Corporate Insolvency Resolution Process (CIPR)

The Corporate Insolvency Resolution Process is governed by the provisions of Chapter II of Part II of the Insolvency and Bankruptcy Code, 2016.

Going by the provisions enshrined in the code, the corporate insolvency resolution process can be initiated by financial creditor, operational creditor and even by the corporate debtor himself. The financial creditors can individually or jointly initiate the CIRP.The code being a time bound legislation has clearly prescribed the time period at each level right from the level of filing the application with the adjudicating authority to the end stage of completion of CIRP. The operational creditors can file application for initiating CIRP on occurrence of default where the raised demand notice remains unhonoured by the corporate debtor.

The code prescribes the duration of 180 days, from the date of admission of application during which the CIRP can be initiated. On proving of sufficient cause and on the request of resolution professional an extension of further 90 days in addition to already provided 180 days shall be granted to initiate CIRP.

After the admission of the CIRP by the concerned adjudicating authority, a moratorium period shall commence .During the moratorium period there shall be a stay on all the suits/legal actions for recovery against the corporate debtor. It is important to note that during moratorium period the supply of essential goods or services to corporate debtor shall not be terminated.

Once the application is admitted, an interim resolution professional is appointed for a term of 30 days. The significant task for interim resolution professional would be to constitute a Committee of creditors (CoC).once the committee is constituted, a meeting of the newly constituted committee shall be convened wherein the appointment of interim resolution professional as resolution professional shall be approved. The committee can also appoint another resolution professional, provided that a majority vote of not less than 75%, of voting share of financial creditors is obtained.

The resolution professional appointed shall conduct the entire CIRP and manage the operations of corporate debtor during the CIRP. He shall in addition to managing the operations, submit a resolution plan before the committee of creditors for seeking their approval thereafter forwarding the same to the concerned adjudicating authority for further approval.

By Financial Creditors

A financial creditor can either severally or jointly with other financial creditors file an application for initiating CIRP against an adjudicating authority on occurrence of a default. For initiating the CIRP, the financial creditor would be required to make an application in FORM 1along with fee of Rs. 25,000.A set of required annexures as prescribed shall also be attached along with the application.

On receipt of the application, the concerned adjudicating authority shall within 14 days identify as to whether a default exists on the basis of records available with information utility. The adjudicating authorities on being satisfied that a default has occurred and there exist no pending proceedings admit the application, by passing an order for the same. However, if the adjudicating authority is of the view that a default has not occurred, filed application is incomplete or proceedings are pending against the corporate debtor then in such a situation it can by way of order reject the application. Prior to rejecting application an opportunity to rectify the defects shall be granted.

The CIRP shall be deemed to have commenced from the date on which application was admitted by adjudicating authority.

An outline of the process is as follows:

By Operational Creditors

An operational creditor shall primarily for settlement of his dues deliver a demand notice along with copy of invoice demanding the unpaid amount involved in the default to the corporate debtor. On receipt of the above demand notice, the corporate debtor shall either contest the existence of dispute or repay the unpaid operational debt. If the unpaid operational debt is repaid within 10 days of receipt of demand notice, the things would end here only. But if the unpaid debt remains unpaid even after 10 days of receipt of demand notice then operational creditor can go ahead for filing application with concerned adjudicating authority for initiating CIRP.

The application for initiating CIRP shall be filed by operational creditor in FORM 5 along with fee of Rs. 2,000.The operation creditor shall while filing application annex along with the application required information as prescribed .The operational creditor is eligible to propose a resolution professional who shall act as interim resolution professional., The adjudicating authority shall within 14 days of receipt of application either admit or reject the application. Prior to rejecting application, an opportunity to rectify the defects shall be granted. The CIRP shall be deemed to have commenced from the date on which application is admitted.

By Corporate Applicant

In a situation where corporate debtor has himself committed a default a corporate applicant can file an application against himself for initiating CIRP with the adjudicating authority. The application shall be filed in FORM 6 along with fee of Rs. 25,000.Along with application, corporate applicant shall attach the required information as prescribed. Within 14days of receipt of application, the adjudicating authority shall either accept or reject the application. The adjudicating authority shall grant an opportunity of rectifying the defects in the application prior to rejecting it.Also, the CIRP shall commence from the date on which application is admitted.

Debarred persons to make CIRP application

The provisions of the code debars the following persons from making an application to the adjudicating authority for initiating the CIRP .The debarred persons are as follows:

1. A corporate debtor who is undergoing the proceedings of corporate insolvency resolution process.
2. A corporate debtor who has at any time prior to making a fresh CIRP application has completed a time duration of 12 months.
3. A corporate debtor/financial creditor in violation of the terms of resolution plan that was approved 12 months prior to making of a fresh CIRP application at any time.
4. A corporate debtor against whom a liquidation order has been passed.

Time lag for completion of CIRP   

Once the application for initiating the corporate insolvency resolution process is admitted, endeavors shall be made to complete the insolvency process within 180 days. The resolution professional on obtaining approval of committee of creditors by a vote of 75% of voting shares can file an application to the adjudicating authority for extending the period of insolvency proceedings beyond 180 days. On receipt of application, if the adjudicating authority is satisfied that the CIRP cannot be completed within 180 days it may extend the time lag by granting an extension of not more than 90 days in excess to the existing duration of 180 days. It is important to note that the above extension in time lag duration of CIRP shall be granted only once.

Moratorium period

The term moratorium means temporary prohibition of an activity. In the legal sense the word means a legal authorization to debtor to postpone payment. The adjudicating authority after admitting the application for CIRP shall declare a moratorium period and make a public announcement that CIRP is being initiated.

