Corporate Insolvency Resolution Process (CIRP)

CIRP full form is Corporate Insolvency Resolution Process. Insolvency of corporate persons deals with the insolvency of a corporate bodies like a private limited company or limited company. This section deals with insolvency resolution process of a corporate debtor is known as the corporate insolvency resolution process (CIRP). Licensed insolvency professionals would execute the process for insolvency resolution under the supervision of adjudicating authority. In this article, we look at the corporate insolvency resolution process in detail.

Corporate Insolvency

A company is declared insolvent if the company is inefficient to settle its debts to the creditors. There are two ways to evaluate the corporate insolvency:

The cash-flow test is the company currently or in the future, be unable to pay its debts when they fall due for payment.
The balance sheet test is the value of the company’s assets less than the number of its liabilities, taking into account future liabilities.

Corporate Insolvency Resolution Process (CIRP)

Corporate Insolvency Resolution Process is a recovery mechanism for creditors. If a corporate becomes insolvent, a financial creditor, an operational creditor, or the corporate itself may initiate CIRP. After making an application then CIRP is initiated. CIRP is the process through which it is determined whether the person who has defaulted is capable of repayment or not (IRPs will evaluate the assets and liabilities to determine the repayment capability). If a person is not capable of repaying the debt the company is restructured or liquidated.

Financial Creditor

Financial creditor refers to any person to whom a business debt is owned or a person to whom such amount is legally assigned or transmitted. Banks or other financial institutions are examples of financial creditors.

Operational Creditor

Operational creditor refers to a person to whom an operational debt is owed and includes any person to whom such amount has been legally assigned or transferred for goods or services done by them. Vendors and suppliers, employees, government etc. are examples of operational creditors.

Documents Required for Financial Creditor

The prescribed documents are to be submitted along with the application form.

A record of the default recorded with the information utility or such other document or evidence of default.
The name of the resolution professional proposed to act as an interim resolution professional.
Any other information as may be specified by the board.

Documents Required for Operational Creditor

The following documents are to be furnished at the time of making the application form.

A copy of invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor.
An affidavit stating that there is no notice given by the corporate debtor describing to a dispute of the outstanding operational debt.
A copy of the certification from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available.
A copy of any report with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available.
Any other proof is confirming that there is no payment of an unpaid operational debt by the corporate debtor or such additional information, as may be prescribed by the central government.

Documents Required for Corporate Debtor

The following documents are to be furnished at the time of making the application form.

The information is representing its books of account and such other documents for such period as may be specified by the Board.
The information representing the resolution professional proposed to appointed as an interim resolution professional.
The special resolution is given by shareholders of the corporate debtor or the resolution adopted by at least three-fourths of the total number of partners of the corporate debtor, as the case may be, approving the filing of the application.

How to Apply for CIRP?

The following is the processes for resolution or liquidation of corporate which are as follows :

Step 1: Application To The NCLT

A creditor of a corporate (financial or operational), or the company, can request to the NCLT (National Company Law Tribunal). It is used to admit that the company enters the CIRP (Corporate Insolvency Resolution Process). For this, creditors must show the failure of payment of a debt which is more than one Lakh rupees, and the NCLT has to pass an order either admitting or denying the application within 14 days. The financial and an operational creditor have to satisfy separate requirements when making their requests before the NCLT. A financial creditor needs to furnish the report of the default. The IBC(Insolvency and Bankruptcy Code, 2016) creates a new class of record keepers known as Information Utilities. Then the operational creditor needs first to make a demand for his unpaid debt. By an ongoing dispute, it is open to the corporate debtor to defend the claim.

Step 2: Appointment of Interim insolvency Resolution Professional

When a corporate debtor is accepted into the CIRP (Corporate Insolvency Resolution Process), it checks the board of directors. Further, the management is placed under an independent “interim resolution professional”. From this and till the end of the CIRP (Corporate Insolvency Resolution Process), the management ceases to have any control over the activities of the company.

Step 3: Moratorium

Moreover, a moratorium takes part which prohibits the following:

Continuing or beginning of any legal matters on the corporate debtor
Transfer of its assets
Execution of security interest
Recovery of property as an owner
Discontinuing or termination of the supply of basic goods and services, the moratorium lasts till the corporate debtor is in CIRP process.

Step 4: Verification and analysis of claims

Now, the interim resolution professional will summon, verify claims made by the corporate debtor’s creditors also, list them. After that, in 30 days of the acceptance into CIRP (Corporate Insolvency Resolution Process), from the COC (Committee of Creditors), comprising all the financial creditors of the corporate debtor.

Step 5: Appointment of the resolution professional

The COC (Committee of Creditors) appoints an independent person to operate as the “resolution professional” for the remainder of the CIRP (Corporate Insolvency Resolution Process). The resolution professional will be the same person or the same person as the interim resolution professional depending upon COC.

Step 6: Acceptance of the Resolution Plan

A resolution plan for the restructuring of the corporate must be approved within 180 days from the commencement of CIRP by creditors. All person, management, the creditors, or a third party can propose such a resolution plan. It is the duly of resolution professional to check that the plan satisfies the criteria set up in the IBC(Insolvency and Bankruptcy Code, 2016). If a plan is accepted within this period and is sanctioned by the NCLT The approval of the resolution plan when it meets the conditions binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholder involved in the resolution plan. The resolution professional is required to obtain necessary approvals required under any law for the time being n force within one-year from the date of approval by adjudicating authority. If no resolution plan is accepted in this period If the resolution plan is claimed, then NCLT is obliged to order the liquidation of the corporate debtor. Upon approval of liquidation, COC appoints the liquidator to sell the assets of the corporate debtor and share them among the stakeholders.