Planning and Strategy Making Relating to Insolvency Resolution
- Serve Notice to Corporate Debtor (on behalf of Creditor)
- Initiation of filing IRP Application
- Filing & submission of the Application
- Represent a Financial Creditor/Operational Creditor/Corporate Debtor/Individuals
- Decode Moratorium & its implications
- Submission of documents to Insolvency Resolution Professional
- Contribute to revival plan
- Liquidation process
- Settlement of claims
Insolvency and Bankruptcy Code, 2016, is an amalgamation of various codes and hence, provides single window clearance system of different earlier codes.
Applicable On
- The Code is uniform and extends all over India and is applicable on:
- Any company incorporated under the Companies Act, 2013, or any previous Act.
- Any company covered under any special Act.
- LLPs incorporated under Limited Liability Partnership Act, 2008.
- Partnership Firms, registered or not, under Partnership Act, 1932.
- Any individual.
Adjudicating Authorities
The Insolvency Resolution Process (IRP) of Partnership Firms and Individuals is adjudicated by the Debt Recovery Tribunals (DRTs). Any entity or person discontent by DRT’s order may appeal to Debt Recovery Appellate Tribunal (DRAT).
Corporates and LLPs can appeal to National Company Law Tribunal (NCLT) which has jurisdiction over Corporate Insolvency Resolution Process (CIRP). If aggrieved over NCLT order, such companies can approach National Company Law Appellate Tribunal (NCLAT) within 30 days of the order.
An appeal against the Appellate Tribunals may be filed before the Supreme Court of India.
Insolvency Resolution Process (IRP) For Corporates
According to the Code, the insolvency process may be initiated by either the creditor or the debtor.
Financial Creditor
Those entities which provide credit facilities, extend loan or financial assistance fall into this category.
- Financial Creditor can himself or jointly with other creditors, file in NCLT against the corporate debtor and initiate insolvency.
- While filing the application, the proof of default and the suggested name of the insolvency professional shall be submitted.
Corporates IRP can be initiated by-
- A financial creditor (individually or jointly) under Section 7 of IBC, 2016
- An operational creditor under Section 9 of the IBC, 2016
- The corporate debtor itself under Section 10 of the IBC, 2016.
NCLT shall take up the application within 14 days of filing it. It may reject the application if it finds that there has been no default by the corporate debtor or if any pending issues are there regarding the proposed resolution professional.
Operational Creditor
- A Notice shall be served by the operational creditor to the corporate debtor, granting him 10 days and requesting to pay the dues.
- If the result is not positive, nor does the corporate debtor intimate about any ongoing arbitration or dispute, then the operational creditor can file the application and initiate IRP.
Corporate Debtor
Under the provisions of the Code, even a corporate debtor, who has defaulted on payment of dues, can file the application of Insolvency Resolution Process.
- They need to submit Books of Accounts and other relevant financial documents.
- Section 10 (3) (b) of the Code mandates that the corporate debtor shall also file the name of proposed resolution professional, with the application.
For Financial Creditor
There are certain prescribed documents that are to be furnished along with the application form.
- A record , a document as an evidence of default
- The name of the resolution professional who shall act as interim resolution professional.
- All other information as may be specified by the board.
For Operational Creditor
The list of documents that are to be submitted with the application form-
- A demand notice served by the operational creditor to the corporate debtor
- An affidavit specifying that the corporate debtor has given no notice regarding a dispute about the outstanding operational debt.
- If available, a certified copy from the financial institutions maintaining accounts of the operational creditor ascertaining the fact that there has been no payment of the unpaid operational debt by the corporate debtor.
- If available, a copy of report that confirms the information of non payment of the unpaid operational debt.
.Any other proof that confirms the non payment of the unpaid operational debt by the corporate debtor.
For Corporate Debtor
- The information regarding the name of the resolution professional that shall act as the interim resolution professional.
- Presenting its Books of account and all other documents for the specified period and as mandated by the Board.
- Proof of the special resolution given by the shareholders of the corporate debtor or the adoption of the special resolution by at least three-fourths of the total number of partners of the corporate debtor.
- The adjudicating authority shall accept or reject the application of IRP.
- In case of rejection, the applicant shall have to remove the errors pointed out by the authority, within 7 days.
- If accepted, the process of corporate IRP shall begin from the said date.
- Within 14 days of the commencement of the IRP the resolution professional shall be appointed, whose tenure shall not exceed 30 days.
- Section 12 of the IBC states that the insolvency resolution process shall be completed within 180 days of applying in the NCLT.
Public Announcement
Along with the appointment of resolution professional, NCLT shall make public announcement to attract submission of claims by creditors.
Moratorium
The Moratorium may be granted by NCLT under the provisions of Section 14 of IBC up to 180 days and all recovery proceedings against the corporate debtor shall be stayed.
Formation of Creditors’ Committee & Revival Plan
The appointed insolvency professional shall form a creditors committee as per the rules under Section 21 (2) of the Code. Any resolution plan shall be viable only if 75% creditors approve of it.
Liquidation
A corporate debtor may face liquidity if
- Any time during the insolvency resolution process, 75% of the creditors committee resolve to liquidate it.
- If the creditors committee fails to finalize a resolution within the stipulated 180 days.
- The resolution plan submitted by the committee is rejected by the NCLT.
Once the liquidation order is passed a moratorium shall be imposed on the corporate debtor and its assets.
There is a ‘waterfall mechanism’ as to the priority of claimants specified by the Code, and the debt shall be returned accordingly
Insolvency Resolution Process for Individuals and Unlimited Partnerships
The provisions of the Code applies in all cases of minimum default amount of Rs 1000 and above.
The Code specifies two procedures for insolvency:
- Automatic Fresh Start: Under this provision an eligible debtor can apply to be discharged from certain debts by the Debt Recovery Tribunal (DRT), permitting it to start afresh.
- Insolvency Resolution: The debtor can present a repayment plan to the creditors, and if approved, shall be presented to the DRT. The DRT shall pass an order that will be binding on all. If rejected, then either party can apply for bankruptcy.
According to Section 3 (11) of IBC, debt refers to any amount or obligation which is due from anyone; it includes financial as well as operational debt.
If the employees or workmen have their past payments as due, they fall under the category of Operational Creditor.
An Interim Resolution Professional is an insolvency professional who has been proposed in the application by the resolution applicant. He is appointed by the Adjudicating authority to manage the corporate till a Resolution Professional is appointed by the Committee of Creditors.
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