Corporate Insolvency Resolution Process (CIRP) is a recovery mechanism for creditors. If a corporate becomes insolvent, a financial creditor, an operational creditor, or the corporate itself may initiate CIRP.
The Insolvency and Bankruptcy Code, 2016 (IBC) provides a provision for an application for insolvency or bankruptcy of start-ups, individuals, partnership firms, limited liability partnership, and companies. The government on recently raised the threshold for invoking insolvency under the IBC to Rs 1 crore from the current Rs 1 lakh with a view to prevent triggering of such proceedings against small and medium enterprises
CIRP is the process through which it is determined whether the person who has defaulted is capable of repayment or not. If a person is not capable of repaying the debt the company is restructured or liquidated. Following are the steps to be followed for resolution or liquidation of a corporate:
Application to NCLT: A financial or operational creditor of the company or the company itself can apply to the National Company Law Tribunal (NCLT). The application is made to admit that the Company (Corporate Debtor as per IBC) is into corporate insolvency resolution process. For this the creditor needs to show the default payment of a debt which exceeds INR 1 Crore and within 14 days the NCLT has to pass an order either admitting or denying the application. There are different obligations that a financial and an operational creditor have to comply with when making their applications before NCLT. A financial creditor needs to submit the record of the default whereas an operational creditor needs to first make a demand for his unpaid debt. On the basis of an ongoing dispute, it is open to the corporate debtor to defend the claim.
Interim Resolution Professional & Moratorium: When a corporate debtor is admitted into the CIRP, it suspends the board of directors. Also, the management is placed under an independent ‘Interim Resolution Professional’(IRP). Further, from this point onward the management ceases to have any control over the company affairs till the end of the CIRP. Simultaneously, a moratorium becomes effective which prohibits:
However, the moratorium does not extend to key business contracts entered into by the corporate debtor.
Verification and Analysis of Claims: At this stage, interim resolution professional will summon and verify the claims made the creditors and also classify them. After that, within 30 days of acceptance into CIRP, will form a Committee of Creditors (COC) which comprises of all the financial creditors of the corporate debtor.
Appointment of Resolution Professional: Within seven days of the forming the committee, the COC will have to either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.
Approval of the “Resolution Plan”: A resolution plan for the revival of the company must be approved within 180 days from the commencement of CIRP by creditors. The NCLT can extend this period by another 90 days. Any person, management, the creditors or a third party can propose such a plan. Resolution professional is responsible to ensure that the plan meets the criteria set out in Insolvency and Bankruptcy Code, 2016.
If a plan is approved within this period and sanctioned by NCLT: The approved resolution plan becomes binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholder involved in the resolution plan. It is the duty if the resolution professional to obtain all necessary approvals required under any law for the time being in force within one-year from the date of approval by adjudicating authority.
If no resolution plan is approved within the said period: In case the resolution plan is not approved then NCLT is obliged to order the liquidation of the corporate debtor. After the approval of liquidation, COC appoints the liquidator to sell the assets of the corporate debtor and share them among the stakeholders. The distribution is made according to section 53 of the Insolvency and Bankruptcy Code 2016.
An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.
The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor—
After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.
The operational creditor shall, along with the application furnish—
The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order—
Provided that Adjudicating Authority, shall before rejecting an application give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.
The corporate insolvency resolution process shall commence from the date of admission of the application under this section.
Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority.
The application under section shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed.
The corporate applicant shall, along with the application furnish the information relating to—
Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority.
Office - Office No.-314,
3rd Floor, Plot No.11,
KP Block, Vardhaman KP Plaza,
Pitampura, New Delhi-110034
Mobile: +91 9899208090
E-mail : email@example.com