The Corporate Insolvency Resolution Process is the process conducted under the IBC for the revival of the company. The purpose of the initiating CIRP proceedings is to allow the financial or operational creditor to recover their dues from the corporate debtor. Through the CIRP process, an attempt is made to revive the company who is ‘sick’ i.e. unable to repay its debts. The aim is to find a suitable buyer for the company who can resolve the company in such a way that all stakeholders see their interests met and the company is kept alive.
The CIRP process can be briefly summarised as follows:
1. Filing of CIRP before NCLT:-
The first step is the filing of the application for initiating the CIRP before the NCLT by either the financial or operational creditor. The financial creditor can file the application before the NCLT without issuing a ‘demand notice’ 10 days prior to the corporate debtor. The operational creditor has to mandatorily issue such demand notice before filing an application.
a. Documents to be filed by Financial Creditor- the FC has to furnish record of the recorded default either by obtaining it from a information utility (body in charge of receiving, recording, verifying and providing financial information) or by producing any other record or evidence. The FC also has to mandatorily propose the IRP.
b. Documents to be filed by Operational Creditor- The OC has to comply with more requirements while furnishing his application. He shall submit a copy of a invoice or demand notice intimated to the CD. He shall further submit an affidavit stating that no notice was given by the corporate debtor relating any existing disputes on unpaid operational debt. To prove non-payment of his debts by the CD, the OC shall submit bank statements showing no increase in his account and any such other relevant evidences and documents as procured from the IU or otherwise. The OC may propose an IRP and does not have to.
In case of defect- In any defect in the applications of either the FC or the OC, the Court shall allow the applicants 7 days from the date of receipt of such notice from the NCLT, to rectify the defect.
2. Acceptance/Rejection of Application:-
Within 14 days of the submission of the application, the NCLT has to either admit or reject the application. The day of admission of the application is the effective date for the commencement of the CIRP. The acceptance is conditional on there being no pre-existing dispute with regards to the debt of the CD.
Upon admission and commencement of the CIRP, the NCLT declares a moratorium over the debtor fort he duration of the CIRP. The moratorium essentially prohibits:
any institution of or continuation of suits against the corporate debtor
transfer of any of the debtor’s assets or any rights to a third party
any enforcement of the debtor’s security interest as under SARFESI 2002.
3. Appointment of Interim Resolution Professional (IRP):-
The NCLT shall appoint on the very date of admission as per the 2020 amendment to Section 16 (1). In case of an application by the FC, the IRP proposed by the FC is appointed. In case of the OC, if there is a proposed IRP, then he shall be appointed otherwise the Court shall consult the IBBI to recommend an IP who shall act as the IRP. The IBBI must tender its recommendation within 10 days of receiving such a request by the Court.
The appointment of the IRP in any case is subject to no prior disciplinary proceedings pending against him. The term of the IRP is till the appointment of the RP.
The interim IP will also need to make a public announcement with respect to their appointment within 3 (Three) days from the date of his/her appointment. The public announcement must provide for a minimum period of 14 days for the creditors to provide proof of their claims.
4. Constitution of Committee of Creditors by IRP- After receiving all the claims from the public announcement of the creditors, the IRP shall constitute a CoC. The IRP shall be responsible for classifying the FC and OCs. The CoC shall constitute only of the FCs. The OCs can be party to the meetings of the CoC but will not be granted any voting rights. The CoC shall be, after its constitution, the final authority in deciding on all matters pertinent to the CIRP. The CoC shall have the right to request the IRP to furnish any financial information and shall hold their first meeting within 7 days of their constitution.
5. Appointment of Resolution Professional- The CoC shall nominate the RP within 30 days from the appointment of the IRP. The nomination can be to either allow the IRP to continue on as the RP or replace the IRP with another proposed RP. The appointment of the RP has to be made by 66% of the voting shares of the CoC. The appointment has to be communicated to the NCLT if the IRP is unchanged. If the IRP is to be changed, an application must be filed before the NCLT proposing the appointment of a separate RP. The NCLT has to seek the confirmation of the IBBI until which the IRP continues to function.
Upon appointment, the RP is responsible for conduct the entire CIRP process. this includes managing the operations of the corporate debtor and assisting the CoC as required until the completion of the CIRP. As per Section 23, the CIRP is impliedly complete upon the approval of the Resolution Plan by the CoC. However, the RP remains responsible to handle the affairs of the corporate debtor until such resolution plan is accepted by the NCLT or a liquidator is appointed.
The RP is also responsible for preparing an Information Memorandum (IM) which basically outlines the history, status and financials of the company. It is upon the IM that the resolution plan is formed.
6. Preparation of the Resolution Plan- The resolution plan is a plan that outlines how to go about resolving the company in order to ensure that it does not turn out insolvent and remains functional. The resolution plan could include restructuring, selling off of assets and other such potential solutions. The RP is responsible for inviting resolution plans from applicants. The resolution applicants should be barred under Section 29-A of the Code otherwise they will not be eligible to submit resolution plans.
The RP then has to make a list of all the resolution applicants and submit the same to the CoC ensuring that all such plans comply with Section 30 requirements.
Requirements of a Resolution plan- the resolution plan is only subject to acceptance if it satisfies the conditions laid under Section 30 (2). Such requirements include-
Providing for payment of CIRP process
Providing for payments of creditors as per priority/magnitude of debt owed
Providing for payment of Operational Creditors
7. Acceptance of the Resolution Plan- The CoC then with 66% approval of voting shares has to choose a resolution plan. The RP then has to take the chosen resolution plan for approval before the NCLT. The CoC is bound to accept the resolution plan within 180 days from the commencement of the CIRP. After 180 days, the NCLT shall have the right to commence liquidation proceedings if it deems fit. If it deems otherwise, the NCLT shall allow an extension of 90 for the approval of the resolution plan and its presentation before the Court.
8. Submission of the Resolution Plan to the NCLT- Within 180 days or 270 days being the outer limit, the RP must submit the resolution plan to the NCLT. The NCLT must review and ensure that the resolution plan is satisfactory and compliant to all laws after which it may either accept or reject the plan.
Upon acceptance- the moratorium comes to an end and the CoC can commence implementing the plan as per its particulars.
Upon rejection- an appeal may be filed within 30 days, extending to 45 days, of the rejection order to the NCLAT. Further appeal to the SC lies within 45 days from the order pronounced by the NCLAT.