The basic idea of new law is that when an enterprise (individual, firm or corporation person) defaults, the control shifts to Committee of Creditors. They have specified time limit to evaluate proposals for resuscitating (rehabilitating) the enterprise or take to liquidation. Decisions are required to be taken in a time bound manner so that there are greater chances that the enterprise is saved as a going concern and productive resources of economy can be put to best use.
Part II of Insolvency and Bankruptcy Code, 2016 (IBC, 2016) deals with insolvency resolution and liquidation for corporate persons. The actual work will be mostly handled by ‘resolution professional’ (who will be registered ‘insolvency professional’) under supervision of Adjudicating Authority (NCLT). At first instance, corporate insolvency process will be initiated. In most of the cases, this will be initiated by secured creditors or corporate person itself. In rare cases, the process will be initiated by other creditors.
Insolvency professional will form a committee of creditors and with their concurrence, efforts will be made to evolve finalise plan to revive the corporate person. This process will last for 180 days, extendable by further maximum 90 days. During this period, efforts will be made to evolve a ‘resolution plan’ to rehabilitate the ailing corporate. A Fast Track Corporate Insolvency Resolution will be available to small corporate persons.
If the efforts fail, the corporate person will be liquidated in time bound manner. NCLT will be Adjudicating Authority and NCLAT will be appellate authority for corporate persons.
Provisions relating to Corporate Insolvency Resolution Process (section 4 to section 32 of Insolvency Code) have been made effective from 1-12-2016. Provisions relating to Liquidation Process of Corporates (section 33 to section 59 of Insolvency Code) have not been brought into effect (as on 1-12-2016).
|S. No.||Topic/ Activity||Timeline|
|1.||Insolvency resolution process period – Section 5(14)||means the period of one hundred and eighty days beginning from the insolvency commencement date and ending on one hundred and eightieth day.|
|2.||Initiation of corporate insolvency resolution process by financial creditor – ascertainment of the existence of a default – Section 7(4)||The Adjudicating Authority shall, within 14 days of the receipt of the application, ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor.|
|3.||Initiation of corporate insolvency resolution process by financial creditor – rejection of application for initiating corporate insolvency resolution process – Section 7(5)||The Adjudicating Authority shall, before rejecting the application, give a notice to the applicant to rectify the defect in his application within 7 days of receipt of such notice from the Adjudicating Authority|
|4.||Initiation of corporate insolvency resolution process by financial creditor – communication of order – Section 7(7)||The Adjudicating Authority shall communicate—
(a) the order regarding a default has occurred, the application is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, to the financial creditor and the corporate debtor;
(b) the order regarding default has not occurred or the application is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, to the financial creditor,
within 7 days of admission or rejection of such application, as the case may be.
|5.||Insolvency resolution by operational creditor – corporate debtor response to demand notice – Section 8(2)||The corporate debtor shall, within a period of 10 days of the receipt of the demand notice or copy of the invoice, bring to the notice of the operational creditor—
(a) existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
(b) the repayment of unpaid operational debt—
(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or
(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.
|6.||Application for initiation of corporate insolvency resolution process by operational creditor – filing application before the Adjudicating Authority for initiating a corporate insolvency resolution process – Section 9(1)||After the expiry of the period of 10 days from the date of delivery of the notice or invoice demanding payment, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.|
|7.||Application for initiation of corporate insolvency resolution process by operational creditor – Admission or rejection of application by Adjudicating Authority – Section 9(5)||The Adjudicating Authority shall, within 14 days of the receipt of the application, by an order—
(i) admit the application and communicate such decision to the operational creditor
(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor
The Adjudicating Authority, shall before rejecting an application under clause (ii) give a notice to the applicant to rectify the defect in his application within 7 days of the date of receipt of such notice from the Adjudicating Authority
|8.||Initiation of corporate insolvency resolution process by corporate applicant – Section 10(4)||The Adjudicating Authority shall, within a period of 14 days of the receipt of the application, by an order—
(a) admit the application, if it is complete; or
(b) reject the application, if it is incomplete:
Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within 7 days from the date of receipt of such notice from the Adjudicating Authority.
|9.||Time-limit for completion of insolvency resolution process – Section 12||
|10.||Public announcement – Section 15 read with Regulation 6||• An insolvency professional shall make a public announcement not later than 3 days from the date of his appointment as an interim resolution professional;
• The public announcement shall provide the last date for submission of proofs of claim, which shall be 14 days from the date of appointment of the interim resolution professional.
