The Corporate Insolvency Resolution Process (CIRP) is defined as a recovery mechanism for the creditors’ benefits. The concept of CIRP is given under the Insolvency and Bankruptcy Code, 2016 (IBC).

If in case, a corporate entity stands unable to pay debts (insolvent), then, the concerned creditor or the corporate entity may initiate for CIRP. The Code aims for balancing the interest of all the stakeholders. Owing to the improvement in insolvency proceedings in a time-bound manner as according to CIRP, the ease of doing business and willingness of creditors to lend has improved significantly, thus positively affecting credit flow in Indian realty.”

Who can initiate CIRP?

If a corporate entity (the debtor) becomes stands unable to pay debts (insolvent) and commits any kind of default, then a financial creditor itself may approach the National Company Law Tribunal (NCLT). NCLT here works as the Adjudicating Authority for insolvency resolution of corporate persons – to hand-over an application for initiating CIRP against the defaulter.

A financial creditor can initiate CIRP under section 7 of the code, 2016; an operational creditor under section 9 and the corporate applicant of the corporate debtor under section 10 of the Code.

Initiation of CIRP by a financial creditor

For financial creditors (allottees of a real estate project), an application to initiate CIRP against a corporate debtor will have to be filed jointly by not less than 10% of the total number of the concerned project’s allottees or not less than 100 of such allottees of the project, whichever is lower.

Such creditors shall have to make an application along with a prescribed fee, and also have to furnish: Evidence of the defaulted debt; the Name of the resolution professional; any other required information.

NCLT establishes the existence of a default, through accessing the records of an information utility or as per other evidence provided by the financial creditor, within 14 days of the receipt of the application made. If the same is not done within the time-limit, the Tribunal shall record its reasons for the same in writing.

The time limit for completing CIRP

As per section 12(1) of the Code, the CIRP will complete the process within a period of 180 days from the date of admission of the application to initiate such process. The Adjudicating Authority may grant a one-time extension of 90 days. In the maximum time of 330 days, CIRP will mandatorily be completed, including all types of extension or litigation period, is 330 days.

For extending the time limit of 180 days, the committee of creditors is required to pass a resolution, with 66% of the total voting share. After that, the resolution professional needs to file an application to the NCLT seeking approval for such an extension.

The applicant can withdraw the application, either before admission by the Adjudicating Authority (NCLT) or even after admission.

The NCLT may withdraw the application, which is admissible under section 7 or section 9 or section 10, on an application made by the applicant through the resolution professional, with the approval by the committee of creditors of 90% of the voting share.

The applicant can withdraw the application through an interim resolution professional even before the constitution of the committee of creditors.

Interim Resolution Professional appointed in a CIRP

Interim Resolution Professional continues as per Section 22 of the Code, 2016. The NCLT appoints the insolvency professional proposed by the financial or operational creditor in their application, as the interim resolution professional on the insolvency commencement date. However, where the name of the insolvency professional is not proposed in the application filed by an operational creditor, the Adjudicating Authority makes a reference to the Board for the recommendation of an insolvency professional, who may act as an interim resolution professional.

The Board will recommend the name of an Insolvency Professional against whom no disciplinary proceedings are pending. The Board will do so within 10 days of the receipt of a reference from the Adjudicating Authority.

As per Section 18, Interim Resolution Professional holds some duties to perform. And these are information related to assets, finance, and operation of the corporate debtors. Receive and collate all the claims; the constitution of creditor’s committee.

Section 21 of the Code, highlights the commitment of the creditors.

Do IRP Costs include?

The Insolvency Resolution Process Costs has consisted of those costs indicated in section 5(13) of the Code. And read with regulation 31 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. It includes the amount of any interim finance along with the cost. The finance, fee, and expenses of the interim resolution professional are some of the cost. Also, resolution professional ratified/approved by the committee of creditors, fee of the authorized representative representing the class of creditor, cost incurred for running the corporate debtor as going concerned. The amounts due to suppliers of essential goods and services, etc.

Declaration of the moratorium and public announcement

As per section 14(1) of the Code, an order of moratorium passed by the Adjudicating Authority shall prohibit the following:

  1. The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree, or order in any court of law, tribunal, arbitration panel, or other authority.
  2. Transferring, encumbering, alienating, or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein.
  3. Any action to foreclose, recover or enforce any security interest. The corporate debtor will create them in respect of its property including any action under the SARFAESI Act, 2002.
  4. Recovery of any debtor.

Now, Section 13 of the Code, declares moratorium as per Section 7, 9, and 10. And cause a public announcement of the initiation of the corporate insolvency resolution process. And call for the submission of claims under section 15. Appointment of an interim resolution professional in the manner as laid down in section 16.

Fast-track Corporate Insolvency Resolution Process

A quicker way to resolve the Insolvency Resolution Process within 90 days instead of 180 days is to Fast-track CIRP. This can go beyond 90 days, if required and if approved by the NCLT on application by the resolution professional. However, the extension cannot go beyond 45 days. The other processes will be similar to the ones conducted in the 180-day CIRP.

The fast-track CIRP is applicable to:

  • A Small Company, defined u/s 2 (85) of the Companies Act, 2013.
  • Start-up, defined by the Ministry of Commerce and Industry.
  • An unlisted company with not higher than Rs. 1 Crore of the Total Assets.

Hence, while concluding the discussion, we can analyze that the CIRP works as a helping hand to the creditors. As part of the Insolvency and Bankruptcy Code, 2016 has indicated a new era in handling insolvency proceedings. It aims to ease the doing business in the Indian real estate and other sectors, with regards to redressal mechanisms in case of a default. CIRP indicated confidentiality to the creditors for business and balance their interest.

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