CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016
Preamble of the the insolvency and bankruptcy code, 2016 states it is an act to consolidate and amend the law relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all the stake holders including alteration in the order of priority of payment of government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.
The following process is envisaged under the Act for corporate insolvency resolution which involves the following insolvency intermediaries.
- The financial creditor/operational creditor or Corporate Debtor as the case may be, initiate the Corporate Insolvency Resolution Process (CIRP) by application to National Company Law Tribunal (NCLT) under section 7,8 and 10 respectively.
- Financial Creditr on default and operational creditor after 10 days from the dat e of delivery of demand notice can initiate the CIRP.
- A financial creditor and corporate Debtor shall propose the name of Insolvency Resolution Professional (IRP) and operational creditor may propose the IRP.
- NCLT within 14 days of receipt of application by order admit or reject the application, however before rejecting the application NCLT shall give notice to rectify the defect within 7 days of receipt of notice.
- Intimation of admission or rejection to be given by NCLT within seven days of admission or rejection.
- NCLT to declare moratorium, appoint interim resolution professional (IRP) for a term not exceeding 30 days from the date of appointment and cause public announcement.
- Public announcement shall contain the information, such as name and address of the Corporate debtor under the CIRP, name of the authority with which corporate debtor is registered, the last date for submission of claims and date on which CIRP will be closed.
- Insolvency Commencement date, which is the date of admission of an application for initiating CIRP by the NCLT, starts from the date of admission and to be completed within 180 days of commencement which can be extended to ninety days more by NCLT. There is no clause for further extension is provided under the Act.
- Interim Resolution professional to constitute committee of creditors comprising all financial creditors.
- Management of affairs of the corporate debtor as a going concern, powers of Board of Directors or the partners of debtor shall stand suspended and exercised by the IRP.
- Committee of Creditors after 7 days of its Constitution either to resolve to appoint a IRP as Resolution Professional (RP) or replace IRP with another RP.
- All decisions of committee of creditors shall be taken by vote of not less than 75% of voting share of financial creditor. The voting share hereto is calculated by the percentage of debt wned by the creditor to the total debt of the corporate debtor.
- Preparation of Information Memorandum by RP for formulation of Resolution Plan by Resolution applicant.
- Resolution applicant prepares the Resolution Plan based on information memorandum.
- Submission of Resolution plan by Resolution applicant to be examined by RP and to be approved by 75% of voting share of financial creditor.
- RP to submit approved resolution Plan to NCLT which shall approve or reject and order accordingly for liquidation.
- The approved plan is binding on all the corporate debtors and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.
- Moratorium ends on the date of approval.
- Appeal may be preferred to NCLT on rejection.
VOLUNTARY WINDING UP UNDER IBC, 2016
A company or a Limited Liability Partnership or an entity incorporated with limited liability under any other law for the time being in force may liquidate itself voluntarily and may initiate voluntary liquidation process under the provisions of Section 59 of Chapter V of Insolvency and Bankruptcy Code, 2016.
The voluntary liquidation of a corporate person must meet the following conditions and procedural requirements:-
- Declaration of solvency to be made by the majority of Directors regarding no debt or ability to pay debts and declaration regarding non-defraud of any person.
- The above said declaration need to accompany the audited financial statements and a report of the valuation of the assets of the company by a registered valuer.
- A special resolution to be passed in the general meeting of the Company requiring the company to be voluntarily liquidate and to appoint an Insolvency Professional to act as liquidator.
- Approval of Creditors of the Company shall be obtained within 7 days from the date of passing the special resolution in general meeting.
- Registrar of Companies and Insolvency and Bankruptcy Board of India to be notified about the general body resolution within 7 days.
- Voluntary liquidation process shall be deemed to have commenced from the date of passing of the General Meeting of the Company and the section 35 to 53 of the code shall apply to voluntary liquidation process.
- Once the affairs of the corporate person have been completely wound up and its assets are completely liquidated , the liquidator shall make an application to NCLT for the dissolution of the Corporate person and NCLT shall pass an order on the application.