Introduction

Understand the Applicability and Scope

The IBC applies to companies, partnerships, and individuals. It includes provisions for insolvency resolution, liquidation, and bankruptcy. Companies must understand when and how the IBC can be invoked:

• Corporate Insolvency Resolution Process (CIRP): Can be initiated by a financial creditor, operational creditor, or the corporate debtor itself when there is a default of ₹1 lakh or more.
• Liquidation: Follows if the CIRP fails.
• Fast Track Corporate Insolvency Resolution Process: For small companies and startups.

Initiation of Insolvency Process

• By Financial Creditors: A financial creditor can file an application before the National Company Law Tribunal (NCLT) when a default occurs.
• By Operational Creditors: An operational creditor must first send a demand notice to the corporate debtor. If payment is not made within 10 days, they can approach the NCLT.
• By Corporate Debtor: A company can voluntarily initiate insolvency proceedings if it is unable to pay its debts.

Documentation and Evidence

Ensure all necessary documentation and evidence of default are ready:

• For Financial Creditors: Proof of default, loan agreements, bank statements, and relevant correspondences.
• For Operational Creditors: Invoices, delivery receipts, and communication regarding the demand notice.
• For Corporate Debtors: Financial statements, records of default, and other relevant financial documents.

Appointment of Interim Resolution Professional (IRP)

Once the NCLT admits the application, an Interim Resolution Professional (IRP) is appointed within 14 days. The IRP manages the affairs of the company and takes control of the debtor's assets.

Moratorium Period

Upon the initiation of CIRP, a moratorium is declared, halting all legal proceedings against the company, prohibiting the transfer of assets, and protecting the company's assets from recovery actions. This period lasts for 180 days (extendable by 90 days) and provides the company breathing space to resolve its insolvency issues.

Formation of Committee of Creditors (CoC)

The IRP forms a Committee of Creditors (CoC) comprising financial creditors. The CoC evaluates and decides on the resolution plan. The company must cooperate fully with the CoC and provide all necessary information.

Resolution Plan

The company (corporate debtor) or resolution applicant must prepare and submit a resolution plan, which needs approval by the CoC and subsequently by the NCLT. The plan should provide a feasible solution for the revival of the company and repayment of debts.

Adherence to Timelines

Compliance with the IBC mandates adherence to strict timelines. The entire CIRP must be completed within 180 days (extendable by 90 days). Timely actions and submissions are crucial to avoid penalties and further complications.

Liquidation (if applicable)

If the resolution plan is not approved, the company may go into liquidation. The liquidator takes over the management of the company and its assets are sold to repay the creditors.

Regular Updates and Communication

Maintain regular updates and transparent communication with all stakeholders, including creditors, employees, and regulatory authorities. This transparency fosters trust and ensures smooth compliance with IBC provisions.

Conclusion

Complying with the provisions of the IBC requires a thorough understanding of the process, prompt actions, and meticulous documentation. Companies must stay informed about the legal requirements and seek professional advice to navigate through insolvency proceedings effectively. Adhering to these guidelines helps in resolving insolvency in a structured manner, protecting the interests of creditors, and paving the way for potential business recovery.