Corporate Insolvency Resolution Process (CIRP) Under IBC 2016

Shivendra Pratap Singh

Advocate

High Court Lucknow

Article | Insolvency Law

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Corporate Insolvency Resolution Process (CIRP) Under IBC 2016. The Insolvency and Bankruptcy Code (IBC) 2016 brought about a revolutionary change in India’s insolvency framework, introducing a structured mechanism called the Corporate Insolvency Resolution Process (CIRP). This blog post offers a comprehensive look into the CIRP, its stages, and its implications.

What is Corporate Insolvency Resolution Process [CIRP]?

The Corporate Insolvency Resolution Process (CIRP) systematically addresses a corporate debtor’s insolvency. Its main goal is to resolve the insolvent company within a set timeframe, maximizing the company’s value and catering to the creditors’ interests.

Key Stages of CIRP

  1. Initiation:
    • A financial creditor, operational creditor, or the corporate debtor itself can initiate the CIRP.
    • Upon receiving an application, the National Company Law Tribunal (NCLT) assesses its viability. If found appropriate, the NCLT admits the application and declares a moratorium on the debtor company, ceasing any ongoing legal processes against it.
  2. Appointment of Interim Resolution Professional (IRP):
    • Post NCLT’s admission of the application, an Interim Resolution Professional (IRP) is appointed to oversee the initial phase. The IRP takes control of the company’s assets, operations, and management.
  3. Formation of Committee of Creditors (CoC):
    • The IRP constitutes the Committee of Creditors (CoC), primarily comprising financial creditors.
    • The CoC decides whether they want to continue with the current IRP or appoint a new Resolution Professional (RP) to manage the insolvency process.
  4. Drafting the Resolution Plan:
    • The RP, with the CoC’s guidance, drafts a resolution plan. The aim is to detail how the company’s debts will be restructured and operations revived.
    • The resolution plan is open to bids, and external parties can present their plans as well.
  5. Approval of the Resolution Plan:
    • The CoC examines the submitted plans and, with a voting majority of at least 66%, approves one.
    • The chosen plan is then presented to the NCLT for its approval.
  6. Implementation:
    • Once the NCLT approves the plan, it is executed as per the outlined terms.
    • If they don’t approve a satisfactory resolution plan within the mandated 330 days, which includes litigation and judicial processes, the company enters liquidation.
  7. Conclusion of CIRP:
    • The process concludes either with the approval of a resolution plan or the company’s liquidation.

Significance of Corporate Insolvency Resolution Process CIRP]

  • Time-Bound Resolution: CIRP ensures that the insolvency process is not endless, setting a strict timeline for conclusion.
  • Preservation of Entity Value: The process aims to revive companies rather than pushing them directly towards liquidation.
  • Equitable Treatment: By forming a CoC, the interests of all financial creditors are taken into account.
  • Transparent Bidding: Open bids for resolution plans ensure a transparent and competitive process.

Challenges

  • Overburdened NCLT: With an influx of insolvency cases, the NCLT faces challenges in adhering to strict timelines.
  • Complexities in Resolution: Given the complexities of certain companies and their operations, finding a suitable resolution plan remains a challenge.

Conclusion

The Corporate Insolvency Resolution Process under the IBC 2016 signifies India’s progressive approach towards insolvency and bankruptcy. It provides a structured, time-bound, and transparent mechanism to address corporate distress. While there remain challenges, CIRP is undoubtedly a step towards a more efficient and creditor-friendly insolvency regime.

Tags: #CIRP #IBC2016 #InsolvencyResolution #NCLT #CorporateDistress