Insolvency Resolution & Liquidation

The procedure for Insolvency resolution and liquidation for Corporates in India is provided under the  Insolvency and Bankruptcy Code, 2016 (IBC).

Since the Bank Officers posted in loan recovery branches are very busy, it is not possible for them to read and grasp the entire IBC.  We provide below the important terms & procdures as laid down under the the IBC for a birds eye-view of the Officers dealing with recovery & resolution of high value NPA accounts in Banks.

Corporate Applicant:  Section 5(5) of IBC

"Corporate Applicant" means-

(a) Corporate debtor; or

(b) a member or partner of the corporate debtor who is authorized to make an application for the corporate insolvency resolution process under constitutional document of the corporate debtor; or

(c) a person who has control and supervision over the financial affairs of corporate debtor.

Initiation date:  Section 5(11) of IBC

Initiation date is the date on which a financial creditor, corporate applicant or operational creditor, as the case may be, makes an application to the  Adjudicating Authority for initiating corporate insolvency resolution process.

Insolvency commencement date:  Section 5(12) of IBC

"Insolvency commencement date" means the date of admission of an application for initiating corporate insolvency resolution process by the adjudicating authority.

Insolvency Resolution Process Period:  Section 5(14) of IBC

"Insolvency resolution process period" means the period of 180 days beginning from the insolvency commencement date and ending on 180th day.

Liquidation Commencement Date:  Section 5(17) of IBC

"Liquidation commencement date" means the date on which the proceedings for liquidation commence.

Operation Creditor:  Section 5(20) of IBC

"Operational creditor" means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

Operation Debt:   section 5(21) IBC

 "Operational Debt" means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.

Resolution Applicant:  Section 5(25) IBC

"Resolution applicant" means any person who submits  a resolution plan to the resolution professional (RP).

Resolution Plan:   Section 5(26) IBC

"Resolution plan" means a plan proposed by any person for insolvency resolution of the corporate debtor as a going concern in accordance with Part-II of the Code.

Resolution Professional:  Section 5(27):

"Resolution Professional" means an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional.

Insolvency Resolution and Liquidation Process for Corporate Persons:

According to present rules, if the default in respect of any creditor is above Rs.1 Lakh, the said creditor may initiate the insolvency resolution process against the Company.

The Insolvency and Bankruptcy Code proposes two stages, which are independent of each other:

(i) Insolvency Resolution Process:

Financial creditors assess the viability of the business of the Corporate Debtor and opts for its resuce and resurrection.

(ii) Liquidation:

If the insolvency resolution process fails and the financial creditors decide to wind down and distribute the assets of the debtor.

Persons competent to Initiate Insolvency Resolution Process:

Upon default being committed by a corporate debtor, the following persons are allowed under the IBC to initiate corporate insolvency resolution process:

(i)  a financial creditor;

(ii) an operation creditor; or

(iii) the corporate debtor, itself.