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How Does the Corporate Insolvency Resolution Process (CIRP) Work?

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The Corporate Insolvency Resolution Process (CIRP) is a legal process for resolving the insolvency (financial distress that leads to the inability to pay debts) situation of a corporate debtor, a company that defaults on its payments to creditors. Insolvency resolution works either by providing the company the opportunity to revamp its operations and become financially stable or changing the ownership. The CIRP is strictly carried out in accordance with the provisions laid down by the Insolvency and Bankruptcy Code (IBC), 2016, for conducting insolvency of individuals, partnership businesses, LLPs, and companies.

The Corporate Insolvency Resolution Process is possible when the minimum default amount is INR 1 crore.

The Stages of CIRP

The CIRP process is a time-limited procedure that seeks to settle the insolvency situation in 330 days or less, including any extension periods given by the NCLT. The primary objective of the insolvency resolution is to revive the financial situation of the corporate debtor and save it from crisis, thus ensuring the restoration of company operation as soon as possible. CIRP proceeds in the following way:

  • Commencement of CIRP

The Corporate Insolvency Resolution Process is necessitated when a corporate debtor becomes insolvent or defaults on the payments to its creditors. In such a circumstance, the financial creditor, operational creditor, or corporate applicant of the corporate debtor can submit an application with the National Company Law Tribunal (NCLT) seeking to initiate insolvency resolution proceedings against the debtor.

The NCLT will decide on the application within 14 days by either admitting or denying the request.

  • Declaration of Moratorium and Public Announcement

If the CIRP application is accepted, the NCLT will declare a moratorium prohibiting particular transactions and activities in the company. The tribunal will appoint an insolvency professional as an Interim Resolution Professional (IRP), who will take control and custody of the corporate debtor. A public announcement initiating the CIRP and a call for claim submissions from the creditors will be made.

  • Committee Constitution

After verification of the claims received, the IRP will constitute a committee of creditors. The committee becomes the decision-making body of the company and it can either retain or replace the IRP.

  • Appointing a Resolution Professional

If the committee decides to retain the IRP as the Resolution Professional, it informs the same to NCLT. Otherwise, the committee can apply for appointing its proposed resolution professional, and the NCLT will appoint that person after receiving a confirmation from the Insolvency and Bankruptcy Board of India.

  • Invitation of Expression of Interest

The Resolution Professional (RP) will issue a public announcement asking all interested candidates or bidders to submit a resolution plan.  RP will then submit the plans that comply with the IBC to the committee for evaluation.

  • Approval of a Resolution Plan

When a resolution plan is approved by the committee, the RP will file an application before NCLT seeking its approval. If it gets sanctioned, the resolution plan will be implemented and come into legal operation on the corporate debtor.

If the plan gets rejected, NCLT may order for debtor’s liquidation.

Fast Track Corporate Insolvency Resolution Process

There is also a provision for Fast Track Corporate Insolvency Resolution Process within the framework of Insolvency and Bankruptcy Code (IBC), 2016. This is designed to expedite the insolvency resolution of smaller businesses with simpler financial structures.

Conclusion

One of the major advantages of CIRP is that it offers a transparent method for resolving insolvency situations. As this process is supervised by the NCLT, all parties involved are assured of fair and equitable treatment. The licensed team of Ancorra Resolution professionals helps lenders, suppliers, borrowers, personal guarantors, and employees deal with insolvency and debt settlement situations.

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