Date : 15-01-2020
After the admission of application for corporate insolvency, submitted to the Adjudicating Authority by the corporate debtor, financial creditor or operational creditor under section 7,9 or 10 of the Insolvency and Bankruptcy Code, 2016 (“I & B Code”), the Corporate Insolvency Resolution Process (“CIRP”) commences.
What is Corporate Insolvency Resolution Process?
CIRP is a mechanism through which the Insolvency Resolution Professional (“IRP”) assesses whether the corporate debtor is capable of repaying its debt or not by evaluating its assets and liability. In this process, the Insolvency Resolution Professional (“IRP”) invites proposals for insolvency resolution of the corporate debtor as a going concern known as Resolution Plan (“Plan”), from the general public. This plan is then presented to the committee of the financial creditors of the company known as Committee of the Creditors (“COC”) and Adjudicating Authority for approval. Once approved, the Plan will be binding on all the stakeholders of the corporate debtor including members, creditors and employees. In case no plan gets approved by the COC and Adjudicating Authority then the corporate debtor goes into liquidation.
Stage by stage CIRP is as follows:
Stage 1: Appointment of Interim Insolvency Resolution Professional.
After the application made under section 7,9 or 10 of the Code is admitted by the adjudicating authority then the management of the company gets dismissed and it is taken over by an Interim Insolvency Resolution Professional.
[Section 16 of the I & B Code]
The imposition of a moratorium.
As soon as the application is admitted a moratorium is imposed which prohibits:-
[Section 14 of the I & B Code]
Stage 2: Ascertaining of classes of creditors and identifying three insolvency professionals.
Time frame- Before the public announcement is made at stage 3.
The interim insolvency resolution professional shall examine the books of accounts and other relevant records of the Corporate Debtor and ascertain classes of creditors. He shall also get the valuation done by two independent registered valuers within 7 days of his appointment.
After ascertaining classes of creditors, the interim insolvency resolution professional shall identify three insolvency professionals who will be willing to represent the different classes of creditors.
[Rule 4A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016]
Stage 3: Public announcement and summon of claims by the creditor.
Time frame- Within 3 days of the appointment of an interim insolvency resolution professional.
Within 3 days of the appointment of the interim Insolvency Resolution Professional, he/she shall make a public announcement in English and regional language newspaper and the website of the corporate debtor informing the general public about the commencement of CIRP of the corporate debtor and inviting claims from all the creditors of the corporate debtor along with proof of such claim. This public announcement should also contain:
[Section 13 of the I & B Code and Rule 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016]
Stage 4: Verification of the claim of creditors and determination of the amount of claim.
Time frame- Within 7 days from the receipt of the claims.
The Interim Insolvency Resolution Professional shall verify the claims received from various creditors including financial creditors, operational creditors, workmen and employees. After verifying the claims, he/she shall make a list of creditors and admit the amount of claim and he/she shall:-
[Rule 13 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016]
Stage 5: Constitution of Committee of Creditors.
After verification of claims and determining the financial position of the corporate debtor the interim insolvency resolution professional shall constitute a committee of creditors. This COC shall comprise only of financial creditors who are not a related party of the corporate debtor. The COC can comprise of operational creditors only if the corporate debtor has no financial debts.
[Section 21 of the I & B Code]
Role and power of COC
After the appointment of COC, the control of the company totally shifts to the COC and IRP/Interim IRP. Every major decision will be taken by the COC and the IRP shall act on the decisions of the COC. Section 28 of the I & B Code provides for all the actions for which approval from the COC is required.
Voting rights of the members of the COC.
Every financial creditor shall have a voting share in the proportion of financial debts owed to them. In case of a creditor being a financial as well as operational creditor then he/she shall have voting share to the extent of the financial debt owed to him.
[Section 24(6) of I & B Code and Chapter VII of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016]
Stage 6: Appointment of Insolvency Resolution Professional.
The COC in their first meeting, which has to be held within 7 days of its constitution shall either decide to appoint the already appointed interim insolvency resolution professional as the IRP or appoint another IRP. After it has taken its decision it shall communicate its decision to the Adjudication Authority. In case the COC decides to replace the interim insolvency resolution professional then the approval of the Insolvency and Bankruptcy Board of India shall also be required.
[Section 22 of the I & B Code]
Stage 7: Preparation and submission of information memorandum to the COC.
Time frame- Within two weeks of the appointment of the IRP but not later than 54th day of the commencement of CIRP.
The IRP shall prepare an information memorandum which shall include details of the assets and liabilities of the corporate debtor and all the other details as prescribed in Rule 36 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.
Stage 8 Invitation for expression of interest.
Time frame- Within 75 days of the commencement of the CIRP.
The IRP shall publish an invitation in the newspapers and the websites inviting prospective resolution applicants to express their interest in submitting a resolution plan for insolvency resolution of the corporate debtor. The IRP shall also prescribe criteria and ineligibility norms for the resolution applicants.
[Rule 36A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016]
Stage 9: Request for resolutions plans.
After vetting the expression of interest received the IRP shall invite resolution plans from the prospective resolution applicants who met the prescribed norms. The IRP shall provide them with the information memorandum on the basis of which they shall propose resolution plans. A resolution plan has to contain all the details as prescribed in Rule 37 and 38 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016.
A resolution plan shall mandatorily contain:
[Rule 36B of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016]
Stage 10: Approval of resolution plan by COC.
After receiving the resolution plans the IRP shall place all the resolutions plans which shall meet the eligibility criteria in front of the COC. The COC shall evaluate the resolution plan in the manner prescribed in rule 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016. After the evaluation, the COC shall identify best resolution plan and may approve the same.
If a resolution plan is approved before the expiry of the time prescribed then the plan will be submitted before the adjudicating authority for approval. If any plan is not approved or no plan was received within the time prescribed then the corporate debtor will go into liquidation.
[Section 30 of the I & B Code and Rule 37,38 and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016]
Stage 11: Approval of resolution plan by the adjudicating authority.
Time frame- As soon as it is approved by the COC.
The IRP shall submit the resolution plan duly approved by the COC to the adjudicating authority before the expiry of 180 days or before the expiry of any extension, if granted. The adjudicating authority may either approve the resolution plan or reject it on the ground that it does not meet the requirements of the provisions of section 30(2) or section 30(4) of the I & B Code.
[Section 31 of the I & B Code]
Section 12 of the I & B code provides for the time limit of the CIRP. The CIRP has to be completed within 180 days from the date of admission of application for CIRP. Only one extension of 90 days can be granted by the adjudicating authority for the completion of the whole process if it is requested by the COC. If the CIRP is not completed within this time frame then the corporate debtor mandatorily gets liquidated.
The whole process of CIRP is done under the supervision of the Adjudicating Authority and the COC.
Disclaimer: - This article is for the general information and awareness of its readers, In-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author's views on the subject and completely unbiased based on authors own experience, study and understanding.
Author : EasyLegalTax Team