Insolvency Resolution of Corporate Persons

The Insolvency and Bankruptcy Code, 2016 (‘IBC’) was introduced to amend the laws relating to insolvency resolution of corporate persons, individuals and partnership firms in a time-bound manner and maximise the value of assets in the order of priority of payment of the government dues.  

The IBC provides the Corporate Insolvency Resolution Process (‘CIRP’) of a corporate debtor. The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘Regulations’) provides the CIRP regulations. The provisions of the Regulations are discussed in this article. 

Eligibility Criteria for a Resolution Professional

An insolvency professional will be eligible to be appointed for a CIRP of a corporate debtor as a resolution professional if he and all the partners and directors of his insolvency professional entity are independent of the corporate debtor. 

The directors and partners of the insolvency professional entity are independent of the corporate debtor if they are not related to the corporate debtor. An insolvency professional means a person enrolled as a member with an insolvency professional agency and registered as an insolvency professional with the Insolvency and Bankruptcy Board of India (‘Board’).

A resolution professional cannot continue in a CIRP if the insolvency professional entity or any partner or director of the insolvency professional entity represents any stakeholders in the same CIRP. 

Public Announcement

The Adjudicating Authority, i.e. the National Company Law Tribunal (NCLT), will appoint an insolvency professional as an interim resolution professional on the insolvency commencement date. After that, the insolvency professional should make a public announcement immediately of his appointment as an interim resolution professional.

The public announcement should be made in Form A of the Schedule of the Regulations. The announcement should be published in one English and one regional language newspaper at the location of the registered and principal office of the corporate debtor and any other location where the corporate debtor carries on material business operations. The public announcement should also be published on the website of the corporate debtor and the website designated for this purpose by the Board.

The public announcement should state from where to download or obtain the claim forms and offer a choice of three insolvency professionals identified under the Regulations to act as the authorised representative of creditors in each class. It should also provide the last date for submission of proofs of claim, i.e. fourteen days from the appointment date of the interim resolution professional.

Proof of Claims by the Creditor

A creditor should submit the proof of claims before the last date specified in the public announcement issued by the interim resolution professional.

Proof of Claims by Operational Creditors

An operational creditor, other than an employee or workman of the corporate debtor, should submit the proof of claims to the interim resolution professional in Form B of the Schedule of the Regulation. 

The operation creditor can prove the existence of debt due under the Regulations based on – 

• The available records with an information utility.
• Other relevant documents, including – 
  • Contract with the corporate debtor for supplying of services and goods.
  • Invoice demanding payment for the services and goods supplied to the corporate debtor.
  • Order of a tribunal or court that has adjudicated on the non-payment of a debt.
  • Financial accounts.

Proof of Claims by Financial Creditors

A financial creditor, other than a creditor belonging to a class of creditors, should submit the proof of claims to the interim resolution professional in Form C of the Schedule of the Regulation. 

The financial creditor can prove the existence of debt due under the Regulations based on – 

• The available records with an information utility.
• Other relevant documents, including – 
  • Financial contract with financial statements as evidence of the debt.
  • Record evidencing that the amounts committed to the corporate debtor by the financial creditor under a facility drawn by the corporate debtor.
  • Financial statements reflecting that the debt has not been paid.
  • Order of a tribunal or court that has adjudicated upon the non-payment of a debt.

Proof of Claims by Creditors in a Class

The creditors in a class should submit claims of proof to the interim resolution professional in Form CA of the Schedule of the Regulations. 

The creditors in a class can prove the existence of debt due under the Regulations based on – 

• The available records with an information utility.
• Other relevant documents, including any- 
  • Agreement for sale.
  • Letter of allotment.
  • Receipt of payment made.
  • Such other documents evidencing the existence of a debt.

Proof of Claims by Workmen and Employees

A workman or an employee should submit the claim with proof to the interim resolution professional in Form D of the Schedule of the Regulations. When the corporate debtor owns dues to various workmen or employees, an authorised representative can submit one claim of proof for all the dues in Form E of the Schedule of the Regulations.

The workmen or employees can prove the existence of debt due, individually or collectively, under the Regulations based on – 

• Available records with an information utility.
• Other relevant documents, including- 
  • Proof of employment, i.e. the contract of employment for the period for which the employees or workmen are claiming dues.
  • Evidence of notice demanding payment of the unpaid dues and any other document or proof that payment has not been made.
  • An order of a tribunal or court that has adjudicated upon the non-payment of the dues.

Committee of Creditors

A committee of creditors should be set up under these Regulations when all the financial creditors are related parties of the corporate debtor or the corporate debtor has no financial debt. The committee members will have the same powers, rights, obligations and duties as the committee of the financial creditors and its members under the IBC.

The interim resolution professional should file a report certifying the constitution of the committee to the NCLT within two days of the verification of claims. The resolution professional will act as the chairperson of the committee meeting(s). 

Conduct of CIRP

The resolution professional should appoint two registered valuers within seven days of his appointment to determine the corporate debtor’s liquidation value and fair value. The resolution professional can sell the unencumbered assets, other than in the ordinary course of business, of the corporate debtor. 

The resolution professional can sell the unencumbered assets of the corporate debtor if he has an opinion that such a sale is essential for a better realisation of value under the facts and circumstances of the case. However, the sale of assets under the Regulations will require the committee’s approval by 66% of the voting share of the members.

Resolution Plan

A resolution plan should provide for the necessary measures for insolvency resolution of the corporate debtor to maximise the value of assets, including the following- 

• Transfer of all/part of the assets of the corporate debtor to one or more persons. 
• Sale of all/part of the assets, whether subject to any security interest or not. 
• Substantial acquisition of the shares of the corporate debtor or the consolidation or merger of the corporate debtor with one or more persons.
• Modification or satisfaction of any security interest. 
• Reduction in the amount to be paid to the creditors.
• Change in the portfolio of services or goods rendered or produced by the corporate debtor.
• Obtaining necessary approvals from the Central Government, State Governments and other authorities.

The amount payable under the resolution plan to the operational creditors should be paid on priority over the financial creditors. A resolution plan should provide: 

• Term and implementation schedule of the plan. 
• Control and management of the corporate debtors’ business.
• Adequate means for supervising its implementation.

The resolution professional will submit all resolution plans to the committee that complies with the requirements of the IBC and Regulations along with the details of any transactions found, observed or determined by him. The committee will evaluate the resolution plans as per the evaluation matrix, record its deliberations on all resolution plans’ feasibility and viability, and vote on them.

The resolution professional will submit the resolution plan approved by the committee to the NCLT minimum of 15 days prior to the maximum period for completion of the CIRP, along with the compliance certificate in Form H of the Schedule of the Regulations. After that, the resolution professional will send a copy of the order approving or rejecting a resolution plan of the NCLT to the participants and the resolution applicant.

The conduct of the CIRP is stated in the IBC. The details and regulations regarding the CIRP are stated in the Regulations. The CIRP of a corporate debtor should be according to the provisions of IBC and the Regulations for it to be legally binding and valid.

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