A situation when an entity or a person or family, or company
cannot pay its lenders back on time.
In the case of individual debtors, this means that their incomes are too low to
pay off their debts.
In the case of companies, this situation arises when the flow of money into the
business and assets are less than its liabilities.
Corporate insolvency is a situation when any corporate person has failed to pay
his debts, whether whole or any part of the instalment, when due and payable.
The basic procedure for resolving this problem is the corporate insolvency
resolution process (CIRP) which will be processed under the provisions.
The corporate insolvency resolution process is initiated by a financial creditor
(A financial creditor is a person to whom the business owes a financial debt) or
an operational creditor (persons to whom such amount has been legally
transferred) or a corporate applicant of a corporate debtor. There is a minimum
amount for initiating a corporate insolvency resolution process i.e. ₹ 1 lakh
till recently. In a notification passed by the government on March 24th 2020,
the minimum amount has been increased to ₹ 1 crore.
National Company Law Tribunal, has territorial jurisdiction to hear an
application for the corporate insolvency resolution process where the registered
office is located. The documents which are required to be submitted by a
Financial Creditor are an application for CIRP in addition to evidence for
default which is as specified.
The whole process is to be concluded within 180 days from the date of admission
of the application. An extension of ninety days can be granted by the
Adjudicating Authority The maximum time within which the process has to be
completed, which includes any extension or any litigation period, is 330 days.
Withdrawal can be done from the process by applying an interim resolution
professional even before the constitution of the committee of creditors.
Procedure for corporate insolvency resolution
Initiate for Corporate insolvency resolution process: The corporate insolvency resolution process is initiated by a financial
creditor (A financial creditor is a person to whom the business owes a
financial debt) or an operational creditor (persons to whom such amount has
been legally transferred) or a corporate applicant of a corporate debtor.
Appointment of interim resolution professional and moratorium The adjudicating authority appoints the interim resolution professional.
Once the appointment is done the next step is a public announcement which
consists of all the details for the corporate debtor.
- Temporary prohibition (moratorium)
- Prohibition of transfer of assets
- Recovery of any property by an owner
- Enforcement of any security interest
- Suspension of supply of goods and services
Verification and analysisEvaluation of the information of the corporate debtor for the last two years.
The interim resolution professional forms the committee of creditors which
consists of all the corporate creditors.
Appointment of resolution professionalWithin seven days the committee has to decide whether the interim resolution
professional or to be replaced by another resolution professional.
Confirmation and submitting the resolution planNo less than 66 per cent of the voting share of financial creditors for the
approval of the resolution plan. The resolution plan needs to be submitted to
the Adjudicating Authority by the resolution professional. This plan must be
approved within 180 days from the beginning of the corporate insolvency
resolution process by financial creditors. A ninety days extension period can be
granted by the Adjudicating Authority.
The process for resolving this problem which is corporate insolvency is the
corporate insolvency resolution process (CIRP) which has heralded a new era in
handling insolvency proceedings and has led to improved ease of doing business
in the Indian real estate and other sectors, with regards to redressal
mechanisms in case of a default.