INSOLVENCY RESOLUTION

-DR. ANUJA S. RANE

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INSOLVENCY PROCESS
• Assessment of Possibility: Financial creditors evaluate whether the debtor's business is viable for continuation and explore
options for rescue and revival during the insolvency resolution process.
• Liquidation as Last Resort: If the insolvency resolution process fails or if financial creditors determine that the debtor's business
cannot be profitably carried on, the debtor undergoes a liquidation process. In this process, the assets of the debtor are realized
and distributed by the liquidator.
• Collective Mechanism for Creditors: The IBC offers a collective mechanism for lenders to address the distressed position of a
corporate debtor. This differs from previous legal frameworks where the onus for reorganization primarily rested with the debtor.
• Time-Bound Processes: The IBC sets time-bound processes for insolvency resolution. The resolution process should ideally be
completed within 180 days, with a possible extension of 90 days. However, the entire process must conclude within a maximum
outer limit of 330 days.
• Extension in Exceptional Cases: In exceptional circumstances, the Adjudicating Authority and/or Appellate Tribunal may extend
the time beyond 330 days if necessary.
• Fast-Track Resolution: The Code provides for a fast-track resolution mechanism for corporate insolvency, aiming to resolve cases
within 90 days.
• Asset Sale for Repayment: If insolvency cannot be resolved, the assets of the debtor may be sold to repay creditors.

A COMPREHENSIVE PROCESS
1. Filing of Application: Financial creditor, operational creditor, 9.
or corporate applicant files application before NCLT.
2. Adjudication: NCLT admits or rejects the application.
3. Moratorium and Public Announcement: Moratorium period
begins, and public announcement is made.
4. Appointment of Interim Resolution Professional: Interim
Resolution Professional (IRP) appointed to manage affairs
during resolution.
5. Formation of Committee of Creditors (CoC): CoC constituted
comprising financial creditors.
6. Appointment of Resolution Professional (RP): RP appointed
by CoC to manage the resolution process.
7. Appointment of Registered Valuers: Registered valuers
appointed for asset valuation.
8. Preparation of Information Memorandum (IM): IM prepared
by RP containing essential details of the corporate debtor.
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Invitation for Expression of Interest (EOI): EOI invited from
prospective resolution applicants.
10. Submission of EOI: Prospective resolution applicants submit
EOI.
11. Preparation of Provisional and Final List of Resolution
Applicants: RP prepares provisional and final list of resolution
applicants.
12. Issue of Request for Resolution Plan (RFRP): RFRP, IM, and
Evaluation Matrix sent to prospective resolution applicants.
13. Submission of Resolution Plan: Resolution applicants submit
their plans.
14. Approval/Rejection by CoC: CoC approves or rejects the
resolution plan.
15. Approval/Rejection by NCLT: NCLT (Adjudicating Authority)
approves or rejects the resolution plan.
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FILING OF AN APPLICATION
• Triggering Insolvency Process: The process of insolvency is initiated when there is a default by the debtor or
corporate debtor. Default is defined in Section 3(12) of the Code as the non-payment of debt when it becomes
due and payable.
• Threshold Amount for Default: The provisions of insolvency and liquidation of corporate debtors apply
when the default amount is one lakh rupees or more, as per the original provisions of the Code.
• Amendment to Threshold: However, the Central Government, through a notification dated 24th March
2020, increased the threshold value of the minimum amount of default to one crore rupees, as per Section 4 of
the Code.
• Impact of Threshold Increase: This amendment effectively raises the minimum threshold for triggering
insolvency proceedings. Only defaults amounting to one crore rupees or more are eligible for initiating
insolvency proceedings before the NCLT.
• Purpose of Threshold Increase: The increase in the threshold aims to reduce the burden on the NCLT and
streamline the insolvency process by focusing on larger defaults that have a more significant impact on the
economy and creditors.
• Considerations for Creditors and Debtors: Creditors and debtors need to be mindful of the revised
threshold when considering insolvency proceedings or responding to defaults.
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WHO CAN INITIATE THE PROCESS

