Overview
This lecture covers the core concepts, procedures, and key sections of the Insolvency and Bankruptcy Code (IBC), focusing on initiation, management, roles, processes, and outcomes of insolvency and liquidation in India.
Insolvency Resolution Process (CIRP)
- CIRP can be initiated by financial creditors, operational creditors, or the corporate debtor on default (≥Rs 1 crore).
- Application for CIRP is made to the Adjudicating Authority (NCLT/DRT).
- On admission, a moratorium is imposed, and an Interim Resolution Professional (IRP) is appointed.
- CIRP must be completed within 180 days, extendable by 90 days; Fast Track CIRP is for certain smaller companies.
Key Participants & Authorities
- Four main pillars: Insolvency Professional, Information Utility, Insolvency Board (IBBI), and Adjudicating Authority.
- IRP takes over management, collects claims, forms Committee of Creditors (COC).
- COC consists of financial creditors; operational creditors and employees may attend but not vote.
- Decisions in COC generally require at least 66% approval.
Claims & Moratorium
- All creditors submit claims to IRP for verification within 14 days.
- Moratorium bars suits, asset transfers, and recovery actions but allows business continuity.
- Exceptions for transactions ordered by Central Government and regulatory authorities.
Liquidation Process
- Triggered if CIRP fails (no plan, time lapsed, rejected plan, or by COC decision).
- Liquidator is appointed (can be IRP/RP or new appointee); management vests in liquidator.
- Assets realized and distributed according to waterfall: costs, secured creditors, workmen, employees, unsecured creditors, government, and shareholders.
- Process to be completed within one year.
Voluntary Liquidation
- Can be initiated by solvent companies with a declaration of no outstanding debt and full payment to creditors.
- Requires board and shareholder resolution, and appointment of a professional liquidator.
Preference, Undervalued, and Fraudulent Transactions
- Transactions benefiting certain creditors before insolvency may be voided if within look-back period (one year, two for related parties).
- Liquidator/RP can reverse such transactions to protect creditor interests.
Disqualifications & Connected Persons
- Certain persons (defaulters, convicted, related parties, disqualified directors, etc.) cannot submit or control resolution plans.
- Disqualification extends to connected parties (promoters, management, holding/subsidiary/associate companies).
Appeals & Approvals
- Orders can be appealed within 30 days to higher authorities (NCLAT, Supreme Court).
- Approval of resolution plan binds all stakeholders; plan must comply with laws and ensure minimum liquidation value to operational creditors.
Key Terms & Definitions
- CIRP — Corporate Insolvency Resolution Process for resolving company defaults.
- IRP/RP — Interim/Resolution Professional; manages the company during insolvency.
- COC — Committee of Creditors; body of financial creditors for decision-making.
- Moratorium — Legal stay on asset recovery and lawsuits during CIRP.
- Liquidator — Appointed to sell assets and distribute proceeds during liquidation.
- Fast Track CIRP — Expedited process for specified small companies.
- Preference Transaction — Transfers favoring certain creditors before insolvency.
- Undervalued Transaction — Sale of company assets below market value soon before insolvency.
- Connected Person — Related individual/entities whose ineligibility can bar resolution applicants.
Action Items / Next Steps
- Review IBC Sections 4–31 for CIRP and 33–54 for liquidation.
- Prepare for exam questions on initiation, moratorium, COC decisions, distribution waterfall, and disqualifications.
- Complete any assigned readings and practice application of look-back periods for transactions.