Insolvency and Bankruptcy Code (IBC) Overview

Overview of Insolvency and Bankruptcy Code (IBC) Processes

• The IBC addresses scenarios where companies cannot repay loans and supplier dues.
• The process involves identifying operational creditors, financial creditors, and the steps for resolution.
• Insolvency professionals play a critical role in managing and resolving the insolvency.

Key Entities and Definitions

• Operational Creditor: An entity to whom the company owes money for goods or services.
• Financial Creditor: Generally a bank or financial institution that has provided a loan to the company.
• Resolution Professional (RP): Appointed to manage the company during the insolvency resolution process.

Initiation of Corporate Insolvency Resolution Process (CIRP)

• CIRP can be initiated when a company defaults on its payments.
• An application is made to the National Company Law Tribunal (NCLT).
• The application must include records of default.

Application Process and Requirements

• A minimum deposit amount might be required for applications.
• Deficiencies in the application can lead to rejection if not appropriately rectified within a specific opportunity provided by the NCLT.
• Applications can be withdrawn before admission.

Moratorium

• A moratorium is declared, temporarily prohibiting legal actions against the company.
• A moratorium period's principal goal is to ensure the CIRP can continue without external disturbance.
• The company continues to operate during the moratorium.

Public Announcement

• A public announcement is made to inform stakeholders about the CIRP.
• It includes details on how creditors can submit their claims.

Committee of Creditors (CoC)

• The CoC is formed, consisting of financial creditors.
• The first meeting of the CoC must be conducted within seven days of its constitution.
• The CoC is pivotal in making key decisions during the CIRP.
• The CoC can replace the Interim Resolution Professional (IRP) with a Resolution Professional (RP).

Role of the Resolution Professional

• The RP manages the company's operations during CIRP.
• Gathers all necessary information for formulating a resolution plan.

Resolution Plan

• The resolution plan details how the company will be managed, how debts will be paid, and how the company will be restructured.
• The plan must comply with guidelines and regulations.
• Operational creditors must be considered in the plan.

Approval and Implementation of the Resolution Plan

• The resolution plan is presented to the CoC for approval.
• The CoC can approve or reject the plan.
• If approved by the CoC, the plan is submitted to the adjudicating authority (NCLT) for final approval.

Liquidation

• If a resolution plan cannot be agreed upon, liquidation may be initiated.
• During liquidation, the company's assets are sold to repay creditors.
• Certain individuals are not eligible to be appointed as liquidators.

Distribution of Assets During Liquidation

• Proceeds from the sale of assets are distributed in a specific order of priority
• Secured creditors hold priority in liquidation.

Key Considerations

• Understanding the roles and responsibilities of various parties involved in the IBC process is very useful for exams.
• Grasping key concepts like moratorium, CoC, resolution plan, and liquidation is crucial for a comprehensive understanding of the IBC.