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Corporate Insolvency & Liquidation Process
29 Nov 2016

INSOLVENCY ANDBANKRUPTCY WHAT DOES IT MEAN:

Insolvency means the situation where an entity cannot raise enough cash to meet its obligations or to pay debts as they become due for payment and bankruptcy means when a person voluntary declares him as an insolvent and goes to the court. On declaring the person as bankrupt, the court is responsible to liquidate the personal property of the insolvent and distribute it among the creditors of the insolvent.

 

INSOLVENCYRESOLUTION PROCESS (as per the insolvency and bankruptcy code, 2016):

 

Sec.7 A financial creditor eitherby itself or jointly with other financial creditors may file an application (Sec. 8 after delivering a demand notice to repay within 10 Days to debtor.

Sec 9 After the expiry of 10 days if notreceive payment) for initiating corporate insolvency resolution process againsta corporate debtor before the Adjudicating Authority (in case of company NCLT) when a default has occurred.

 

The Adjudicating Authority shall,within fourteen days of the receipt of the application, if default has occurred and the application is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or if default has not occurred or the application is in complete or any disciplinary proceeding is pending against theproposed resolution professional, it may, by order, reject such application Provided that the Adjudicating Authority shall, before rejecting the application, give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.

 

Sec 9 (5) Intimation of admission or rejection to be given by Adjudicating Authority within 7 Days of admissionor rejection, the corporate insolvency resolution process shall commence from the date of admission of the application and is to be completed within 180 days (sec 12) of commencement which can be extended to ninety days by NCLT if shown sufficient cause.  

 

Sec 16 The Adjudicating Authority shall appoint an interim resolution professional (IPR) for a term not exceed thirty days from the date of appointment and cause public announcement, within fourteen days from the insolvency commencement date. The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending. Public announcement shall contain the information such as name and address of corporate debtor under the CIRP, name of authority in which corporate debtor is registered, last date of submission of claim etc.

 

 Sec 21 the interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors comprise all financial creditors.

 

Management of affair of corporate debtor as a going concern, power of board of director or the partners of debtor shall stand suspended and exercised by IRP. So that management not intrepid the proceeding of IRP.

 

Sec 22 The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors. In this meeting committee either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. All the decision of creditors shall be taken by vote of not less than 75% of voting share of financial creditor.

 

Sec 30 A resolution applicant may submit a resolution plan to the resolution professional prepared based on the information memorandum, the resolution professional shall examine each resolution plan.

 

The resolution plan which is submitted by resolution applicant and examined by resolution professional, to be approved by 75% of voting share of committee of creditors after approved by committee the same resolution plan submitted by resolution professional to adjudicating authority.

 

Sec 31 the Adjudicating Authority (NCLT) if satisfied that the resolution plan as approved by the committee of creditors confirm to the requirements, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. If not satisfied it shall by order reject the resolution plan. Appeal may be made to NCLAT for rejection order. 

                               

       LIQUIDATION PROCESS

 

Sec 33 If the rejection order passed by the authority, the authority shall pass order for liquidation of corporate debtor and make a public announcement stating that the corporate debtor is in liquidation and sent the same order to the authority with whichthat corporate debtor registered.

 

Sec 34 Where the Adjudicating Authority passes an order for liquidation of the corporate debtor the resolution professional appointed for the corporate insolvency resolution process shall act as the liquidator for the purposes of liquidation unless replaced by the Adjudicating Authority. On the appointmentof a liquidator under this section, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor, as the case maybe, shall cease to have effect and shall be vested in the liquidator.

 

The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process. The liquidator may, after verification of claims, either admit or reject the claim, in whole or in part, The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection ofclaims. A creditor may appeal to the Adjudicating Authority against the decision of the liquidator rejecting the claims within fourteen days of the receipt of such decision.

 

Where the assets of the corporate debtor have been completely liquidated, the liquidator shall make anapplication to the Adjudicating Authority for the dissolution of such corporate debtor. The Adjudicating Authority shall on application filed by the liquidator order that the corporate debtor shall be dissolved from the date of that orderand the corporate debtor shall be dissolved accordingly. A copy of an ordershall within seven days from the date of such order, be forwarded to the authority with which the corporate debtor is registered i.e. Registrar ofCompanies, in MCA.

 

FASTTRACK CORPORATE INSOLVENCY RESOLUTION PROCESS:

 

1.    Applicationfor Fast Track Corporate Insolvency Resolution Process: An application for fast track corporate insolvency resolution process may be made in respect of the following corporate debtors.

(a)  A corporate debtor with assets and income below a level as may be notified by the Central Government; or

(b)  A corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government;or

(c)  Such other category of corporate persons as may be notified by the Central Government.

 

2.       Time Duration: The fast track corporate insolvency resolution processshall be completed within  a period of ninety days from the insolvency commencement date.

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Ø Extension: An application shall file by the resolution professional to the Adjudicating Authority for extent the period beyond ninety days for this a resolution shall be passed by the committee of creditors and supported by a vote of seventy five percent of the voting share.On receipt of an application, if the Adjudicating Authority is satisfied that the subject matter of the case is such that fast track corporate insolvencyresolution process cannot be completed within a period of ninety days, it may,by order, extend the duration of such process beyond the said period of ninety days by such further period, as it thinks fit, but not exceeding forty-fivedays provided that the extension can be granted once.

Conclusion: We concludes that the process is very practical and time bound which is very beneficial for all stakeholder of the company. It saves time as well as precious funds of all stakeholders and company too. The current Bankruptcy Code 2016 of India is an important tool for rolling out EASE OF DOING BUSINESS environment in India.

 

For any clarification and consultation please email to Mr. Hemant Paliwal, Practicing Company Secretary and a Registered Insolvency Professional under “Insolvency and BankruptcyBoard of India (Insolvency Professionals) Regulations, 2016 issued by  the Insolvency and Bankruptcy Board of India w.e.f 30/11/2016.  

For any instant support please be in touch with himat at: hemant@hpacs.com 

 

CS Nikhil Rastogi

HPACS Team