STAKEHOLDERS & RESOLUTION PROCESS IN IBC: A COMPLETE GUIDE

Written by ANUPAM AGARWAL , Founder of Ramniwas Surajmal: Advocates and Solicitors & High Court Advocate at Karnataka.

The Insolvency and Bankruptcy Code (IBC), 2016 is a law that helps businesses and individuals deal with financial troubles. When a company is unable to repay its debts, IBC provides a structured way to resolve the issue in a fair and timely manner. Let’s understand the important people involved and how the process works.

Who Are the Key People in IBC?

Company in Trouble (Corporate Debtor): The business that is unable to pay its debts. This includes companies that have taken loans or credit but are struggling to generate enough revenue to meet their financial commitments.

Lenders (Financial Creditors): Banks and financial institutions that have given loans. They are the primary stakeholders who have invested large sums of money in businesses and need a mechanism to recover their funds.

Suppliers & Service Providers (Operational Creditors): Businesses or individuals who have provided goods or services and are waiting for payment. These include vendors, contractors, and employees whose payments are crucial for their survival.

Decision-Making Group (Committee of Creditors - CoC): A group of financial creditors who decide on the next steps. They analyze the financial situation and determine whether the company should be restructured or liquidated.

Resolution Professional (RP): A person who takes charge of the troubled company and manages the process. The RP acts as a neutral party, ensuring all proceedings follow the law and are conducted transparently.

Legal Authority (National Company Law Tribunal - NCLT): The court that approves and oversees the entire process. NCLT ensures that the IBC is implemented correctly and protects the interests of all parties involved.

Regulatory Body (Insolvency and Bankruptcy Board of India - IBBI): The government organization that ensures fair execution of the IBC law and maintains a database of all registered insolvency professionals.

How Does the IBC Process Work?

1. Filing a Case:

If a company fails to pay its dues for 90 days or more, financial creditors, operational creditors, or the company itself can approach NCLT to start the process. The tribunal reviews the application and, if valid, admits the case. Once admitted, all stakeholders are notified, and the company’s management is suspended from making financial decisions.

2. Legal Protection (Moratorium Period):

Once the case is admitted, a moratorium is imposed. This means that all ongoing and new legal actions, debt recovery proceedings, or enforcement of security interests against the company are paused. The purpose is to provide a fair and stable environment for the resolution process.

3. Appointing an Expert (Resolution Professional - RP):

NCLT appoints a Resolution Professional (RP) to take control of the company’s operations. The RP assesses the company’s financial position, manages daily operations, and prepares an information memorandum containing financial details for potential resolution applicants. The RP also ensures compliance with all legal and regulatory requirements.

4. Public Announcement & Claims Submission:

The RP makes a public announcement inviting creditors to submit their claims. Creditors, both financial and operational, file claims with the RP within a specified period, typically 14 days. The RP verifies the claims and forms a complete list of creditors with their outstanding dues.

5. Creating a Plan (Resolution Process):

The RP forms the Committee of Creditors (CoC), primarily consisting of financial creditors. The CoC invites resolution plans from interested investors or companies. Each resolution plan must be viable, legally compliant, and aimed at reviving the company while balancing the interests of creditors and other stakeholders.

Bidders or investors submit their restructuring plans, which may include debt repayment schedules, new management structures, or asset sales.

6. Evaluation & Voting by Creditors:

The CoC evaluates all submitted resolution plans based on feasibility, financial viability, and compliance with IBC. A resolution plan is approved only if it receives at least 66% of the votes from the CoC members.

If no resolution plan is approved, the company moves into liquidation.

7. Approval of Resolution Plan by NCLT:

If a resolution plan is approved by the CoC, it is submitted to the NCLT for final approval. NCLT examines the plan to ensure fairness, compliance, and practicality before giving its final approval. Once approved, the company is handed over to the new management, and debts are restructured accordingly.

8. Liquidation Process (If No Plan Works):

If no suitable resolution plan is approved within 180-270 days, the company moves into liquidation. The company’s assets are identified, valued, and sold to recover funds. The proceeds from the sale are distributed among creditors based on priority, as per IBC guidelines. The company ceases to exist after liquidation, and any remaining debts are legally discharged.

9. Distribution of Proceeds from Liquidation:

The money from the liquidation is distributed in the following order of priority:

1. Insolvency Resolution Costs – Payments to professionals handling the process, including RPs and legal advisors.

2. Secured Creditors – Banks and financial institutions with security over assets receive their dues first.

3. Workmen & Employee Dues – Salaries, PF contributions, and compensations owed to employees are settled.

4. Operational Creditors – Suppliers and service providers who have pending payments receive their dues.

5. Unsecured Creditors & Other Stakeholders – Any remaining funds are distributed among remaining creditors, including government dues and equity shareholders.

10. Closure of the Process:

Once the resolution plan is successfully implemented or liquidation is completed, the process comes to an end. NCLT formally closes the case, and the company is either revived under new management or legally dissolved.

Why Is IBC Important?

• Faster Debt Resolution: Helps businesses and lenders avoid long legal battles and recover funds in a timely manner.
• Fair Process: Ensures that all parties, including small creditors, get a fair chance in the resolution process.
• Stronger Economy: Reduces the burden of unpaid loans and promotes healthy business practices, leading to overall economic stability.
• Encourages Investment: Foreign and Indian investors feel more confident knowing there is a structured recovery process, increasing business opportunities.

Final Thoughts

IBC has made handling financial difficulties more organized and transparent. By understanding the roles of different people involved and the step-by-step process, businesses and individuals can make better financial decisions.

Need Legal Advice on IBC? Ramniwas Surajmal: Advocates and Solicitors is here to guide you through the legal process smoothly.

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