One of the biggest legal reforms in India took place when the Bankruptcy And Insolvency Act was implemented in 2016. The new law simplified the bankruptcy resolution structure by subsuming old regulations and establishing a clear path for settling unpaid debts. It directs that once the process to resolve has been started it must be completed within 180 days. This period can be extended by 90 days. It is a marked shift from earlier days when the cases dragged on for years in courts.
The enactment of the code has been a welcome change for creditors like banks and other financial institutions. They can now invoke the law to initiate proceedings a borrower who claims to be unable to repay a debt. However, it is not only lenders who can use the code to recover their investment. Corporate debtors can also under the regulation start the process to resolve their insolvency or bankruptcy. Let’s see how they can invoke the law.
Corporate debtor and filing application
The corporate debtor can also file an application for starting with the process of corporate resolution for insolvency and bankruptcy in India included in Section 10 of the code.
- The adjudicating authority must serve a notice to the corporate debtor before admitting the application and reject or admit or reject the application within fourteen days of receiving it.
- For the financial application made by the financial creditors, the default occurrence is to be confirmed and recorded by the adjudicating authority.
- For the operational creditors, it is essential to confirm that no issues of dispute exist before filing the application.
- After the admission of the petition, the NCLT should declare a moratorium until the completion of the process of resolution.
Appointing the interim resolution professional
For the financial and corporate debtor, it is compulsory to furnish the name of the resolution professional along with the application. However, the operational creditor may not furnish the name of the resolution professional. The adjudicating authority must appoint the interim resolution professional from the starting date of insolvency, which is the name proposed by the corporate debtors, financial and the operational creditors when there are no disciplinary proceedings pending against the IRP’s. When no name of IRP is recommended, the adjudicating authority can make a reference according to the bankruptcy and insolvency laws in India for suggesting professional acting as the IRP. Within the receipt of such a request, the Board must recommend the name of a professional to be appointed as IRP.
Public announcement and submitting the claims
According to the insolvency and bankruptcy law, the public announcement of CIRP is to be made as directed by the adjudicating authority after the admission of the application. Furthermore, the financial creditors must submit their proof of claims electronically and all the other creditors can submit their proof of claims personally, electronically, or through the post.
Appointing resolution professional and preparing an information memorandum
The committee of creditors must resolve to appoint the interim professional during the first meeting or replace the existing professional with another one. The professional has to prepare the information memorandum according to the code. For more information related to the procedures, it is necessary to consult with some of the prominent and reputed lawyers in India to find out more about the procedure.
Preparing the resolution plan
The plan of resolution can be proposed by any person for bankruptcy resolution of the corporate debtor and submit it to the resolution professional. On the other hand, the resolution professional must present all the plans of resolution before the committee of the creditors and subject it for approval after fulfilling the requisites.
Time frame for completing the process of resolution
The process of corporate resolution is to be completed within a period of 180 days from the date of the admission of the petition. However, when the resolution extends beyond the stipulated period of 180 days, but has not yet crossed ninety days, when the committee of creditors with about seventy-five percent of the voting shares pass it, such extension is considered valid although no further extension can be granted after this.
Process of liquidation
When the plan of liquidation is placed before the adjudicating authority after the completion of the deadline and is not proper as prescribed under the bankruptcy and insolvency act, an order may be passed stating the corporate debtor of liquidation. During the process of resolution as well, the committee comprising the creditors can take the directives from NCLT to liquidate the corporate debtor. The resolution professional is slated to perform the duties of the liquidator under such circumstances and the proceeds from the sale of the assets that are liquidated are to be distributed according to the priority mentioned according to the code.
Following the law
For the corporate debtors along with the financial and operational creditors, the process of liquidation of the personal assets and the journey through the procedure must comply with the insolvency and bankruptcy law. It states the extension of liability on the directors of the parent company of the corporate debtor during any or all the transactions that involve them. Furthermore, a corporate debtor with intense knowledge of the technicalities of business and has professional experience should be clearly heard while appointing an IRP. However, the IRP must have substantial knowledge or has run a particular business and knows what can cause damage, all of which are to be properly evaluated before appointing the professional.
According to the norms of natural justice, the right must be provided to the corporate debtor and properly heard during the presentation of the facts. It is necessary to have such a provision in the code so that the opportunity can be provided to the debtor