Application: Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) may be initiated by any of the following persons:
- Financial Creditor: A Financial Creditor may, individually or jointly with other Financial Creditors, file an application before the Adjudicating Authority against a Corporate Debtor, for initiation of CIRP.
- Allottees under real estate projects also fall under the ambit of Financial Creditors. However, for such a class an application has to be collectively filed by not less than 100 such allottees, or not less than 10% of the total number of allottees, whichever is lesser.
- An application under Section 7 of the Insolvency & Bankruptcy Code (“the Code”) must contain the following:
- Record of the default;
- The name of the name proposed as the Interim Resolution Professional;
- Any other information as specified by the Board.
- Within 14 days of the receipt of such an application, the Adjudicating Authority must either admit or reject the application. However, before rejecting the application the Adjudicating Authority must provide the Applicant with a notice, allowing them to rectify any defects in the application within 7 days.
- The Corporate Insolvency Resolution Process commences from the date of admission of such application.
- Operational Creditors: As per Section 8 of the Code, an Operational Creditor is first required to deliver a demand notice in respect of any unpaid debt, along with a copy of an invoice demanding payment of the defaulted amount from the Corporate Debtor.
- The Corporate Debtor must bring to the notice of the Operational Creditor, the existence of any dispute pertaining to the alleged default within 10 days,; or must pay the defaulted amount and send a copy of such transfer to the Operational Creditor.
- After the expiry of 10 days from the date of delivery of the demand notice, if the Operational Creditor has not yet received payment of the defaulted amount, they may file an application before the Adjudicating Authority for initiating Corporate Insolvency Resolution Process.
- Along with such an application, the Operational Creditor must also submit the following:
- A copy of the invoice demanding payment or the demand notice.
- An affidavit stating that the Corporate Debtor did not issue any notice pertaining to dispute regarding the default.
- A copy of the certificate from the Financial Institution maintaining accounts of the Operational Creditor confirming that no payment of the defaulted amount was received.
- A copy of any record with the information utility, confirming that no payment of an unpaid operational debt was made by the corporate debtor.
- Any other proof that there has been no payment.
- An Operational Creditor may propose the name of an Interim Resolution Professional, or leave the same to be determined by the Adjudicating Authority.
- Within 14 days of the receipt of such an application, the Adjudicating Authority must either accept or reject the application on the basis of whether the pre-requisites for such an application have been complied with or not. However, before rejecting the application the Adjudicating Authority is required to allow the Operational Debtor an opportunity to rectify any defects in it, within 7 days.
- The Corporate Applicant: Under Section 10, the Corporate Debtor may on their own file an application for initiation of Corporate Insolvency Resolution Process, in case they have committed a default.
- Along with such an application, the following have to furnished:
- The Corporate Debtor’s books of accounts and other such documents.
- The proposed Interim Resolution Professional.
- The Adjudicating Authority must, within 14 days of the receipt of such an application, either accept or reject the same based on whether such application is complete or not. However, before rejecting the application the Adjudicating Authority is required to allow the Operational Debtor an opportunity to rectify any defects in it, within 7 days.
- Along with such an application, the following have to furnished:
Note: Under Section 11, there is a bar on filing an application for initiation of Corporate Insolvency Resolution Process, against the following:
- A corporate Debtor undergoing CIRP.
- A corporate debtor who has completed the CIRP 12 months preceding the date of the application.
- A Corporate debtor or Financial Creditor who has violated any terms of a resolution plan which was approved 12 months before the date of making such application.
- A corporate debtor in respect of whom a liquidation order has been issued.
Note: Time limit for Corporate Insolvency Resolution Process – the entire CIRP must be completed within 180 days from the date of admission of the application. An application for extension may be submitted by the Resolution Professional, with the consent of at least 75% of the committee of creditors. However, an extension may be granted only once. The maximum duration for CIRP, including any extension granted, cannot exceed 330 days.
Declaration of Moratorium and Public Announcement: Under Section 13, after admission of the application, the Adjudicating Authority must declare a moratorium, make a public announcement calling for the submission of claims, and must also appoint an Interim Resolution Professional.
- Moratorium: The Moratorium under Section 14 is imposed by the Adjudicating Authority, and is applicable till the end of the CIRP.
- Under a moratorium, the following are prohibited:
- Institution of continuation of pending suits/proceedings against the Corporate Debtor, including execution of any judgements/decree/orders against the Corporate Debtor.
- Transferring or alienation of their assets by the Corporate Debtor.
- Any action to foreclose, recover or enforce a security interest created by the Corporate Debtor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
- Recovery of any property by an owner or lessor, which is either owned by or in possession of the Corporate Debtor.
- During the Moratorium period, the supply of essential goods and services shall not be terminated or suspended.
- Under a moratorium, the following are prohibited:
- Public Announcement: As per Section 15, a public announcement must be made by the Adjudicating Authority in respect of the following particulars:
- name and address of the corporate debtor under the corporate insolvency resolution process;
- name of the authority with which the corporate debtor is incorporated or registered;
- the last date for submission of claims;
- details of the interim resolution professional who shall be vested with the management of the corporate debtor and be responsible for receiving claims;
- penalties for false or misleading claims; and
- the date on which the corporate insolvency resolution process shall close, which shall be the one hundred and eightieth day from the date of the admission of the application under sections 7, 9 or section 10, as the case may be.
- Appointment of the Interim Resolution Professional: The Adjudicating Authority is required to appoint an Interim Resolution Professional, after duly considering any names proposed in the any of the applications.As per Section 20, the Interim Resolution Professional is required to manage the operations of the Corporate Debtor, making every endeavour to protect and preserve their property.
