Fast Track Insolvency Resolution Process: A Discussion By FCS Shweta Gupta


The IBC 2016 or insolvency Codes discusses amendment and consolidation of the laws relating to recognition and insolvency resolution of the corporate individual and partnership firms. These are introduced to work in a time-bound manner to maximize the value of assets of such person to encourage enterprise ship, credit availability and balance interests of all stakeholders including alteration in the order of paying government dues and to line up Insolvency and Bankruptcy Board of India for matters connected.

The Insolvency and Bankruptcy Code 2016 applies to the matters when it is related to insolvency and liquidation of corporate debtors where the minimum default amount is 1 lakh. Though the minimum default amount could be higher if Central Government notifies but it cannot be more than 1 cr rupees. This code does not apply to corporate persons who are regulated financial service providers like banks, financial institutions and insurance companies.

People who can initiate corporate insolvency process under the code:- 

Any corporate debtor who committed a default, a financial creditor, an operational creditor or the corporate 

debtors can start to apply the corporate insolvency resolution process.

People not eligible to make an application under the code

a. A corporate debtor who is going through a corporate insolvency resolution process; 

b. A corporate debtor who has completed corporate insolvency resolution process twelve months ago from the date of the application;

c. A corporate debtor or a financial creditor, i.e., one who has violated any of the terms of resolution plan which was approved twelve months before the date of an application;

d. A corporate debtor who has a liquidation order. 

Within what time corporate insolvency process needs to be done as per the code? :-  

The corporate insolvency resolution process needs to be completed within 180 days which is calculated from the insolvency commencement date. The resolution professional can file an application to extend the period of fast track insolvency resolution process beyond 180 days to the 'Adjudicating Authority' only if a resolution is passed in a meeting of the committee of creditors and sixty-six per cent of voting share is in favour of such instructions.

If the Adjudicating Authority after receiving such application is satisfied that the fast track resolution process cannot be completed within 180 days it can extend the time more than 180 days by order but that period cannot be extended beyond 90 days and such extension cannot be granted more than once.

FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

Criteria need to be fulfilled by corporate debtors

An application related to fast track corporate insolvency resolution process can only be made for default made by a corporate debtor 

i) with assets and income below a level by as the Central Government will notify or 

ii)  class of creditors or amount of debt as the Central Government will notify or 

iii) Another category of corporate persons as mentioned by the Central Government.

Period 

The first track corporate insolvency resolution process needs to be completed within 90 days which is calculated from the insolvency commencement date. But the resolution professional can file an application to extend the period of fast track insolvency resolution process beyond 90 days to the Adjudicating Authority only if a resolution is passed in a meeting of the committee of creditors and seventy-five per cent of voting share is in favour of such instructions.

If the Adjudicating Authority after receiving such application is satisfied that the fast track resolution process cannot be completed within 90 days it can extend the time period more than 90 days by order but that period cannot be extended beyond 45 days and such extension cannot be granted more than once.

Documents needed  

A creditor or a corporate debtor can apply for fast track corporate insolvency resolution process. He needs to file i) A evidential proof of the existence of default and the records available, information utility or anything mentioned by the Board 

ii)  Any other information specified by the Board to prove that the corporation is eligible for fast track resolution process along with the application. 

Ways to start fast track corporate insolvency resolution process.

Step by step resolution process 

By a financial creditor - 

If a default occurred, a financial creditor by himself or jointly with other financial creditors or any other person on behalf 

The financial creditor can file an application to the Adjudicating Authority for starting off the corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority. (Default here includes financial debt owed by applicant financial creditor as well as the financial creditor of the corporate debtor). 

The financial creditor needs to make the application in manner and fees as mentioned by the Authority. 

The financial creditor along with the application needs to file,

i) A record of recorded default with an affidavit or information utility or any such similar record or evidence of default,

ii) Name of resolution professional who will act as interim resolution professional,

iii) Any other information needed by the Board. 

Within 14 days of receipt of such application, the Adjudicating Authority finds the existence of a default from information utility or the evidence furnished by the creditor. 

