Under the Insolvency and Bankruptcy Code, 2016, a Corporate Insolvency Resolution Process (CIRP) can be initiated in case of a failure to pay whole or any part or installment of the amount of debt or interest due, which must be at least Rs. 1 lakh. The Central Government can increase is a limit to Rs. 1 crore by a notification.
The process to file an application under CIRP is as follows:
A Financial Creditor, Operational Creditor or Corporate Debtor can initiate a CIRP before the National Company Law Tribunal (NCLT) in case a default is committed by the corporate debtor.
A demand notice of 10 days has to be given by the operational creditor to the corporate debtor before approaching the NCLT. If the corporate debtor fails to repay dues or show any existing dispute or arbitration, then the operational creditor can approach NCLT.
NCLT has to complete CIRP within 180 days of receiving the application. When NCLT admits the application, the creditor’s claims are frozen for 180 days during which it hears the proposal to decide on the next action to be taken.
An interim Insolvency Professional (IP) is appointed upon confirmation by the Insolvency and Bankruptcy Board within 14 days of acceptance of the application. Interim IP has the power to control debtor’s assets and company’s operations and collect financial information of the debtor from information utilities.
A creditor’s committee comprising of all the financial creditors is constituted after the claims from the public announcement are received. Operational creditors have the right to be part of the committee if their aggregate dues are not less than 10% of the debt, but they do not get any voting rights.
The committee has to meet within 7 days of its constitution and decide by 75% of votes either to replace or confirm interim IP as Resolution Professional. Thereupon, the resolution professional is appointed by NCLT upon confirmation by the Board. The creditors’ committee, with a majority of 75% votes can change Resolution Professional any time.
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