File For Bankruptcy Petition: Insolvency describes the financial situation of an enterprise failing to pay its debts as they become due. The company, in other words, has more debt than assets or income to adhere to its financial obligation towards its creditors. To address the insolvency of a company by helping it revive, the Corporate Insolvency Resolution Process (CIRP) is the procedure established under the Insolvency and Bankruptcy Code (IBC), 2016 by the governmen.
The operational creditor, financial creditor or the corporate itself can initiate CIRP before the National Company Law Tribunal (NCLT) for defaulting in debt payments. In case the revival attempt fails by resolving the insolvency, liquidating the company’s assets can be opted. NCLT with territorial jurisdiction over the place where the registered office of the corporate is, serves as the adjudicating authority for insolvency resolution. The default threshold for initiating CIRP is Rs 1 crore as per a government notification in March 2020.
Here’s is the process to file an insolvency petition with NCLT under IBC:
- The insolvency resolution process begins with the creditor (financial or operational) or the company applying to NCLT with a CIRP petition and NCLT admitting the petition and passing an order to initiate the process. The date of the NCLT order is known as the insolvency commencement date (ICD).
- The order declares a moratorium to prohibit a couple of things such as new or existing suits against the corporate debtor, transferring or disposing of any operational, financial, legal or managerial obligations of the corporate debtor; recovery of debt against the debtor and recovery of any property possessed by the debtor till the completion of the insolvency process.
- This follows a public announcement of the order by an interim resolution professional appointed by NCLT (proposed by the company) who is responsible for settling claims under the process and looking after the management.
- The public announcement includes details such as name and address of the corporate debtor, name of authority where the corporate debtor is incorporated, last date for submission of claims, details of interim resolution professional, estimated date of closure of CIRP, the state where claim forms can be downloaded or obtained from, and the choice of three insolvency professionals identified to act as the authorised representative of creditors.
- Then comes constituting the Committee of Creditors by the interim resolution professional after he/she collates all claims submitted by creditors against the corporate debtor.
- The committee comprises financial creditors who are not related parties of the debtor.
- The first meeting of the committee is to be held within seven days of the filing of the report of its constitution to NCLT.
- The committee decides to continue with the interim resolution professional as the resolution professional or replace him/her and communicate the same to NCLT.
- The resolution professional appointed then prepares an information memorandum having information on the corporate debtor to formulate a resolution plan.
- The memorandum has to be submitted by the resolution professional electronically to every member of the committee or resolution applicants within two weeks of his appointment.
- The resolution applicants then prepare the resolution plan based on the information provided in the memorandum and share it with the resolution professional within a minimum of 30 days.
- The resolution plan is referred to as a plan proposed for insolvency resolution that includes provisions around the restructuring of the corporate debtor through merger, amalgamation and demerger.
- The plan should also provide for payment of the insolvency process, clearing debts of creditors, managing the company affairs, and other requirements by the Insolvency and Bankruptcy Board of India (IBBI).
- The resolution plan submitted needs the approval of at least 66 per cent votes of the committee members. The plan with the highest votes is considered approved.
- Importantly, the plan should be approved within 180 days from ICD and submitted to NCLT. NCLT may grant a one-time extension of 90 days.
- The NCLT if satisfied with the plan meeting the requirements of IBC approves it.
- The NCLT may order the liquidation of the corporate debtor if the resolution plan is not filed within 180 days of ICD or such other extended period or if it rejects the resolution plan.