The Adjudicating Authority will accept the application by order only If the Adjudicating Authority finds out the default occurred and the application is complete and any disciplinary proceeding is not pending against any resolution professional. The Adjudicating Authority will inform the financial creditor and corporate debtor if the application is accepted. 

But if the Adjudicating Authority finds out that there is no occurrence of a default or the application is incomplete and there is pending disciplinary proceedings against any resolution professional the Authority will reject the application by order but before rejecting the application within 7 days from the date of receiving such application, a notice will be given to the applicant to rectify the mistakes in the application. If the application is rejected further The Adjudicating Authority will inform the financial creditor within 7days of such rejection.

The corporate resolution process will start from the date of receipt of the application by the Adjudicating Authority. 

By an operational creditor 

If a default occurred, an operational creditor can deliver a demand notice of an unpaid operational debtor to a copy of the invoice, demanding payment of the amount which is involved in the default to the corporate debtor.

Within 10 days of receiving of such demand notice or copy invoice, the Corporate debtor  will  bring the notice to the operational creditor about the existing dispute, the record of pending suit or an arbitration proceeding if there is any which was filed before of such notice or invoice in relation of such dispute was receipt

Or the corporate debtor may repay the unpaid amount along with an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor or an attested copy of the record which has been encashed by the operational creditor from a cheque issued by the corporate debtor. 

But if the corporate debtor does not respond in any of the ways mentioned and 10 days after the date of delivery of notice or invoice, demanding payment the operational creditor does not receive a payment from the debtor or any notice about the dispute as mentioned the operational creditor can file an application to the Adjudicating Authority governed Insolvency and Bankruptcy Board of India in demand of initiating a corporate resolution process. For the same fees need to be paid as required and the creditor along with the application needs to furnish 

i) A copy of demanding payment invoice or demand notice delivered by the creditor, 

ii) An affidavit which will mention that no notice was given by the corporate debtor relating to the unpaid dispute,

iii) A certificate copy from financial institutions which will mention the accounting of the operational creditor displaying that no payment of the unpaid amount of operational debt was done by the corporate debtor,

iv) Information utility copy (any) confirming there is no payment of unpaid operational debt/ any other proof relating to the payment of the unpaid amount by the debtor. 

The operational creditor can involve a corporate insolvency resolution process through resolution professionals who will act as an interim resolution professional but this is optional. Within 14 days of receiving of such application the Adjudicating Authority may order and admit the application and communicate decision to the operational creditor and the corporate debtor only if the application is complete, there is no payment of unpaid amount of operational debt, invoice or notice for payment been delivered by the creditor , notice of dispute not been received by the operational creditor , there is no information utility  record of the dispute or any disciplinary proceeding is not pending against any resolution professional or reject the application and communicate decision to the operational creditor and the corporate debtor if the application is incomplete,  payment of unpaid amount of operational debt is done, invoice or notice for payment not been delivered by the creditor , notice of dispute been received by the operational creditor,  there is  information utility  record of the dispute or there is disciplinary proceeding is pending against any resolution professional. Before rejecting the Adjudicating Authority will give notice to the applicant to rectify the mistakes in the application which need to be done within 7 days from the date of notice given by the Adjudicating Authority. 

The corporate resolution process will start from the date of receipt of the application by the Adjudicating Authority. 

By corporate applicant

If a default occurred, a corporate applicant can file an application to the Adjudicating Authority for starting off the corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority. The concerned person needs to file the form in prescribed manner and fees as said. The corporate applicant along with the application need to file information related to its books of account and any other related documents which mention such period. The resolution professional who was proposed to be appointed as an interim resolution professional before rejecting the Adjudicating authority will give notice to the applicant to rectify the mistakes in the application which need to be done within 7 days from the date of notice given by the Adjudicating Authority.

The corporate resolution process will start from the date of receipt of the application by the Adjudicating Authority.

