Corporate Insolvency Resolution Process (CIRP)
The time-bound process through which the financial stress of an insolvent company is resolved by removing the existing promoters and handing over control of the Company to Financial Creditors through Insolvency Professionals. A new investor takes over the company free of all past liabilities.
Insolvency resolution process involves public announcement, calling claims, the constitution of a committee of creditors, preparation of Information Memorandum, examination of questionable transactions, inviting expression of interest from investors, and submission of Resolution Plan by Insolvency Experts to be finally approved by National Company Law Tribunal. Upon approval of the plan, the company is handed over to the new investor.
Liquidation of the Corporate Debtor
The company goes into Liquidation through a Court order, if efforts for its revival under the Corporate Insolvency Resolution Process fail, assets of the company are sold in a piecemeal manner /company is sold as a going concern, and public announcement in newspapers for calling claims of stakeholders is done, stakeholders’ consultation committee is formed after receiving of claims, assets of the Company are put up for public auction, interested bidders submit bids to Liquidator, e-auction amongst the bidders done to get the highest value, assets sold out to the highest bidder and sale certificate issued, proceeds of liquidation distributed amongst creditors as per set priority.
Insolvency/Bankruptcy of the Personal Guarantors to the Corporate Debtor
Financial Creditors invoke personal guarantees for the unrecovered amounts due from the Company under CIRP. Process time 180 days without any extension. NCLT admits the petition, moratorium starts, Insolvency Professionals initiate the process, and Insolvency Advisor assists in the complete liquidation process. Claims from creditors are invited through public notice. Certain assets and debts are excluded. Questionable transactions to be examined. The Personal Guarantor declares his assets and income to the RP, and RP prepares a repayment plan. Repayment plan to be approved by 3/4th in value by creditors. Finally plan is to be approved by NCLT, implementation of which is to be supervised.
If repayment plan of personal guarantors is rejected or approved plan is not completely implemented, NCLT may order Bankruptcy of Individuals or partnership firms and Bankruptcy Trustee is appointed. Public notice for inviting claims from creditors is issued, meeting of creditors is conducted, Trustee to investigate the affairs, realise the estate and distribute the estate of the bankrupt. Bankrupt to assist the Bankruptcy Trustee. Estate not to include excluded assets. Finally, discharge of Bankrupt.
Alternate Insolvency professionals resolution framework for MSME corporate persons, Corporate formulates a base resolution plan prior to initiation of the process, Insolvency Professionals to submit a base plan to Creditor Committee. CoC can invite more plans to compete with a base resolution plan to be invited under the Swiss plan. At this stage, NCLT is to admit the petition. To be completed in 120 days. The debtor in possession and creditors are in the control model. The public announcement is made for inviting claims, Creditor Committee to be constituted, and IM to be prepared. Plans to be invited. Creditor Committee approved a plan to be approved by NCLT.