Insolvency and Bankruptcy Services

Actions by a Financial Creditor Action: Any financial creditor may initiate the corporate insolvency resolution process where the corporate debtor has defaulted in paying a debt that has become due and payable but not repaid. Financial creditors are those creditors to whom a financial debt is owed by the other parties. This Code lays down the procedure for the initiation of the corporate insolvency resolution process by a financial creditor or two or more financial creditors jointly. The financial creditor can file an application before the National Company Law Tribunal along with proof of default and the name of a resolution professional proposed to act as the interim resolution professional in respect of the corporate debtor. The requirement to provide proof of default ensures that financial creditors do not file frivolous applications or applications which prematurely put the corporate debtor into insolvency resolution proceedings for extraneous considerations. The adjudicating authority/Tribunal can, within fourteen days from the date of receipt of the application, ascertain the existence of a default from the records of a regulated information utility. A default may also be proved in such manner as may be specified by the Insolvency and Bankruptcy Board of India. Once the adjudicating authority/Tribunal is satisfied as to the existence of the default and has ensured that the application is complete and no disciplinary proceedings are pending against the proposed resolution professional, it shall admit the application. The adjudicating authority/Tribunal is not required to look into any other criteria for admission of the application. It is important that parties are not allowed to abuse the legal process by using delaying tactics at the admissions stage.

Actions by an Operational Creditor: Operational creditors are also permitted to initiate the insolvency resolution process. This has brought  the Indian law in line with international practices, which permit unsecured creditors to file for the initiation of insolvency resolution proceedings. This Code lays down the procedure for the initiation of the corporate insolvency resolution process by an operational creditor. This procedure differs from the procedure applicable to financial creditors as operational debts (such as trade debts, salary or wage claims) tend to be small amounts (in comparison to financial debts) or are recurring in nature and may not be accurately reflected on the records of information utilities at all times. The possibility of disputed debts in relation to operational creditors is also higher in comparison to financial creditors such as banks and financial institutions. Accordingly, the process for initiation of the insolvency resolution process differs for an operational creditor. Once a default has occurred, the operational creditor has to deliver a demand notice with a copy of an invoice demanding payment of the debt in default to the corporate debtor. The corporate debtor has a period of ten days from the receipt of the demand notice or invoice to inform the operational creditor of the existence of a dispute regarding the debt claim or of the repayment of the debt. This ensures that operational creditors, whose debt claims are usually smaller, are not able to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It may also facilitate informal negotiations between such creditors and the corporate debtor, which may result in a restructuring of the debt outside the formal proceedings.

Insolvency Application: On the expiry of the above said period of ten days from the date of receipt of the invoice or demand notice under Section 8, if the operational creditor does not receive either the payment of the debt or a notice of existence of dispute in relation to the debt claim from the corporate debtor, he can file an application with the adjudicating authority for initiating the insolvency resolution process in respect of such debtor. He also has to furnish proof of default and proof of non-payment of the debt along with an affidavit verifying that there has been no notice regarding the existence of / a dispute in relation to the debt claim. Within fourteen days from the receipt of the application, if the adjudicating authority/Tribunal is satisfied as to (a) the existence of a default, and (b) the other criteria laid down in Section 9(5) being met, it shall admit the application. The adjudicating authority/Tribunal is not required to look into any other criteria for admission of the application. It is important that parties are not allowed to abuse the legal process by using delaying tactics at the admissions stage.

This section provides for the initiation of corporate insolvency resolution process by the corporate debtor itself. A corporate applicant (defined as a specific set of persons linked to the corporate debtor) may make an application to the adjudicating authority along with the corporate debtor's books of accounts and such other documents (as may be specified), and the name of a person proposed to be appointed as the interim resolution professional. The adjudicating authority shall admit the application within fourteen days from the date of receipt of the application if it is complete. Since the management of the corporate debtor (and other persons covered in the definition of a corporate applicant) are likely to have the best information about the financial affairs of the corporate debtor, permitting such applicants to initiate the corporate insolvency resolution process would ensure timely intervention that is crucial for any corporate insolvency resolution process to succeed. In such cases, the management would have sufficient incentives to cooperate with the resolution professional and the creditors and agree on a resolution plan swiftly and efficiently. Since the corporate applicant can only initiate the corporate insolvency resolution process upon the occurrence of a default and not on mere likelihood of inability to pay debts, the corporate applicant cannot trigger the corporate insolvency resolution process prematurely to (potentially) abuse the moratorium provisions.

