India’s Bankruptcy Code: FAQs

Amid a global economic crisis, Neha Mehta answers some frequently asked questions about filing bankruptcy in India.

Q1. When is a Corporate Debtor in default?

A. “Default” is the non-payment of a whole, or a part, of a Corporate Debt when due and payable. Erosion of net worth is not a default under the Code.

Q2. Can a financial institution proceed against a Corporate Debtor under the Code although it may have already taken action under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI)?

A. Section 238 of the Code provides that its provisions shall have effect notwithstanding anything inconsistent in any other law or an instrument under any other law. Further the NCLT, Ahmedabad Bench, in Sarthak Creations Pvt. Ltd. vs Bank of Baroda & Others, held that pendency of proceedings before a Debt Recovery Tribunal (DRT) or invocation of SARFAESI Act, will not bar the commencement of CIRP, in view of the non-obstante provisions of section 238 of the Code.

Q3. What is a COC?

A. The COC (Committee of Creditors) is constituted of a Corporate Debtor’s financial creditors. It is a decision maker in CIRP.

Q4. Can a claim, or proof of claim, be filed, or submitted after the elapse of 14 days from the date of a demand notice?

A. Regulation 12 (2) of the CIRP Regulations provides that a Creditor, who fails to submit a claim with proof within the time stipulated in a public announcement inviting claims, may submit by the 19th day of the Insolvency Commencement Date. This amendment to the CIRP Regulations was made effective from July 2018.

Q5. Are home buyers deemed to ‘Creditors’ under the Code?

A. Section 5(8)(f) of the Code was brought into effect from 6th June, 2018 to provide that an amount raised from a real estate allottee is deemed to be a ‘borrowing’. The logic behind such amendment is that home buyers/allottees advance monies to buyers/allottees advance monies to developers, thereby financing a real estate project, and thus they will fall within the definition of a ‘Financial Creditor’ under the Code.

Q6. Would a moratorium ordered against a Corporate Debtor under the Code affect pending proceedings under section 138 of the Negotiable Instrument Act 1881 (NI Act)?

A. Section 138 of the NI Act is a penal provision empowering the competent court to order imprisonment or a fine. A fine is not a money claim or recovery against a Corporate Debtor, and an order of imprisonment against Directors of a Corporate Debtor does not affect CIRP. Therefore, proceedings under 138 of NI Act therefore will not be affected by a moratorium. Further, no criminal proceeding lie under Section 14 of the Code.

Q7. Does the Code provide for punishment against a Corporate Debtor that commits fraud?

A. Under Section 68 of the Code, if any officer of a Corporate Debtor wilfully conceals its property, he or she would be punishable with imprisonment for 3 to 5 years and a fine extending from INR 100,000 upto 10,000,000.

Q8. Can a Creditor and Corporate Debtor arrive at an ‘out of Court’ settlement and withdraw CIRP?

A. Yes, but with a 90% of COC members voting in favour of the settlement.

Q9. Can an RP reduce a claim amount if a Financial Creditor has claimed usurious or extortionate interest?

A. An RP can revise a claim admitted under Regulation 14 of the CIRP Regulations, subject to the RP collating information warranting the revision. While empowered to do so, the RP should, ideally, intimate the NCLT of the revision.

Q10. Can interest, overdue charges and related charges in respect of a credit facility be treated a part of a claim?

A. Yes.

Q11. In a liquidation of a Corporate Debtor, how will proceeds from the sale of assets charged to a secured creditor be treated?

A. If a secured creditor has participated in the liquidation process, it would relinquish its security interest to the liquidation estate, and receive proceeds from the sale of assets per the waterfall mechanism in Section 53 of the Code.

Q12. Can aggrieved employees, operational creditors appeal against not settlement of any outstanding claims?

A. Any person who is a party to, and aggrieved by, a resolution plan may appeal to the National Company Law Appellate Tribunal (NCLAT) under Section 61(3)(iii) of the Code. The appeal be within the grounds permitted.

Q13. Within what period from the approval of a resolution plan will a resolution applicant have to pay the resolution amount?

A. A payment schedule has to form part of a resolution plan, and on its approval, it binds all stakeholders. Therefore, the resolution plan will stipulate the period within which payment is to be made, and it will bound by it, upon the plan being approved by the COC and the NCLT.

Q14. What is the status of personal guarantors in a CIRP?

A. Notwithstanding the pendency of CIRP, Financial Creditors may invoke personal guarantees for causing payment of the debts of the Corporate Debtor.

Q15. Where would the CIRP process be initiated, if a Corporate Debtor has, for example, a corporate office in Delhi and its registered office in Mumbai?

A. The CIRP will have to be initiated in the jurisdiction of the Corporate Debtor’s registered office.

Q16. What is the application fee payable for initiating CIRP under the Code?

A. It is INR 2000 if the applicant is an Operational Creditor, and INR 25,000 if it is a Financial Creditor.

Disclaimer: This article is provided for informational purposes only and is not legal advice. For more advice on the topic, please contact the author.


Why now is a good time to prepare L1/E2 Application

David Cantor is a licensed attorney in the State of New York based in our Florence, Italy office. David oversees Client Relations for Davies & Associates Global Investor and Business Visa Practice.

