enforced on 1 December 2019.

As a comprehensive code designed to be a one-stop solution for all insolvency resolutions, IBC includes 255 sections and 11 schedules. Previously, the insolvency resolution process was long, complicated, and time-consuming and did not yield an economically viable arrangement. IBC is designed to shield the interests of small investors and make the process of conducting business easy. This Code also aims to preserve the interests of all stakeholders involved, including debtors, creditors, and employees, to guarantee a smooth and efficient resolution

According to the provisions of the IBC, insolvency proceedings can be initiated by creditors or by the business entity itself. The code also provides for the appointment of an insolvency resolution professional who is responsible for managing the entity’s assets during the ongoing resolution process and maximising their value.

Additionally, IBC offers recourse to an appellate mechanism where parties dissatisfied with the decisions of the resolution proceedings can appeal against them. At the core of it, IBC lays down the regulations and guidelines to smoothly conduct insolvency proceedings, revive viable entities, and liquidate unviable ones in a timely manner.

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Understanding the history of IBC is as important as understanding the full form of IBC. Prior to the introduction of the IBC, insolvency and bankruptcy laws in India were fragmented and multilayered. Individual insolvency was covered under two pre-independence laws: the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920. Company insolvency and bankruptcy fell under the Companies Act, 1956. While the Companies Act of 2013 did replace the Act of 1956, sections relating to liquidation were not yet notified.

As such, the history of the code dates back to the early 2000s when the need for a comprehensive insolvency framework became apparent. In 2005, the Indian government set up a committee to examine the existing laws regarding insolvency and bankruptcy. The committee came back with recommendations for the institution of a new framework that would offer time-bound and transparent insolvency resolutions.

A Committee on Bankruptcy Legislative Reforms, or BLRC, was formed on 2nd August 2014 by the Ministry of Finance. Headed by T. K. Viswanathan, this committee was responsible for drafting a new bankruptcy law. The BLRC presented its report on 4th November 2015 outlining the draft law. The revised version of this draft legislation of the IBC was presented by the then Finance Minister, Mr. Arun Jaitley, to the 16th Lok Sabha. The bill was sent to the Joint Parliamentary Standing Committee on IBC for analysis and feedback in 2015.

Finally, on the 28th of April 2016, the JPC handed in its report along with an updated version of the bill. The bill received Lok Sabha’s ratification on 5th May 2016 and the Rajya Sabha’s nod on 11th May 2016. The IBC was passed with President Pranab Mukherjee’s approval on May 28th 2016, along with an official announcement in The Gazette of India.

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Now that you know the full form of IBC and its background, it's time to understand its core objectives. The Indian government instituted the IBC to streamline insolvency and liquidation proceedings in the country. The IBC focuses on the fact that the institutional framework of the state must ensure the freedom to enter, conduct business, and exit for corporate entities. While the first two were already available under the Indian regulatory framework, the freedom to exit was outlined in the IBC. Therefore, the IBC operates with the following objectives:

Offering time-bound resolution

The IBC is designed to offer a time-bound and efficient insolvency resolution process to reduce the burden on courts. This legal framework aims to institute systematic proceedings that cut down on lengthy proceedings and offer swift resolutions.

Comprehensive framework

The chief goal of the IBC is to offer a comprehensive legal framework that takes different considerations into account. IBC was designed to replace the fragmented insolvency and bankruptcy laws in India to ensure greater coherence in law.

Empowering creditors

Under the IBC, creditors have the power to initiate insolvency proceedings if the debtor defaults on their payments. This gives creditors a voice in the proceedings.

Declaration of insolvency by debtors

The IBC offers a framework and regulatory guidance to help debtors declare bankruptcy. It also allows you to restructure their finances and operations to make revivals possible.

Maximise the value of assets

The IBC also lays down provisions for the appointment of insolvency professionals who manage and maximise the value of assets during the proceedings. This helps revive viable entities while streamlining the process of liquidating unviable ones.

Protecting stakeholder interests

As mentioned earlier, the IBC aims to protect the interests of all stakeholders involved, be it debtors, creditors, or company employees. To this end, the Code establishes a fair and transparent resolution process that offers clarity to all stakeholders.

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Conclusion

The full form of IBC is the Insolvency and Bankruptcy Code. It was formulated by the Indian government to replace the then bankruptcy laws in the country with a comprehensive legal framework that ensures timely and efficient resolutions while protecting the interests of all stakeholders involved. The IBC is designed to simplify the process of conducting business in India and help the country develop into a mature market economy.