This section prescribes a time limit of 180 days, extendable by a further 90 days, for the completion of corporate insolvency resolution process. The application for the extension can only be made by the resolution professional and has to be supported by a resolution passed at a meeting of the committee of creditors by a majority of 75 per cent of the voting shares. No other person is entitled to seek such an extension of time. The adjudicating authority/ Tribunal shall have no discretion to extend these time-lines.

Resolution Professional: This Code provides that once the interim resolution professional has been pointed, the management of the corporate debtor is taken over by him. The powers of the board of directors or the partners of the corporate debtor, as the case may be, i are suspended. The officers and managers of the corporate debtor shall report to the interim resolution professional and cooperate with him in providing access to documents and records of the corporate debtor. For effectively discharging the responsibilities, the interim resolution professional is e powered to do all acts and execute documents in the name of the corporate debtor.

Committee of Creditors: This Code provides for the constitution of a committee of creditors by the interim resolution professional. The committee of creditors is composed of all the financial creditors of the corporate debtor, excluding related parties of the corporate debtor. The committee has to be composed of members who have the capability to assess the commercial viability of the corporate debtor and who are willing to modify the terms of the debt contracts in negotiations between the creditors and the corporate debtor. Operational creditors are typically not able to decide on matters relating to commercial viability of the corporate debtor, nor are they typically willing to take the risk of restructuring their debts in order to make the corporate debtor a going concern. Similarly, financial creditors who are also operational creditors will be given representation on the committee of creditors only to the extent of their financial debts. Nevertheless, in order to ensure that the financial creditors do not treat the operational creditors unfairly, any resolution plan must ensure that the operational creditors receive an amount not less than the liquidation value of their debt. All decisions of the Committee shall be taken by a vote of not less than seventy-five per cent of the voting share. In the event there are no financial creditors for a corporate debtor, the composition and decision-making processes of the corporate debtor shall be specified by the Insolvency and Bankruptcy Board. The Committee shall also have the power to call for information from the resolution professional.

This Code provides that the resolution professional shall be responsible for carrying out the entire corporate insolvency resolution process and managing the operations of the corporate debtor during such process. For this purpose, he shall have the same powers and shall perform the same duties as the interim resolution professional. Where the interim resolution professional has not been appointed as the resolution professional, the interim resolution professional shall provide all information, documents and records relating to the corporate debtor to the resolution professional to facilitate a smooth transition.

Liquidation: This Code provides for the liquidation of the corporate debtor such as - (a) Where the adjudicating authority is of the opinion that the resolution plan does not meet the criteria set out in section 30(2); (b) where the adjudicating authority does not receive a resolution plan on or before the expiry of the maximum period permitted for the completion of the insolvency resolution plan; (c) where, at any time before the confirmation of a resolution plan, the committee of creditors resolve by a 75 per cent. majority of voting shares that the corporate debtor is to be liquidated; or (d) where the corporate debtor violates the terms of the resolution plan and on an application by a person whose interests are adversely affected by such violation, the adjudicating authority determines that the corporate debtor has violated the terms of the resolution plan. The liquidation order shall result in a moratorium on the initiation or continuation of any suit or legal proceeding by or against the corporate debtor. However, a liquidator may initiate a suit or legal proceeding on behalf of the corporate debtor with the prior permission of the adjudicating authority. The liquidation order shall also be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor except when the business of the corporate debtor is continued.

National Company Law Tribunal(NCLT):  The Government of India has constituted National Company Law tribunal (NCLT) under Section 408 of the Companies Act, 2013 with effect from 01^st June 2016. There are eleven benches of NCLT all over India. The Firm is providing services in New Delhi and Mumbai. NCLT is the authority empowers by the Code, to deal with Insolvency and Bankruptcy proceedings.