What is Corporate Insolvency Resolution Process

Documents Required to be Submitted During the IRP

Here is a list of documents that you are required to submit during the IRP, along with an application form:

- For Financial Creditors:

• A record of default, along with an information utility or any other evidence showing the default
• The name of the proposed interim resolution professional
• Any other information specified by the board

- For Operational Creditors:

• A copy of an invoice demanding payment or a demand notice sent to the corporate debtor
• An affidavit confirming no notice of dispute from the corporate debtor regarding an outstanding debt
• Certificate from the financial institution managing the creditor’s accounts, confirming no payment of an unpaid debt by the corporate debtor
• If available, provide a report from the information utility confirming non-payment of the debt
• Any other proof or additional information as prescribed by the central government, confirming an unpaid debt.

- For Corporate Debtors:

• Records representing a corporate debtor's books of account for any specified period
• Information about the proposed interim resolution professional
• A special resolution from the shareholders or a resolution from at least three-fourths of the partners, approving the application filing.

How to implement a Corporate Insolvency Resolution Process (CIRP)?

Here is a step-by-step procedure of the Corporate Insolvency Resolution Process (CIRP):

Step 1: Applying to the NCLT

Any creditor or company itself can ask the National Company Law Tribunal (NCLT) to beg the CIRP if a company owes more than ₹1 lakh and has failed to pay it. The NCLT decides within 14 days whether to accept or reject the application.

Step 2: Appointment of an Interim Resolution Professional 

Once the CIRP begins, the NCLT appoints an interim resolution professional to temporarily take charge of the company's management.

Step 3: Moratorium

During a CIRP, a moratorium will be imposed, which will involve a stop to all legal actions against the company, the transfer of its assets, and all other financial activities.

Step 4: Claims Verification

An interim resolution professional verifies and lists the claims made by the company's creditors within 30 days of starting the CIRP.

Step 5: Appointment of Resolution Professional 

The Committee of Creditors (CoC) appoints a resolution professional to oversee the rest of the CIRP.

Step 6: Resolution Plan Approval

Within 180 days of the start of a CIRP, a restructuring plan must be approved by the creditors. If the resolution is approved, it will be implemented. Otherwise, the company may go into liquidation.

What Could be the Outcome of Initiating an IRP?

Initiating an IRP could result in the following:

• Debt Repayment and Legal Proceedings Halted

When the NCLT admits a company into CIRP, all legal proceedings against the defaulter stop and debt repayment enters a moratorium period.

• Shareholder Impact

Shareholders typically experience complete equity dilution, contingent on the resolution plan.

• Resolution Success

With approval from the CoC, a new management team may take over the defaulter's operations.

• Liquidation

If no successful resolution applicant is found within the set deadline, the NCLT may authorise the resolution professional to liquidate the defaulter.

• Creditor Recovery

Financial creditors have first right over the recovery proceeds. They are followed by operational creditors, including government dues and employees.

• Management Change

Control of the company is transferred to a resolution professional.

The Bottomline

The Corporate Insolvency Resolution Process addresses financial distress in companies. It allows for the restructuring of debt, the resolution of creditor claims, and, if necessary, the liquidation of assets. Moreover, it can lead to debt repayment, changes in management, or even the continuation of business operations under new ownership.