The objectives of the Insolvency & Bankruptcy Code, is ‘reorganisation and insolvency resolution’ which implies ‘revival and not liquidation’. When a company falls into insolvency, the first step is to try and resolve and not liquidate. The Code particularly deals with ‘Corporate Insolvency’ and ‘Corporate Liquidation’, including Voluntary Liquidation.
Corporate Insolvency Resolution Process (CIRP)
Corporate Insolvency Resolution Process (CIRP) is a process laid down in the Code for reviving the company (i.e., the corporate debtor) from its state of insolvency. It is almost akin to putting the company under an immunity from attack of creditor actions, while the debtor and/or the creditors prepare a revival plan.
CIRP is a creditor-driven process i.e whether the corporate debtor will survive or will be liquidated, depends on the creditors, i.e. the committee of creditors.
How is CIRP initiated?
An application for CIRP can be filed at the National Company law Tribunal (NCLT) (hereinafter “Adjudicating Authority”) by a financial creditor (for defaulted financial debt), an operational creditor (for an unpaid operational debt) or the corporate debtor, its shareholders or its employees.
What happens when CIRP is initiated?
Once an application is filed and admitted by the Adjudicating Authority, a ‘Moratorium period’ is enacted i.e., a period during which no creditor can initiate recovery actions against the corporate debtor and the corporate debtor too, cannot alienate its assets. This period operate as “quiet period” during which no judicial proceeding for recovery, sale or transfer of assets, or termination of essential contracts can take place. When the order of commencement of CIRP is passed, the NCLT appoints an Insolvency Professional to act as the Interim Resolution Professional (IRP) in whose hands the control of the corporate debtor is transferred (the Board is suspended from exercising powers). The primary function of IRP is to take over the management of the Corporate Debtor and operate the business as going concern under the direction of Committee of Creditors (CoC).
What will happen to affairs of Corporate Debtor (CD) when a Resolution Professional (RP) is appointed?
Per Section 22 of the IBC Code, 2016, at the first meeting of CoC, the members of CoC, decides on the continuing the IRP as RP or to replace the IRP with another RP. Post the appointment of RP or continuing of IRP as RP, the Resolution professional shall conduct the entire Corporate Insolvency Process which includes following functions:
To know more about Resolution Plan, Committee of Creditors and Insolvency Process in detail, see Corporate Insolvency at a glance and Legal Framework Governing Insolvency and Bankruptcy in India.