The time period to Withdraw an application against the corporate debtor

Only if the applicant has the approval of ninety per cent voting share of the committee of creditors in the manner prescribed, the Adjudicating Authority may allow withdrawal of the application

Moratorium 

The Adjudicating Authority passes an order by section 14 of the IBC on the occurrence of the Corporate Insolvency Resolution Process which declare prohibition of moratorium under following:- 

(a) a filing of suits or continue pending suits or proceedings against the corporate debtor which includes execution of any judgment, decree or order in any court, tribunal, arbitration panel or other any authority

(b) the corporate debtor to transmit, limit, pass on or discard any of its assets or any legal right or beneficial interest 

(c) the corporate debtor to any action to foreclose, recover or enforce any security interest created by in respect of its property including any action under SARFAESI

(d) the corporate debtor to recover any property by an owner or lessor where the property is occupied by or in the possession. 

The date of order till the completion of Corporate Insolvency Resolution Process or date of approval of resolution plan or order of liquidation will be the effective date of the order of moratorium. 

Interim Resolution Professional 

An interim resolution professional is appointed who takes charge of the corporate debtor's management and will be in charge of day to day matters of the corporate debtor. He can appoint professionals and consultants to support him in his duties. The primary duty of the interim resolution professional is:-  

(a) Make public announcement making about the Corporate Insolvency Resolution Process of the corporate debtor

(b) ask for claim from creditors

(c) to do valuation of the corporate debtor 

After receiving claims from the creditors, the Interim Resolution Professional will verify the claims and make a list of accepted claims. Within 30 days of starting of Corporate Insolvency Resolution Process, a Committee of Creditors (COC) will be made by the Interim Resolution Process which initially includes all financial creditors of the corporate debtor. An Information Memorandum consisting of prescribed details of the corporate debtor will also be prepared by Interim Resolution Professional. 

Resolution professionals 

Resolution Professional (RP) is professionals who on meeting certain stipulated criteria will be registered with the Insolvency and Bankruptcy Board of India. A Resolution Professional / Insolvency Professional only who is registered can act as such. Company Secretaries can also register themselves as Resolution Professionals but only after meeting certain stipulated criteria.

Committee of creditor 

A Resolution Professional (RP) will be appointed in the first meeting of committee of creditors. After doing this, it with confirm the appointment of Insolvency Resolution Professional as Resolution Professional or appoint another Resolution Professional of their choice. The Resolution Professional will then take charge of the management of the corporate debtor from the Insolvency Resolution Professional. The committee of creditors will guide and supervise. Decisions will be taken on the basis of a 66% majority and voting share will be in proportion to the amount of outstanding debt to the corporate debtor. The Resolution Professional needs approval of the Committee of Creditors for matters specified in the Code.

Resolution plan 

The corporate debtor gets the opportunity to get a chance to revive itself from insolvency through the corporate insolvency resolution process. Various reasons including market conditions, business cycles, wrongful acts of the promoters, amongst others could be the reason for insolvency of the corporate debtor.  The corporate debtor should get a fresh chance to rescue himself and start new operations either in the same management or a new management. The Resolution Professional will initiate proposals to rescue the corporate debtor. These proposals are called “resolution plans” and they can be submitted by any person who is interested in rescuing the company. These plans include 

proposals to pay off the existing liabilities in part or in full and to restart its operations of the corporate debtor over a period of time. To stop a defaulting promoter from being unable to take over a debt free company at lower cost there are safeguards against defaulting promoters, by way of a resolution plan.

The resolution plan is submitted to the Resolution Professional and he places all such plans before the Committee of creditors. The approval of the most suitable plan will be done by the Committee of creditors and when such plan will be submitted to the Tribunal for approval. If the Tribunal approves the resolution plan, the corporate debtor is out of Corporate Insolvency Resolution Process.

Conclusion 

The corporate creditor and any other concerned person who is affected by the default of the corporate debtor can file for insolvency resolution process or the debtor himself can also file for the same. 

Need of legal help 

The fast track corporate insolvency resolution process is a long and complex process and to avoid penalty, time loss or wrong files a creditor/ debtor needs to seek proper legal consultation. A consultation firm can provide one experienced insolvency advocate, CA, CS, CMA, Resolution Professional or interim resolution professional under one roof.

Click here to read the disclaimer


Write a Comment