• Each category of initiator has distinct provisions and procedures for initiating the insolvency resolution
process.
• Financial Creditor: A financial creditor, which includes banks, financial institutions, and other entities to
whom financial debt is owed, can initiate the insolvency resolution process by filing an application before the
National Company Law Tribunal (NCLT). The financial creditor needs to provide evidence of default and the
existence of a debt owed to them.
• Operational Creditor: An operational creditor, which includes vendors, suppliers, employees, and other
entities to whom operational debt is owed, can also initiate the insolvency resolution process by filing an
application before the NCLT. The operational creditor needs to provide evidence of default and a demand for
payment of the operational debt.
• Corporate Debtor: The corporate debtor itself also has the option to initiate the insolvency resolution
process. In such cases, the corporate debtor can file an application for insolvency before the NCLT if it believes
it is unable to pay its debts and seeks resolution.
• Procedures and Requirements: Each initiator must adhere to the procedures and requirements specified
under Chapter II of Part II of the Insolvency and Bankruptcy Code. These procedures include providing
necessary documentation, evidence of default, and compliance with the timelines prescribed under the Code.
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INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY FINANCIAL

CREDITOR

• Eligibility to File Application: A financial creditor, either individually or jointly with other financial creditors, or any other person
notified by the Central Government on behalf of the financial creditor, may file an application for initiating the corporate insolvency
resolution process against a corporate debtor when a default has occurred.
• Threshold Requirements for Financial Creditors: For certain categories of financial creditors specified in clauses (a) and (b) of sub-
section (6A) of section 21, the application for initiating the corporate insolvency resolution process must be filed jointly by not less
than one hundred creditors in the same class or not less than ten percent of the total number of creditors in the same class, whichever
is less.
• Specific Provisions for Allottees in Real Estate Projects: For financial creditors who are allottees under a real estate project, the
application for initiating the corporate insolvency resolution process must be filed jointly by not less than one hundred allottees
under the same project or not less than ten percent of the total number of allottees under the same project, whichever is less.
• Requirement for Modification of Applications: If an application for initiating the corporate insolvency resolution process was filed
by a financial creditor before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, and has not been
admitted by the adjudicating authority, it must be modified to comply with the requirements mentioned in the first or second
provisos within thirty days of the commencement of the Amendment Act.
• Explanation of Default: The definition of default includes a default not only in respect of a financial debt owed to the applicant
financial creditor but also to any other financial creditor of the corporate debtor.
• Notification of Persons Authorized to File Application: The Central Government has notified specific persons who may file an
application for initiating the corporate insolvency resolution process on behalf of the financial creditor. These include guardians,
executors or administrators of an estate of a financial creditor, trustees (including debenture trustees), and persons duly authorized by
the Board of Directors of a company.

