For all matters of debt, defaults, and insolvency, the Insolvency and Bankruptcy Code, 2016 (“IBC”) provides for regulations and processes required for revival or insolvency of corporate debtors. The Code provides for a corporate insolvency resolution process wherein the creditors can apply for company dissolution in case of non-payment of their dues by taking the help of National Company Law Tribunal (“NCLT”).
For the initiation of the corporate insolvency resolution process, the application has to be filed with the NCLT as prescribed under Section 7, Section 9, Section 10 of the IBC, 2016. The series of events in the Corporate Insolvency Resolution Process has been explained in this post:
Submission of application by creditors to NCLT
The financial creditors either themselves jointly can serve an application to NCLT for acknowledging the non-fulfillment of debt obligations by a company. Based on the records, pieces of evidence, and information provided, the Adjudicating Authority (“AA”) or the Tribunal shall accept or reject the application against the entity. On acceptance of the application, NCLT shall issue a notice to the company demanding initiation of the Corporate Insolvency Resolution Process.
Going by the process the entity in default is provided by the timeline to come up with a solution for creditors within 180 days as provided under Section 12 of IBC, 2016), which can only be extended to further 90 days with the order of Tribunal. Public announcement for initiation of the resolution process against the company is also to be made, keeping in mind claims of other creditors before the resolution process is completed
The alleged issues of creditors on the company shall be held frozen till 180 days by the Tribunal. Bypassing an order, the tribunal shall then declare for a moratorium to prohibit any pending suits, issues judgments pending against the company or transfer/disposal or alienation of any asset or change in the legal module of the company till the resolution plan receives approval or liquidator initiates for the appointment of Interim Resolution Professional.
Appointment of Interim Resolution Professional:
- Within 14 days of the commencement of the insolvency resolution process, the Tribunal shall appoint an Interim Resolution Professional who will be authorized person for managing the affairs of the company till the resolution process is completed.
- The professional will be appointed by Adjudicating authority on request of the Tribunal and for a maximum tenure of 30 days from the day of the start of the insolvency resolution process.
The Interim Resolution Professional shall undertake the insolvency resolution process further by managing the affairs of the company as Board of Directors (BOD) and the managers or officers shall be compelled to report their working to the resolution professional. The Interim resolution professional will be provided access to all required documents, financial reports and have hold of powers in the company as required for the insolvency resolution process.
Formation of Committee of Creditors (COC):
On receipt of all credit claims from financial creditors and after knowing the financial status of the company, the Interim resolution professional shall constitute a ‘’Committee of Creditors ‘’.The Committee can ratify decisions of the appointed resolution professional or can approve or reject the resolution plan and, the committee can take hold of all decisions of the Resolution professional and work as a guide in the overall Corporate Insolvency Resolution Professional. About 75% of votes in favor of a decision of the committee members, shall make the decision executable and mandatory.
Appointment of Resolution Professional (“RP”) and the Resolution plan:
For the sake of the appointment of Resolution professional (Section 16 of IBC) for CIRP, the Committee of Creditors can cast their 75 % votes in favor of Interim Resolution Professional to be appointed as Resolution Professional as appointed by the Tribunal or they may appoint another Resolution Professional in a similar way of their choice.
The Resolution professional shall undertake the insolvency resolution process further and prepare for an Information Memorandum and an actionable resolution plan. After the preparation of the resolution plan, it will have to be presented to the Committee of Creditors for approval.
Submission and execution of Resolution Plan:
After all discussions and alterations, the final resolution plan shall be prepared and on receipt of approval from the Committee of Creditors (“COC”), it has to be submitted to the Tribunal by the Resolution professional. Once approved by the Tribunal, the resolution plan shall bind the company, employees, creditors, guarantors, and other stakeholders to follow the norms as involved in the resolution plan.
In case, the Resolution professional fails to submit a resolution plan, then the tribunal may issue orders for the liquidation of the company.
In conclusion, the government has tried to simplify the way for corporate creditors to receive their lending back with prompt legal proceedings. A midway solution has been granted through a resolution plan to the corporate debtors and to prevent damages faced by them in the economy through the insolvency resolution process.
Terms to Know:
- Insolvency Resolution Professional :
A professional or agency registered under the Insolvency and Bankruptcy Board of India (IBBI), required to act on behalf of an insolvent individual or company. An insolvency resolution professional builds the resolution plan and undertakes the process of insolvency resolution for insolvent persons or companies.
- Resolution Professional:
Professional authorized to build the resolution plan and undertake the resolution process on behalf of an insolvent person or company. In case of bankruptcy, a resolution professional is appointed to undertake to build a resolution process or undertake the dissolution or liquidation process.
- Adjudicating Authority:
For consideration of insolvency and rules there in the Insolvency and Bankruptcy Code, 2016, the National Company Law Tribunal (NCLT) as per Section 408 of Companies Act, 2013 shall be considered as the adjudicating authority.
- Committee of Creditors (COC) :
The Committee of creditors shall comprise a unit of all creditors of the corporate debtor. Such a committee has the authority to make required directions to the resolution professionals for making available the information to make a decision any time during such a resolution process.
- Resolution Plan :
The Plan prepared by insolvency resolution professional approved by the Committee of Creditors (COC) for insolvency resolution of the insolvent corporate debtor.
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