According to Section 2, the provisions of the Code shall apply for insolvency, liquidation, voluntary liquidation or bankruptcy of the following entities:
(a) Any company.
(b) Any Limited Liability Partnership.
(c) Personal Guarantors to Corporate Debtors.
(d) Partnership firms and Proprietorship firms.
Insolvency : An entity becomes insolvent when they are unable to pay back their lenders on time.
Bankruptcy is a legal declaration of one’s inability to pay their debts. On filing of bankruptcy.
1. Restructuring- where the debt is ‘re- structured’ or re- planned to make repayment easier.
2. Liquidation- where all the assets of the entity are sold and paid to debtors.
(a) Financial creditor – Individual money lender, banks, NBFCs, etc where money is lent (Section 7)
(b) Operational creditor Supplier of goods or/and services (Section 9)
(c) Corporate debtor – A company/LLP who owes debt to any person (Section 10)
Financial creditor – means any person to whom financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. For example, Banks, Financial Institution, NBFC, any other person who lends / provide finance and Home Buyers(in case Real estate projects).
Operational Creditor is defined under section 5 (20), it means, a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.
Where, Operational Debt means a claim in respect of
(a) provision of goods, or
(b) provision of services including employment, or
(c) any dues payable to the government .
The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.