As of March 18, US Citizenship and Immigration Services suspended in-person services until April 1st in order to combat the spread of the Coronavirus (COVID-19). It is highly likely that interviews and other critical Consular services will also be suspended beyond this date – in other words, it will not be possible to obtain an interview and visa for the United States until further notice. This includes all immigrant and non-immigrant visa categories, even visitor visas for the United States. 

 

Despite these major uncertainties, for individuals or businesses that are seriously considering a non-immigrant visa, it may still be a good time to move ahead. Certain non-immigrant visas, such as the L-1 (multinational manager/executive transfer) or E-2 (Treaty Investor), will permit an applicant to start/acquire a business in the United States. These favorable visa categories (L1 and E2) will provide work-authorization and social security numbers for qualified dependents (i.e. spouse and children under-21). 

At Davies & Associates we represent a diverse size of businesses and entrepreneurs – from boutique retailers to multinational entities. We represent individual investors as well as businesses seeking to expand their current operations into the United States. You can qualify for these favorable non-immigrant visa categories in virtually any industry, and one may successfully petition for an investor visa with a minimum of $80,000 – $100,000 USD investment, depending on the type of business and your five-year business plan. 

 

While the current state of affairs presents significant challenges and uncertainties, for those seriously considering US business expansions or investments, it is necessary to keep in mind the overall processing times of a respective application. Filing a L1 or E2 visa application is a complex, and oftentimes laborious process. In the larger picture, you can breakdown the processing timeline into two main parts: (1) Preparation of your case; and (2) Official Government Processing. 

 

  1. L1/E2 Casework Preparation. Average Timeline: 2-5+ months.

    This portion consists of everything required to build a strong L1/E2 application with your immigration attorneys. This may involve all the document collection, production of a five-year business plan, incorporation and formation of a US entity/bank accounts, securing a US commercial lease, hiring of US employees, mobilization of capital, and more.

  2. Official US Government Processing. Average Timeline: 1-3 months.

    The US government has several channels to lodge and application and processing timelines will vary depending on the visa category and geographic location. Waiting periods will also depend on factors such as government resources and staffing. 

 

In sum, clients seriously considering business expansion efforts into the United States must take into consideration the practical efforts involved in preparing and submitting a L1 or E2 application. Although it varies on a case-by-case basis, the average timeline for preparing this non-immigrant application may be 2-5+ months (not including official government processing).  Although it is uncertain, it is realistic to project that US Consulates will open within the near future. It is also likely that appointment and interview waiting periods will increase significantly due to a backlog of casework. For these reasons it is beneficial for clients to have a “ready application” for submission, and beat potential waiting periods that are likely to accrue over this period of time.

 

Can I form a US company from outside the United States? What about getting an Employer Identification Number (EIN) and a bank account? 

Some of the most practical challenges to the existing travel restrictions due to the Coronavirus (COVID-19) are those that inhibit a foreign applicant to focus on the US business incorporation or expansion. While there is no requirement that L1 or E2 applicants physically visit the United States before filing a L1/E2 application, there are some practical concerns. Obviously, for those wishing to launch a US business, many will want to have secured a commercial location and a base for their operations. However, for those that have a general idea, or can narrow down the State(s) where they wish to operate, there is nothing restricting you from establishing your US entity. At Davies & Associates we support our clients corporate needs and can advise you with regards to not only registering your US entity – but also in drafting all the corporate documents that will be necessary for your US business and operations. Without visiting the United States, you are also able to obtain the necessary tax IDs (i.e. EIN), that will permit you to obtain necessary licenses, as well as establish US bank accounts. If you are interested in learning more about establishing a US entity please CONTACT US today.

 


Shift in EB-5 Priority Dates for India and Vietnam

Sukanya is an Associate in our Mumbai India office. She works with our Indian clients on EB-5, L1 and E2 visas coupled with Grenada citizenship.

As per the recent update of US Visa Bulletin for the month of April 2020, we see a change in the final action dates for EB-5 preference cases for India and Vietnam. Priority Date means the date when the US Citizenship and Immigration Services – USCIS – receives the petition and form I-526. Each country has a different priority date depending on the petitions filed each year by each country. Please see the priority dates in the upcoming Visa Bulletin for April 2020, for India, Vietnam and China.

India:
1st January 2019 as compared to the date 22nd October 2018 as per the visa bulletin for March 2020.
Vietnam:
15th January 2017 as compared to the date 08th February 2017 as per the visa bulletin for March 2020.
China:
There is no solace for the petitioners in China as the priority date remains unchanged at 15th May 2015.

Overall, this might be good news for some petitioners from India and Vietnam, provided the United States Citizenship and Immigration Services (USCIS) has approved their I-526 petitions. It should also be kept in mind that this shift, even if substantial, may be due to low visa demand which is a result of low rate of I-526 processing by USCIS. Also, I-526 processing time might go down due to fewer applications after the change in the minimum investment amount of USD $500,000 to USD $900,000 post 21st November 2019. We may also see a rejuvenated interest for EB-5 in markets like India and Vietnam due to improvement in the priority dates. Although it is an interesting ‘wait and watch’ to conclude what the actual timelines for procuring the Green Card are, this definitely is a positive sign for prospective applicants.