During the moratorium period, there will be stay on all legal matters and proceedings. There would be no institution of fresh matters, continuation of pending legal cases or proceedings in any court, tribunal, arbitration panel or any other authority during the duration of moratorium period. The corporate debtor will not be permitted to transfer or dispose of any of its assets, legal rights and beneficial interest during the moratorium period. No recovery of property can be made from corporate debtor during moratorium period. It is important to note that during moratorium corporate debtor shall not be denied supply of essential goods or services.

The moratorium period shall be applicable from the date on which adjudicating authority will pass the order for applicability of moratorium and shall seize to have effect on the completion of CIRP.

If at any time during the CIRP period, the resolution plan is approved by the adjudicating authority or liquidation order is passed then in such a situation, the moratorium shall seize to have effect from date of approval or liquidation order.

Appointment of Interim Resolution Professional (IRP)

From the date of admission of CIRP application by adjudicating authority (“Insolvency commencement date”), the adjudicating authority shall within 14 days appoint an interim resolution professional.

In cases where application for CIRP is made by a financial creditor, operational creditor or the corporate debtor himself, then in such case the resolution professional as proposed in the CIRP application shall be appointed as an IRP. However where an application for CIRP is made by operational creditor and no interim resolution professional is proposed, then in such case the adjudicating authority would make a reference to the board for seeking recommendation of an insolvency professional who would act as interim insolvency professional. The board shall within 10 days recommend name of insolvency professional to adjudicating authority,

The Interim resolution professional shall be appointed for a term of not more than 30 days, from the date of his appointment.

Change of scene after entry of IRP

After the entry of IRP i.e. appointment, there will be observed a change of position. The management of the business of corporate debtors shall be handed over to the IRP so appointed. All powers that were previously exercised by the personnel of corporate debtor shall stand suspended and would not be exercised by the IRP. The officers and managers would report to IRP and provide him access to relevant records and documents.

The IRP being the driver of corporate debtors business, shall act and execute on behalf of and in the name of corporate debtor ,all deeds, receipts and other documents. While being the custodian of corporate debtor, the IRP shall take only such actions as are specified by the board. Also the IRP shall have all the required access to records and documents. The IRP being the supreme controller shall make endeavors to protect and preserve the property of corporate debtor and manage the business operations of corporate debtor as going concern.

Committee of Creditors (COC)

The IRP’s most important task is to constitute a committee of creditors. It’s the COC who possess the control in the CIRP proceeding. Accordingly the IRP after ascertaining the claims received constitute a committee of creditors. The committee shall consist of all the financial creditors of the corporate debtor. All decisions of the committee shall be taken by a vote of not more than 75% of the voting share of financial creditors. The resolution professional shall provide all the required information to the committee of creditors within 7 days of receiving a request for the same. The first meeting of the committee shall be held within 7 of the formation of the committee.

Appointment of Resolution Professional (RP)

The resolution professional shall be appointed by a majority vote of not less than 75% in the first meeting of committee of creditors. The committee of creditors has the option of appointing the Interim Resolution Professional as resolution professional or they can appoint another resolution professional apart from the interim resolution professional. Whatever be the decision of the committee of creditors relating to appointment of resolution professional shall be communicated to the adjudicating authority. The appointed resolution professional shall be responsible to conduct the complete process of corporate Insolvency and also manage the operations of corporate debtor during that time.

Meeting of committee of creditors

The committee of creditors being an important part of the corporate insolvency resolution process shall meet in person or by use of electronic means. The meetings of the committee shall be solely conducted by the resolution professional. The resolution shall provide notice of the meeting well in advance to : members of the committee, members of the suspended board of directors/partners of corporate persons and to the operational creditors or to their representatives. It is important to note that operational creditors shall have no voting rights in such meetings of the committee.

Replacement of Resolution Professional

The resolution professional as stated above is appointed by the committee of creditors and going by that statement, the resolution professional appointed to conduct CIRP shall be replaced by another resolution professional only by the committee of creditors. The committee of creditors shall replace a resolution professional by passing a vote of 75% of voting share. The committee shall forward the name of the insolvency professional proposed by them to adjudicating authority. On receipt of the name of proposed insolvency professional , the adjudicating authority shall forward the same to the board for seeking its confirmation.

Preparation of Information memorandum

The resolution appointed shall prepare an information memorandum containing the relevant information as required by the board for formulating a resolution plan.

Submission of Resolution Plan

The resolution applicant shall submit a resolution plan prepared on the basis of information memorandum along with an affidavit to the resolution professional. On receipt of the resolution plans the resolution professional shall examine each resolution plan received. The resolutions plans approved by the resolution professional shall be presented before the committee of creditors for seeking their approval. The committee of creditors considering the viability and scope of resolution plans approve a resolution plan by a vote of not less than 75% of voting share of financial creditors. The resolution plan once approved by the committee of creditors shall be submitted to the adjudicating authority by the resolution professional.

Approval of Resolution Plan

The adjudicating authority on being satisfied that the resolution plan as approved by the committee of creditors meets the requirements, it shall in such a case approve the resolution plan. The resolution plan once approved shall be binding on corporate debtor and his employees, members, creditors, guarantors and other stakeholders involved in the resolution process. The adjudicating authority if unsatisfied with the approved resolution plan can reject the same also. Once the resolution plan is approved, the moratorium period shall cease to have effect.

The brief outline of the corporate insolvency resolution process is summarized in the below process flow.

The corporate insolvency is a time consuming and bit complicated process. The Resolution Professional is the supreme governor of this process.

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