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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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