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Insolvency Resolution and Liquidation For Corporate Persons

The insolvency resolution process (IRP) can be initiated by a financial creditor, operational creditor, or the corporate debtor itself when the company defaults on payments. [1] An interim resolution professional is appointed to take charge of the company and try to revive it within 180 days, which can be extended by 90 days. [2] If no resolution is found, the company enters liquidation where its assets are sold to pay off creditors. [3]

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Mishika Pandita
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73 views12 pages

Insolvency Resolution and Liquidation For Corporate Persons

The insolvency resolution process (IRP) can be initiated by a financial creditor, operational creditor, or the corporate debtor itself when the company defaults on payments. [1] An interim resolution professional is appointed to take charge of the company and try to revive it within 180 days, which can be extended by 90 days. [2] If no resolution is found, the company enters liquidation where its assets are sold to pay off creditors. [3]

Uploaded by

Mishika Pandita
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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PART II

INSOLVENCY RESOLUTION AND


LIQUIDATION FOR CORPORATE
PERSONS
CHAPTER I
The insolvency resolution process (IRP) is a one under the Insolvency and
Bankruptcy Code, 2016, where the National Company Law Tribunal (NCLT)
initiates a corporate insolvency resolution process (CIRP) when a company
defaults on making payment to creditors. A financial creditor, operational
creditor or corporate itself can file an application before NCLT for initiating IRP
when default has occurred. In case of housing project, after amendment in the
code, a homebuyer can also approach NCLT for initiating IRP if a developer
fails to provide possession of the house or refund the money.

Under IRP, an interim resolution professional is appointed with the power to


take charge of the company which has defaulted. The professional’s task is to
take necessary steps to revive the company. Appointed professional also has the
power to raise fresh funds to continue operations.

The IRP is granted 180 days to find a resolution, which can be extended by 90
days. If the IRP fails to find a resolution by then, the company is liquidated to
pay the creditors. Liquidation means a situation in which a company stops
operating and sell all its asserts in order to pay debts
Section-4. Application of this Part. –

(1) This Part shall apply to matters relating to the insolvency and
liquidation of corporate debtors where the minimum amount
of the default is one lakh rupees:
Provided that the Central Government may, by notification,
specify the minimum amount of default of higher value which
shall not be more than one crore rupees.
section 5. Definitions.(Important )
In this Part, unless the context otherwise requires :-
(1) “Adjudicating Authority”, for the purposes of this Part, means National Company Law
Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013);
(5) “corporate applicant” means –
(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is authorised to make an application for the
corporate insolvency resolution process under the constitutional document of the corporate
debtor; or
(c) an individual who is in charge of managing the operations and resources of the corporate
debtor; or
(d) a person who has the control, and supervision over the financial affairs of the corporate debtor
(5) “corporate applicant” means –
(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is authorised to make an application for the
corporate insolvency resolution process under the constitutional document of the corporate
debtor; or
(c) an individual who is in charge of managing the operations and resources of the corporate
debtor; or
(d) a person who has the control, and supervision over the financial affairs of the corporate debtor
(7) “financial creditor” means any person to whom a financial debt is owed and
includes a person to whom such debt has been legally assigned or transferred to;

(12) “insolvency commencement date” means the date of admission of an


application for initiating corporate insolvency resolution process by the
Adjudicating Authority under sections 7, 9 or section 10, as the case may be:

(14) “insolvency resolution process period” means the period of one hundred and
eighty days beginning from the insolvency commencement date and ending on one
hundred and eightieth day;

(15) “interim finance” means any financial debt raised by the resolution professional
during the insolvency resolution process period [and such other debt as may be
notified]; Ins. by Act No. 1 of 2020, sec.2 (w.e.f. 28-12-2019).
(16) “liquidation cost” means any cost incurred by the
liquidator during the period of liquidation subject to such
regulations, as may be specified by the Board

(20) “operational creditor” means a person to whom an


operational debt is owed and includes any person to whom
such debt has been legally assigned or transferred

(21) “operational debt” means a claim in respect of the


provision of goods or services including employment or a
debt in respect of the payment of dues arising under any law
for the time being in force and payable to the Central
Government, any State Government or any local authority;
CHAPTER II
CORPORATE INSOLVENCY RESOLUTION PROCESS
Section- 6. Persons who may initiate corporate insolvency resolution process --
Where any corporate debtor commits a default, a financial creditor, an operational
creditor or the corporate debtor itself may initiate corporate insolvency resolution
process in respect of such corporate debtor in the manner as provided under this
Chapter.

