Petition for CIRP

WHAT IS A CIRP?

The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 defines the expression “corporate insolvency resolution process” as “the insolvency resolution process for corporate persons under Chapter II of Part II of the Code.”

A Corporate Insolvency Process means a process where –

1. the financial creditors assess the viability of debtor’s business; and
2. the seek options for its revival and rehabilitation.

The failure of a CIRP results in the Liquidation of the Company.

Liquidation is the process by which the assets of the debtor are realized and distributed by the

liquidator in order to discharge its debts.

PERSONS WHO MAY INITIATE A CIRP

Section 6 of the IB Code, 2016 provides for three categories of people who may initiate a CIRP

against a Corporate Debtor. They are –

1. Financial Creditors
2. Operational Creditors
3. Corporate Applicant

PROCEDURE FOR MAKING APPLICATION

The IB Code, 2016 has envisaged the procedure for initiation of CIRP by different sets of people in

different sections. These are –

-Section 7 – Financial Creditors

-Section 8 & 9– Operational Creditors

-Section 10 – Corporate Applicant?

Initiation of Corporate Insolvency Resolution Process by Financial Creditors (Section 7)

The Financial Creditor shall file?Form 1?with NCLT to initiate insolvency proceedings against the

Corporate Debtor.

The Application u/s 7 of the IB Code, 2016 can be filed by –

– A financial creditor by itself;

– A financial creditor jointly with other financial creditors;

– Any other person on behalf of the financial creditor.

NOTE –?A financial creditor can apply corporate insolvency resolution process even

if the default is in respect of a debt of another financial creditor.

Further, If the NCLT finds that –

• The Application is incomplete, or
• The Resolution Professional whose name is suggested is not eligible, or
• Default has not occurred

it may return the application to the applicant. The applicant has a duration of?7 days?to rectify the mistakes and resubmit the application to the NCLT failing which, the application shall be rejected.

Initiation of Corporate Insolvency Resolution Process by an Operational Creditor (Section 8and 9)

The process to be followed by the operational creditors to file an application for initiation of a CIRP against a corporate debtor is dealt with by two sections –

SECTION 8 –

Section 8 lays down the various rules related to the issuance of demand Notice to the CorporateDebtor by the Operational Creditor.

SECTION 9 –

Section 9 lays down the procedure that needs to be followed by the Operational Creditor after the demand notice has been issued.

The following chart shows the procedure that needs to be followed –

NOTE –?The Applicant under section 9 is not required to mandatorily suggest the name for the interim resolution Professional.

The Operational Creditor shall file?Form 5?with NCLT to initiate insolvency proceedings against the corporate Debtor.

Initiation of Corporate Insolvency Resolution Process by the Corporate Applicant (Section 10)

It is to be noted that initially when the IB Code, 2016 was enacted, the power to apply to section 10 was given to the Corporate Debtor only. This was subsequently amended, and the term Corporate Applicant was inserted in the section. This was done to widen the scope and ambit of the Section.

NOTE-?The Corporate Applicant can only initiate the corporate insolvency resolution process upon the occurrence of default and not on the mere likelihood of inability to pay debts.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise.?AKGVG & Associates ?does not intend to advertise its services through this.

Posted by:

CS Neetu Saini

AKGVG & Associates