Commencement of Corporate Insolvency Resolution Process

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Introduction

IBC, 2016

A law passed by the Parliament was used to implement the Insolvency and Bankruptcy Code (IBC) 2016. In May 2016, it received presidential approval after repealing the Sick Industrial Companies Act, of 1985, the presidency of Towns Insolvency Act, of 1909, and the provincial Insolvency Act, 1993 among many others. In order to settle down suits/disputes involving insolvent enterprises, the Centre created the IBC in 2016.

The IBC Code, 2016 offers an all-in-one solution for resolving insolvencies, which was previously a drawn-out procedure without an economically sensible answer. The code intends to simplify corporate operations and safeguard the interests of small investors as well as corporations. There are 255 sections and 12 schedules in the IBC.

CIRP

CIRP or Corporate Insolvency Resolution Process is a process through which it is ascertained whether the person or company that has defaulted the payment of INR 1 crore is capable of repayment or not. It is a kind of recovery mechanism which is available to the creditors under the provisions of IBC, 2016.

The Insolvency proceedings by a Corporate Debtor (3(8)), Financial Creditor (5(7)), or an Operational Creditor (5(20)) is constituted under the adjudicating authority of the IBC Code, 2016, and initiated under sections 7, 9, 10 respectively.

CIRP (Corporate Insolvency Resolution Process)

1. Application to the NCLT i.e. (National Company Law Tribunal)

A corporate (Financial or Operational) Creditor, or the corporate debtor itself, may submit a request to the NCLT (National Company Law Tribunal) regarding the dues or non-payment respectively. It is employed to acknowledge that the company joins the CIRP (Corporate Insolvency Resolution Process). For this, creditors must establish the non-payment of a debt of more than 1 Crore, and the NCLT (National Company Law Tribunal) must issue a decision within 14 days either granting or refusing the case.

When filing their petitions before the NCLT (National Company Law Tribunal), the Financial Creditor and an Operational Creditor must adhere to different rules. A Financial Creditor must deliver the default report directly to the NCLT (National Company Law Tribunal), but the Operational Creditor must first issue a claim for the money owed to him in the form of a demand notice. It is possible for the corporate debtor to contest the claim in an ongoing dispute.

2. Appointment of IRP i.e. (Interim Resolution Professional)

Once the NCLT (National Company Law Tribunal) has accepted the commencement of the proceedings as in accordance with the IBC, 2016, the board of directors is reviewed before a corporate debtor is admitted to the CIRP (Corporate Insolvency Resolution Process).

Additionally, the management is entrusted to a neutral “Interim Resolution Professional”. The management and the corporation lose all influence and control over the operations of the company beginning at this point and continuing through the completion of the CIRP (Corporate Insolvency Resolution Process).

3. Moratorium

The dictionary meaning refers to a temporary prohibition of an activity. Once the proceeding of CIRP (Corporate Insolvency Resolution Process) starts there are certain restrictions are imposed upon the other parties or creditors regarding:

  • Any ongoing or new legal proceedings involving the corporate debtor.
  • Execution of a security interest and transfer of its asset.
  • Getting your property back as an owner

The moratorium lasts while the corporate debtor is undergoing the CIRP (Corporate Insolvency Resolution Process) procedure, halting the delivery of fundamental goods and services.

4. Analysis and verification of the claims made by creditors

In this stage, the IRP (Interim Resolution Professional) previously appointed will summon and verify the claims made by the creditors and corporate debtors, this is mainly done to check that the claims previously made by the parties involved are actually true or not and also to ensure transparency.

5. Constitution of COC i.e. (Committee of Creditors)

The IRP (Interim Resolution Professional) will constitute and collect the Committee of Creditors within 30 days of the acceptance of the company or party into CIRP (Corporate Insolvency Resolution Process) by the NCLT (National Company Law Tribunal).

The COC (Committee of Creditors) will then appoint within 7 days a Resolution Professional.

6. Appointment of Resolution Professional

For the remaining proceeding of the CIRP (Corporate Insolvency Resolution Process), the COC (Committee of Creditors) designates a third party to serve as the “Resolution Professional” in the Corporate Insolvency Resolution Proceeding. Depending upon the COC (Committee of Creditors), the Resolution Professional will either be the same as IRP (Interim Resolution Professional) as or a different individual from the IRP (Interim Resolution Professional).

7. Acceptance of the Resolution plan proposed by Resolution Professional

Within 182 days of the start of the CIRP (Corporate Insolvency Resolution Process), creditors must adopt a resolution plan for the business reorganization and restructuring. Such a resolution plan may be proposed by anybody, including management, creditors, or any outside third party. Verifying that the plan meets the requirements outlined in the IBC is the responsibility of the Resolution Professional under the Insolvency and Bankruptcy Code, 2016.

Result

Now, 2 things can be fetched from the CIRP (Corporate Insolvency Resolution Process), i.e.

1. If Resolution Plan is accepted and sanctioned by the National Company law tribunal

The corporate debtor, as well as its workers, members, creditors, guarantors, and other stakeholders engaged in the resolution plan, are bound by the approval of the resolution plan when it satisfies the prerequisites. The Resolution Professional has one year from the date of the adjudicating authority’s (NCLT’s) permission to get all essential approvals required by any laws that are now in effect.

2. If at this time no settlement proposal is approved

The NCLT (National Company Law Tribunal) is required to order the corporate debtor’s liquidation if the resolution plan is asserted. Following COC’s (Committee of Creditors) approval of the liquidation, the liquidator is chosen to liquidate the corporate debtor’s assets and distribute the proceeds among the stakeholders, creditors, etc.


This article has been authored by Srishti Bansal, a student at Amity University, Noida, Uttar Pradesh.


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