|11.||Appointment and tenure of interim resolution professional – Section 16||• The Adjudicating Authority shall appoint an interim resolution professional within 14 days from the insolvency commencement date;
• Where the application for corporate insolvency resolution process is made by an operational creditor and no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional;
• The Board shall, within 10 days of the receipt of a reference from the Adjudicating Authority, recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending;
• The term of the interim resolution professional shall not exceed 30 days from date of his appointment.
|12.||Verification of claims – Regulation 13||The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within 7 days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it.|
|13.||Making available any financial information so required by the committee of creditors – Section 21(10)||• The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process;
• The resolution professional shall make available any financial information so required by the committee of creditors within a period of 7 days of such requisition.
|14.||First meeting of committee of creditors – Section 22(1) read with Regulation 17||• The interim resolution professional shall file a report certifying constitution of the committee to the Adjudicating Authority on or before the expiry of 30 days from the date of his appointment;
• The interim resolution professional shall convene the first meeting of the committee within 7 days of filing the report under this Regulation;
• The first meeting f the committee of creditors shall be held within 7 days of the constitution of the committee of creditors.
However, it is pertinent to note here that, as per section 16(5) of the Code, the term of the interim resolution professional shall not exceed 30 days from date of his appointment and whereas Regulation 17(1) of the CIRP Regulations provides 30 days time for filing report certifying constitution of Committee and thereafter convening the meeting of Committee within 7 days thereafter.
Thus, the report certifying constitution of committee shall be submitted with Adjudicating Authority in such a manner that the first meeting of committee shall be convened within the period of 30 days from the date of appointment of interim resolution professional i.e. before the expiry of the office of interim resolution professional.
|15.||Notice for meetings of the committee – Regulation 19||• A meeting of the committee shall be called by giving not less than 7 days’ notice in writing to every participant, at the address it has provided to the resolution professional and such notice may be sent by hand delivery, or by post but in any event, be served on every participant by electronic means;
• The committee may reduce the notice period from 7 days to such other period of not less than 24 hours, as it deems fit.
|16.||Appointment of registered valuers – Regulation 27||The interim resolution professional shall within 7 days of his appointment, appoint two registered valuers to determine the liquidation value of the corporate debtor|
|17.||Replacing the interim resolution professional – Section 22(4) and (5)||• The committee of creditors, may, in the first meeting, by a majority vote of not less than 75% of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional;
• Where the committee of creditors resolves to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional;
• The Adjudicating Authority shall forward the name of the resolution professional proposed above to the Board for its confirmation and shall make such appointment after confirmation by the Board;
• Where the Board does not confirm the name of the proposed resolution professional within 10 days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the interim resolution professional to continue to function as the resolution professional until such time as the Board confirms the appointment of the proposed resolution professional.
|18.||Transfer of debt due to creditors – Regulation 28||• In the event a creditor assigns or transfers the debt due to such creditor to any other person during the insolvency resolution process period, both parties shall provide the interim resolution professional or the resolution professional, as the case may be, the terms of such assignment or transfer and the identity of the assignee or transferee;
• The resolution professional shall notify each participant and the Adjudicating Authority of any resultant change in the committee within 2 days of such change.
|19.||Information Memorandum – Regulation 36||The interim resolution professional or the resolution professional, as the case may be, shall submit an information memorandum in electronic form to each member of the committee and any potential resolution applicant containing—
(a) at least the matters listed in paragraphs (a) to (i) of sub-regulation (2), before its first meeting; and
(b) matters listed in paragraphs (j) to (l) of sub-regulation (2), within 14 days of the first meeting.
Matters specified in Regulation 36(2):
The information memorandum shall contain the following details of the corporate debtor—
(a) assets and liabilities, as on the insolvency commencement date, classified into appropriate categories for easy identification, with estimated values assigned to each category;
(b) the latest annual financial statements;
(c) audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than 14 days from the date of the application;
(d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims;
(e) particulars of a debt due from or to the corporate debtor with respect to related parties;
(f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party;
(g) the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake;
(h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities;
(i) the number of workers and employees and liabilities of the corporate debtor towards them;
(j) the liquidation value;
(k) the liquidation value due to operational creditors; and
(l) other information, which the resolution professional deems relevant to the committee.
|20.||Approval of resolution plan – Regulation 39||A resolution applicant shall endeavour to submit a resolution plan prepared in accordance with the Code and these Regulations to the resolution professional, 30 days before expiry of the maximum period permitted under section 12 for the completion of the corporate insolvency resolution process|
|21.||Mandatory contents of the resolution plan – liquidation value due to operational creditors – payment in priority to any financial creditor – Regulation 38(1)(b)||A resolution plan shall identify specific sources of funds that will be used to pay the liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of 30 days after the approval of a resolution plan by the Adjudicating Authority|
(Author is a Insolvency Professional and can be reached at [email protected])