INTRODUCTION:
CIRP is the process through which it is determined whether the person who has defaulted is capable of repayment or not. Insolvency resolution process evaluates the assets and liabilities to determine the repayment capability of corporate debtor. If a person is not capable of repaying the debt the company is restructured or liquidate.
Objective: The CIRP is designed to evaluate whether a corporate debtor (a company or entity) is capable of repaying its debts.
Evaluation: It involves a thorough examination of the corporate debtor’s assets and liabilities. This assessment helps in understanding the company’s financial health and its ability to meet its obligations.
WHO MAY INITIATE CIRP:
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
INITIATION OF CIRP:
Step 1: Application to the NCLT
- Who Can Apply: A creditor (financial or operational) or the company itself can file an application.
- Criteria for Admission: The creditor must prove a default of ₹1 lakh or more. Financial creditors need a default report, and operational creditors must make a demand for the unpaid debt. The NCLT must decide within 14 days whether to admit or reject the application.
Step 2: Appointment of Interim Resolution Professional (IRP)
- Role of IRP: Once CIRP is initiated, the board of directors is suspended, and the management is handed over to the IRP. The IRP manages the company’s affairs during the CIRP.
Step 3: Moratorium
- Scope of Moratorium:
- Halts legal proceedings against the corporate debtor.
- Prevents asset transfers.
- Stops enforcement of security interests.
- Prohibits recovery of property by an owner.
- Prevents discontinuation or termination of essential goods and services.
- Duration: Lasts until the CIRP is concluded.
Step 4: Verification and Analysis of Claims
- Role of IRP: The IRP verifies and lists the claims made by creditors. This must be done within 30 days of the commencement of CIRP, and the claims are reviewed by the Committee of Creditors (COC).
Step 5: Appointment of Resolution Professional (RP)
- Role of RP: The COC appoints a Resolution Professional, who may be the same person as the IRP or a new individual. The RP oversees the CIRP for the remainder of its duration.
Step 6: Acceptance of the Resolution Plan
- Timeline: The resolution plan must be approved within 180 days from the start of CIRP.
- Proposal: Anyone (management, creditors, or third parties) can propose a resolution plan.
- Approval: The RP must ensure the plan meets IBC criteria. The plan must be approved by the NCLT.
- Implementation: Upon approval, necessary legal approvals must be obtained within one year from the NCLT’s sanction.
If No Resolution Plan is Accepted
- Outcome: If no resolution plan is accepted within the specified period, the NCLT orders the liquidation of the corporate debtor.
- Liquidation: The COC appoints a liquidator to sell the debtor’s assets and distribute the proceeds among the creditors and other stakeholders.
This structured process aims to either restore the financial health of the company through restructuring or to ensure a fair distribution of assets in the event of liquidation.
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