CIRP is essentially the time-bound process stipulated by IBC, 2016, while dealing with the insolvency of the corporate debtor that results from the occurrence of a default in the repayment of debts. The revival of the corporate debtor as a going concern is the principal object of the Corporate Insolvency Resolution Process.
In this process, the running of the corporate debtor is transferred from the existing promoters to the insolvency professional, while the creditors consider resolution plans with the aim of realizing the maximum value of assets as per the cirp regulation
Key Terms under the Corporate Insolvency Resolution Process
Corporate Debtor
A corporate debtor is a corporate person who has incurred a debt and committed a default and against whom the Corporate Insolvency Resolution Process is initiated as defined under the Insolvency and Bankruptcy Code of 2016. The CIRP Regulations guide the procedures for the initiation of the process under the Code.
Financial Creditor
A Financial Creditor: A person to whom a financial debt is owed is called a Financial Creditor. The examples of financial creditors are banks, financial institutions, bondholders amongst others. Financial Debt: This means borrowing of money, the repayment of which is accompanied with an interest charge. It can be in the form of loan or debentures. . The CIRP Regulations ensure that the process for handling financial creditors is fair, transparent, and compliant with the law.
Operational Creditor
A person to whom the operational debt is owed shall be called the operational creditor. The operational debt in respect of the supply of goods or services, or in respect of employment or for the payment of statutory dues owed to the Central or State Government or local authority would be the operational debt The CIRP Regulations also lay down the procedures for operational creditors, including their role in initiating the CIRP and submitting claims.
The CIRP can be initiated by operational creditors but they are not members of the CoC except in some limited cases as are permitted under the Code which is governed by the ibbi.
Information Memorandum
An Information Memorandum is basically the document that the RP prepares, comprising detailed information about the corporate debtor with respect to its assets, liability, finance statement, key contracts including Joint Development Agreements and details of its operations, among other things.
This document is prepared in compliance with the standards set by the IBBI and is made available for prospective resolution applicants to assist them in formulating feasible resolution plans.
Resolution Applicant
"Resolution Applicant" means a person who submits a resolution plan to the resolution professional for revival of the corporate debtor under the corporate insolvency resolution process according to the Code and regulations of CIRP as laid out by ibbi .
Resolution Plan
A resolution plan would be that plan which is proposed by a resolution applicant for the resolution of the insolvency of the corporate debtor and may provide for debt restructuring, management change, merge, acquisition, or any other form of revival.
This resolution plan has to be then agreed upon by the Committee of Creditors as well as the Adjudicating Authority at NCLT and, upon doing so, it becomes binding.
Committee of Creditors: CoC
The Committee of Creditors is effectively made up of the financial creditors of the corporate debtor. It is the principal decision-making authority during the CIRP process and grants approvals for the resolution plans, replacement or appointment of the resolution professional, or the liquidation. The IBBI establishes guidelines for the CoC and ensures their compliance during the CIRP.
Insolvency Professional
An Insolvency Professional is a licensed professional registered with the Insolvency and Bankruptcy Board of India(ibbi). He is appointed as an Interim Resolution Professional and can further be confirmed as the Resolution Professional by the Committee of Creditors. An Insolvency Professional takes care of the affairs of the corporate debtor, its assets, and also supervises the CIRP process in accordance with the Code.
Persons Who Can Initiate Corporate Insolvency Resolution Process [CIRP]
The Insolvency and Bankruptcy Code, 2016, highlights the persons who can legally trigger the Corporate Insolvency Resolution Process upon the occurrence of a default. Only those persons specifically identified under the Code can approach the Adjudicating Authority with the required application for initiating the process for CIRP. The structured approach insures that the insolvency mechanism would be invoked in a disciplined and legal manner.
- Financial Creditor
- Operational Creditor
- Corporate debtor
Corporate Insolvency Resolution Process: Step-by-Step
Step 1: Defaults
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CIRP can be invoked only if the corporate debtor has committed a “default” in payment of the financial or operational debt for at least the statutory threshold sum of ₹1 crore for corporate debtors.
- "Default" means the non-payment of the whole or any part of the debt due for repayment and that is not paid by the debtor.
Step 2: Filing of Application before NCLT
- An application in this regard could be made by a financial creditor, an operational creditor, or by the corporate debtor itself, before the NCLT, the Adjudicating Authority set up under the IBC.