PROCEDURE TO BE FOLLOWED BY THE FINANCIAL CREDITOR:
1. Filing of Application: The financial creditor files an
application by itself or jointly against a corporate debtor
before the NCLT, following the provisions contained in the6.
Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016.
2. Notice to Corporate Debtor: A copy of the application is7.
forwarded to the registered office of the corporate debtor by
registered post or speed post.
3. Documents to be Furnished: Along with the application,
the financial creditor must furnish:
1. Record of the default recorded with the information
utility or other specified evidence of default. 8.
2. Name of the proposed resolution professional to act as
an interim resolution professional.
3. Any other information as specified by the Board.
4. Time Period for Determination of Default: The
Adjudicating Authority must ascertain the existence of a
default within fourteen days of receiving the application. If
it fails to do so, it must record reasons for the delay.
5. Order by Adjudicating Authority: The Adjudicating
Authority may admit or reject the application. If it intends
to reject the application, it must provide notice to the
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applicant to rectify defects within seven days.
Commencement of Corporate Insolvency Resolution
Process: The corporate insolvency resolution process starts
from the date of admission of the application.
Communication of Order: The Adjudicating Authority
communicates the order of admission or rejection within
seven days:
1. In case of admission, to the financial creditor and the
corporate debtor.
2. In case of rejection, to the financial creditor.
Withdrawal of Application: Withdrawal of the application
is governed by Section 12A of the Code and Regulation 30A
of the IBBI (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016. Withdrawal can occur:
1. Before admission of the application, with permission
from the Adjudicating Authority.
2. After admission, with the approval of the Adjudicating
Authority, depending on the specific scenarios outlined
in the regulations.
 INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY OPERATIONAL
CREDITOR
1. Serving of Demand Notice: Upon the occurrence of default, an
operational creditor must serve a demand notice and a copy of
the invoice to the corporate debtor in the prescribed form and
manner.
2. Demand Notice Definition: A "demand notice" is a notice
served by an operational creditor to the corporate debtor
demanding payment of the operational debt in respect of which
the default has occurred. Rule 5, Form 3 & Form 4 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
3. Response by Corporate Debtor: Upon receipt of the demand
notice, the corporate debtor has ten days to:
1. Bring to the notice of the operational creditor any existing
dispute regarding the debt or the pendency of legal
proceedings related to the dispute.
2. Provide proof of payment of the unpaid operational debt if
it has already been settled. (section 8)
4. Application by Operational Creditor: If the corporate debtor 9.
fails to respond within ten days or fails to make the payment or
indicate the existence of a dispute, the operational creditor can
file an application before the Adjudicating Authority (NCLT)
for initiating the corporate insolvency resolution process.
(section 8) (rule 6 8 9 10 form 5)
5. Documents Required: Along with the application, the
operational creditor must furnish various documents including
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a copy of the invoice or demand notice, an affidavit, a copy of
the certificate, records with information utilities, and any other
relevant proof.
6. Appointment of Interim Resolution Professional (IRP): The
operational creditor initiating the corporate insolvency
resolution process may propose a resolution professional to act
as an interim resolution professional.
7. Order by Adjudicating Authority: The Adjudicating Authority
must, within fourteen days of receiving the application, either
admit or reject the application based on certain criteria
including completeness of the application, non-payment of the
unpaid operational debt, delivery of invoice or notice, absence
of dispute, and absence of pending disciplinary proceedings
against any proposed resolution professional.
8. Withdrawal of Application: The procedure for withdrawal of
the application is similar to that of a financial creditor, and it
can be done before or after admission of the application.
Commencement of Insolvency Resolution Process: The
corporate insolvency resolution process commences from the
date of admission of the application by the Adjudicating
Authority. [Section 9]
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INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS BY CORPORATE

APPLICANT.

1. Commission of Default: When a corporate debtor commits a default, a corporate applicant, which can be the
corporate debtor itself, a member or partner authorized under the constitutional document, an individual
managing the operations, or a person supervising financial affairs, may file an application for initiating
corporate insolvency resolution process with the Adjudicating Authority.
1. Definition of Corporate Applicant: Section 10 defines a corporate applicant and includes various entities
authorized to make an application for corporate insolvency resolution process.
2. Furnishing of Information: Along with the application, the corporate applicant must furnish information
related to its books of account, documents specified for the period, and the resolution professional proposed
to be appointed as an interim resolution professional. Section 10(2)
3. Admission/Rejection of Application: The Adjudicating Authority must, within fourteen days of receiving
the application, either admit or reject it based on completeness and absence of disciplinary proceedings
against the proposed resolution professional. Section 10(3) outlines the criteria for admitting or rejecting the
application, and Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016, provides the procedure for rectifying defects in the application.
4. Commencement of Insolvency Resolution Process: The corporate insolvency resolution process starts from
the date of admission of the application. Section 10(4) states the commencement of the insolvency resolution
process.