Corporate Insolvency Resolution Process (CIRP)UNDER INSOLVENCY & BANKRUPTCY CODE, 2016
Corporate Insolvency Resolution Process (CIRP)
Under Insolvency & Bankruptcy Code, 2016
Table of Contents
The CIRP is a creditor-in-control model designed to revive a distressed company ("Corporate Debtor"). It is not a recovery forum, but a resolution mechanism.
⚠️ Minimum Default Threshold (Sec 4)
Before filing any application, the "Default" amount must meet the statutory limit.
- 💰 Minimum Amount: ₹1 Crore (Increased from ₹1 Lakh vide Notification dated 24.03.2020).
- ⛔ Section 10A Bar: No filing allowed for defaults occurring between 25.03.2020 to 24.03.2021 (COVID-19 Period).
Stage 1: Initiation of CIRP
Who can pull the trigger? The Code allows three categories of applicants:
| Section | Applicant | Requirement |
|---|---|---|
| Sec 7 | Financial Creditor (Banks/Home Buyers) | Prove "Debt" and "Default" via Record of Information Utility (NeSL). |
| Sec 9 | Operational Creditor (Vendors/Employees) | Must send Demand Notice (Sec 8) first. If there is a "Pre-existing Dispute", case is rejected. |
| Sec 10 | Corporate Applicant (Self) | Company admits insolvency and surrenders to NCLT. |
Stage 2: Admission & Moratorium
Once the NCLT admits the application (Order under Sec 7(5), 9(5) or 10(4)), the "Calm Period" begins.
The Moratorium (Sec 14)
Total Shield: No new suits can be filed, and no pending suits can proceed against the Corporate Debtor. No assets can be sold or foreclosed (SARFAESI stopped).
Board Suspended (Sec 17)
The powers of the Board of Directors are suspended. Management vests in the Interim Resolution Professional (IRP).
Stage 3: IRP & Committee of Creditors (CoC)
The IRP takes control and invites claims from the public.
- Public Announcement (Sec 15): Within 3 days of appointment, IRP publishes notice inviting claims (Form A).
- Formation of CoC (Sec 21): Only Financial Creditors form the CoC. They hold the "Commercial Wisdom". Operational Creditors can attend meetings but have no vote (unless >10% debt).
- Appointment of RP (Sec 22): The CoC confirms the IRP or appoints a new Resolution Professional (RP) with 66% Voting Share.
Stage 4: Resolution Plan & Sec 29A
The RP issues an 'Information Memorandum' and invites prospective bidders (Resolution Applicants) to submit plans to revive the company.
A crucial filter. Persons who are Wilful Defaulters, Undischarged Insolvents, or Promoters of the defaulting company are ELIGIBLE to bid. This prevents "Backdoor Entry" of the same promoters who sank the ship.
The Plan must be approved by the CoC by 66% Majority (Sec 30(4)).
Stage 5: Approval or Death (Liquidation)
If NCLT approves the plan, it binds all creditors, employees, and government. The "Clean Slate" theory applies.
If no plan is received or rejected by CoC/NCLT, the company is ordered to be sold for scrap.
⏳ The Statutory Timeline (Section 12)
Standard Period: 180 Days from Admission.
Extension: +90 Days (Only once, with 66% CoC approval).
Maximum Mandatory Cap: 330 Days (Including Litigation)
Drafted by Advocate Hamza
Insolvency Professional & Legal Consultant
Visit: www.advocatehamza.in