- The application shall be in the prescribed form providing evidence of default and information about the proposed Interim Resolution Professional.
Step 3: Admission or Rejection of Application
- There is, in principle, a requirement for the NCLT to decide within a period of 14 days on accepting or rejecting an application once a default has been ascertained or completeness of documents filed.
- If there is any defect in the application, NCLT gives time for its rectification generally within 7 days, and is liable to be rejected if not so corrected.
Step 4: Rectification / Re-submission if Defect (before Rejection)
When NCLT finds that the application is incomplete or defective, proviso requires giving a specific notice to the applicant for rectification within 7 days from receipt.
If the defects are cured and re-submitted within time, the application is treated as valid for admission on merits. Failure to rectify entitles NCLT to reject the application.
Step 5: Declaration of Insolvency and Pronouncement of Moratorium
CIRP "commences" on admission; "date of admission" is "insolvency commencement date", from which effective statutory periods of CIRP begin (180 days, extendable up to 330 days including judicial delay).
- Whereas, NCLT also declares the moratorium under section 14, makes public announcement, and appointments or confirms IRP through the same admitting order.
Meaning and Effect of Moratorium
Moratorium is a "freeze period" that stays any new suits, execution, recovery, enforcement of security interest, or transfer of assets of the corporate debtor, and also stays any proceedings that were pending at the time of making of application for moratorium, except certain criminal or regulatory matters.
- The idea is to afford a moratorium so that the IRP/RP assumes charge of the process and examines claims, runs the company as a going concern, or prepares schemes of compromise, without the realization and erosion of value resulting from sectional recovery.
Step 6: Appointment and Role of the IRP
- NCLT constitutes an Interim Resolution Professional, which is often together with the order of admission; the tenure of the IRP ends until the Committee of Creditors (CoC) either confirms it or replaces it with a Resolution Professional (RP).
- The IRP takes over management and custody of the corporate debtor, apart from gathering information regarding assets, finance, and operational information and preliminary work by CIRP. Powers of Board of Directors stand suspended and vest with IRP/RP.
Step 7: Public Notice and Call for Claims
- IRP requires a public announcement (in Form A) within a few days of its constitution calling upon all the creditors to submit their claims.
- Basically, such information is available through the newspaper publications or on platforms related to IBBI/ NCLT so that stakeholders are informed about the CIRP.
Step 8: Verification & Collation of Claims
- The IRP accepts claims submitted by financial, operational, or other creditors. The claims are then verified using data available through records such as information utilities, financial statements, or contracts that back up the claim.
- The IRP, after verification, prepares a list of creditors with their voting shares, which is of utmost importance for preparing the CoC.
Step 9: Constitution of Committee of Creditors (CoC)
- Thereby, IRP is CoC, which is the meeting of all the Financial Creditors generally speaking, with certain stipulations if it is confined to operational creditors or related party Financial Creditors.
- The CoC is given voting rights to the extent of the proportion of their financial debt, and this committee becomes the most important decision-making body during the CIRP process.
Step 10: The First Meeting of CoC and Appointment of Resolution Professional (RP)
- First CoC meeting, where the confirmation from CoC comes into play-the CoC confirms the IRP or replaces them with another RP. This is determined by a voting majority of 66 percent of the voting share among creditors.
- The CoC also approves major issues like the continuation of essential contracts, interim finance, and overall strategy for the CIRP during such meetings.
Step 11: Management of Affairs by RP
- The RP, upon his appointment, continues to run the day-to-day business of the corporate debtor as a going concern including the management of ongoing contracts such as Joint Development Agreements subject to the supervision of the CoC and certain matters requiring special approval.
- The RP shall undertake cash flow management and preservation of value of assets, and act in compliance with the law and regulation and report to the CoC/NCLT.
Step 12: Preparation of Information Memorandum
- The RP has to prepare an Information Memorandum or IM comprising financial information, operational information as well as assets-related information of the corporate debtor, including the liquidation value.
- The IM is then made available to qualified potential resolution applicants who provide confidentiality undertakings to enable them to submit informed resolution plans.
Step 13: Invitation of EOI and Preparation/submission of Resolution Plans
The Resolution Professional hereby invites, with the approval of the Committee of Creditors, Expression of Interest in Form G as per Regulation 36A, stating the details of eligibility laid down under Section 29A.