Hence the duties of the Interim Resolution Professional under Section 18 include collecting all the information related to the assets and the financial position of the Corporate Debtor, receiving and collating claims of all creditors, constituting a committee of creditors, filing information with the information utilities, taking control of all assets of the corporate debtor and other allied responsibilities.
Constitution of the Committee of Creditors: After receiving all the claims, the Interim Resolution Professional is required to constitute a committee of creditors (hereinafter referred to as the “CoC”). Such committee comprises of all the Financial Creditors of the Corporate Debtor, with the voting being determined on the basis of each creditor’s debt. It is important to note that any Financial Creditor who is a related party of the Corporate Debtor shall not have a right of representation, participation or even voting at the meeting of the CoC. However, if such Financial Creditor is regulated by a financial service regulator [such as RBI or SEBI] and they are a related party solely on account of conversion of debt equity shares, they may be given the aforementioned rights.
- Any decision of the CoC must be taken by a vote of not less than 75% of the Financial Creditors.
- In case the financial debt is expended as part of a consortium arrangement or syndicated facility, or issued as securities providing for a single trustee/agent to act for such class of Financial Creditors, each Financial Creditor may:
- authorise the trustee or agent to act on their behalf in the committee of creditors to the extent of their voting share;
- represent themselves in the committee of creditors to the extent of their voting share;
- appoint an insolvency professional (other than the resolution professional) at their own cost to represent them in the committee of creditors to the extent of their voting share; or
- exercise their right to vote to the extent of their voting share with one or more financial creditors jointly or severally.
- Meetings of the Committee: Under Section 24, the Resolution Professional is required to give notice of each meeting to the members of the committee, the members of the suspended Board of Directors/Partners and/or the Operational Creditors or their representatives if the aggregate amount of their debt is not less than 10% of the total debt. However, it is important to note that the mere absence of any Director/Partner or representatives of operational creditors does not invalidate the proceedings of any meeting.
- Approval of the Committee: Section 28 mandates that a Resolution Professional cannot carry out certain actions without the prior approval of the Committee of Creditors. These activities include raising interim finance in excess of the amount already decided by the Committee; creating a security interest over assets of the Corporate Debtor; undertaking any related party transactions; making any changes to the management of the Corporate Debtor/its subsidiary etc; among other allied activities as set out in clause (a) to (m) of Section 28(1).
Appointment of the Resolution Professional: The first meeting of the CoC must be held within 7 days of its constitution. As per Section 22, at this meeting the committee may appoint the Interim Resolution Professional as the Resolution Professional by a majority vote of 75%, or may replace them with another Resolution Professional. In case of change of the Interim Resolution Professional, an application will have to be made to the Adjudicating Authority who will make the desired appointment after confirmation by the Board.
- Under Sections 23 and 25, the Resolution Professional is required to conduct the entire CIRP, and has similar duties as compared to the Interim Resolution Professional, in addition to convening meetings of the CoC; filing applications for avoidance transactions; presenting all resolution plans to the CoC; raising interim finance etc; amongst other allied duties.
- As per Section 26, during the pendency of the CIRP, the Resolution Professional may file applications for avoidance transactions, which shall not affect the proceedings of the CIRP.
- Replacement of Resolution Professional – The Committee may resolve to replace the Resolution Professional with some other Resolution Professional by a 66% vote. The name of the new Resolution Professional must be forwarded to the Adjudicating Authority, who further forwards it to the Board for confirmation.
Preparation of Information Memorandum: Under Section 29, the Resolution Professional is required to prepare an information memorandum containing all the relevant information, as required by the resolution applicant to make a Resolution Plan. This would include information pertaining to the financial position of the Corporate Debtor, information related to disputes by and against the Corporate Debtor, etc.
Note: Under Section 29A, certain persons are barred from submitting a Resolution Plan. These include: a person who is an undischarged insolvent, a wilful defaulter as per the RBI Master Circular, persons whose accounts have been declared as NPAs, a person disqualified to be a director under the Companies Act 2013, a promoter, related party, etc [Clauses (a) to (j) of Section 29A.
Submission of a Resolution Plan: As per Section 30, any resolution applicant may submit a Resolution Plan prepared on the basis of the Information Memorandum, along with an affidavit stating that they are eligible under Section 29A.
- The Resolution Professional must then examine each plan, and confirm whether it provides for the payment of the CIRP, the debts of Operational Creditors, the management of the affairs of the corporate debtor, does not contravene any provisions of law, etc.
- The Resolution Professional must then submit such a plan to the Committee of Creditors, who may by a vote of not less than 66%, approve such a plan after considering its feasibility in light of its particulars.
- The Resolution Applicant may also attend the meeting of the CoC when their Plan is being considered for approval.
Approval of Resolution Plan: Under Section 32, if the Adjudicating Authority is satisfied that a Plan approved by the CoC meets all the requirements mentioned under Section 30, it shall pass an order to the effect of making such plan binding on the Corporate Debtor, its employees, other creditors, etc.
- In case the pre-requisites under Section 30 are not met, the Adjudicating Authority may reject such plan.
- Once an order of approval is passed, the moratorium comes to an end.
- The Resolution Applicant is then required to obtain all the necessary permissions required under Law.
Appeal, if any: An appeal against the order approving a resolution plan can be made to the Appellate Authority under Section 61.
This brings the Corporate Insolvency Resolution Process against Corporate Persons to an end.