Section- 7. Initiation of corporate insolvency resolution process by financial creditor.


(1) A financial creditor either by itself or jointly with [other financial creditors, or
any other person on behalf of the financial creditor, as may be notified by the
Central Government] (added by 2020 amendment Act)may file an application for
initiating corporate insolvency resolution process against a corporate debtor before
the Adjudicating Authority when a default has occurred
Another proviso which was recently added by the way of 2020 Amendment Act on 13
of March 2020, it provides that for the application by financial creditors for the
purpose of insolvency resolution process against the corporate debtor shall be filed
jointly by not less than one hundred of such creditors in the same class or not less
than ten per cent. of the total number of such creditors in the same class, whichever
is less
Amendment Act of 2020, makes the ambit of this section much wider, it further
provides that that financial creditors who are allottees under a real estate project,
an application for initiating corporate insolvency resolution process against the
corporate debtor shall be filed jointly by not less than one hundred of such
allottees under the same real estate project or not less than ten per cent. of the
total number of such allottees under the same real estate project, whichever is
less:

Provided also that where an application for initiating the corporate insolvency
resolution process against a corporate debtor has been filed by a financial
creditor referred to in the first or second provisos and has not been admitted by
the Adjudicating Authority before the commencement of the Insolvency and
Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to
comply with the requirements of the first or second provisos as the case may be
within thirty days of the commencement of the said Act, failing which the
application shall be deemed to be withdrawn before its admission.
(Amendment Act of 2020 is made effective from 28-12-2019)
(2) The financial creditor shall make an application under sub-section (1) in
such form and manner and accompanied with such fee as may be prescribed.

(3) The financial creditor shall, along with the application furnish -
(a) record of the default recorded with the information utility or such other
record or evidence of default as may be specified;
(b)the name of the resolution professional proposed to act as an interim
resolution professional; and
(c) any other information as may be specified by the Board.

Information utilities- Information utilities is an information network which


would store financial data like borrowings, defaults and security interest
among the others of firms. The utility would specialize in procuring,
maintaining and providing financial information to businesses, financial
institutions, adjudicating authority, Insolvency professionals and other relevant
stake holders.
Recently , National e- Governance Service Ltd (NeSL) become India’s first
information utility (IU) for the bankruptcy cases under the code of 2016.
NeSL is owned by State Bank of India and Life Insurance Corporation Ltd.
Recently, the insolvency and Bankruptcy Board of India (IBBI) eased
ownership norms for setting up the utilities. For this registration is needed
under section 210 of the code.

(4) The Adjudicating Authority shall, within fourteen days of the receipt of the
application under sub-section (2), 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 under sub-section (3):

[Provided that if the Adjudicating Authority has not ascertained the existence
of default and passed an order under sub-section (5) within such time, it shall
record its reasons in writing for the same.] (this proviso was added by the
Amendment Act of 2019)
(5) Where the Adjudicating Authority is satisfied that –
(a) a default has occurred and the application under sub-section (2) is complete,
and there is no disciplinary proceedings pending against the proposed resolution
professional, it may, by order, admit such application; or
(b) default has not occurred or the application under sub-section (2) is
incomplete or any disciplinary proceeding is pending against the proposed
resolution professional, it may, by order, reject such application:
Provided that the Adjudicating Authority shall, before rejecting the application
under clause (b) of sub-section (5), give a notice to the applicant to rectify the
defect in his application within seven days of receipt of such notice from the
Adjudicating Authority

(6) The corporate insolvency resolution process shall commence from the date of
admission of the application under sub-section (5).
(7) The Adjudicating Authority shall communicate-
(a) the order under clause (a) of sub-section (5) to the financial creditor and the
corporate debtor;
(b) the order under clause (b) of sub-section (5) to the financial creditor,
within seven days of admission or rejection of such application, as the case
may be

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