Hence, it should have allowed the short-listed applicants for resolution to access the Information Memorandum and invite submission of resolution plans, as per the timeline given by the RP, in consultation with the CoC under Rule 30(2) of the Code:
The Resolution Professional also sees that each resolution plan complies with Section 30(2) of the Code before placing them for evaluation before the Committee of Creditors.
The invitation for EOI, submission, and evaluation of resolution plans would be done during the whole period of CIRP with the timeframes defined by the Committee of Creditors.
Step 14: Preparation and Content ,Review of Resolution Plan
- A resolution plan will delineate the manner for rehabilitation or restructuring of the corporate debtor, which may include haircuts, change of management, infusion of funds, sales of non-core assets, and so on and so forth.
- The plan should provide for the payment of insolvency resolution process costs, make provisions for payments to operational creditors in the specified manner, and should not contravene any law; it is checked for all these aspects by the RP before it goes to the CoC.
Scrutinizing of Resolution Plan by Resolution Professional
The Resolution Professional scrutinises each resolution plan for its conformity with Section 30(2) of the Insolvency and Bankruptcy Code, 2016 and its eligibility under Section 29A, as provided under Regulation 39(2) of the CIRP Regulation.
The commercial feasibility or viability of the resolution plan are not examined by the Resolution Professional, as these fall within the exclusive commercial wisdom of the Committee of Credit.
It is only resolution plans that are in compliance with the provisions of the Code that are presented to the Committee of Creditors for consideration and approval by a vote not less than sixty-six per cent of voting share, as provided under Section 30(4).
The consideration and deliberation with respect to the resolution plans occur within the total time allowed for the CIRP under Section 12 of the Code.
Step 15: Approval of Resolution Plan by CoC
- The CoC identifies evaluation plans based on feasibility, viability, or value maximization, and votes to choose a single plan with at least 66% of the voting shares by the financial creditors.
- In case the required majority for any plan is not achieved on or before the specified time, it shall be considered that the corporate debtor is likely to liquidate and/or the CIRP has failed.
Step 16: Filing of the Approved Plan with the NCLT
A plan so approved by CoC is filed before NCLT for final approval along with other documents like the compliance certificate by RP.
- NCLT ensures that the plan satisfies all the mandates of the IBC Act, relating to the treatment of different classes of credit with respect to Section 30(2).
Step 17: Order of NCLT: Approval or Rejection
- If satisfied, the resolution plan is accepted by NCLT and thus becomes binding on the corporate debtor, its employees, members, creditors, guarantors, and other stakeholders. In turn, the moratorium under Section 14 comes to an end, and the resolution plan is implemented.
- In case of non-compliances, if the plan is not satisfactory to NCLT, or expiration of maximum time for CIRP without approval of the plan, NCLT passes an order for liquidation of the corporate debtor.
Step 18: If Approved – Resolution and Implementation (CIRP Successful)
NCLT approves plan if it meets requirements under Section 30(2). The plan becomes binding on all - company, creditors, guarantors, employees.
Moratorium lifted. Applicant in Resolution takes over the asset as per terms of plan. RP files compliance certificate.
The approved resolution plan is implemented within the timeline for implementation provided under the plan itself. In case of failure or material breach of implementation, an application may be made to the NCLT, which may pass a liquidation order under Section 33 of the IBC.
Step 19: IF Rejected - Liquidation Order (Where Resolution Fails)
On the passing of the liquidation order, the RP automatically assumes the status of liquidator, a new moratorium is triggered in the context of the legislation of liquidation, and the assets of the corporate debtor are realized through distribution, in accordance with the priority waterfall set by Section 53 of the IBC.
- Cases of liquidation are regarded as the very last resort-the complete structure of CIRP is designed to attempt resolution or restoration, where ever possible.
Conclusion
The Corporate Insolvency Resolution Process has introduced a paradigm shift in the Indian approach toward corporate insolvency. Instead of allowing infinite litigation and value erosion, CIRP offers a clear, creditor-driven, and time-bound solution for stressed companies. The process aims at value maximization and promoting business continuity wherever possible with the involvement of insolvency professionals, the Committee of Creditors, and the NCLT. Thus, CIRP becomes an enabler of financial stability and confidence in the Indian credit system.