Corporate Insolvency Resolution Process is Team Work

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The provisions of the Code and the emerging jurisprudence reinforces revival of every company in distress and maximise its value. A company is a legal person having its own distinct identity. Its rights and duties and powers and obligations are well defined. Depending on its assessment of risk-return associated with a company on standalone basis, a stakeholder takes a stance about the company and deals with it accordingly. Where the company gets into distress, the stakeholders attempt to resolve the distress of that company alone to maximise their interests, also known as Corporate Insolvency Resolution Process. The Code provides a detailed framework to deal with the insolvency of a company in distress, on standalone basis. However, there are situations where the fate of one company is linked to that of another. In such cases, the stakeholders may maximise their interests and the possibility of revival of companies may be higher, if such linked companies are resolved together.

While keeping in mind the basic legal principles of separate legal personality, asset partitioning and limited liability on the basis of which modern commerce is organised, the extensive consultations with various stakeholders, including insolvency professionals, professional bodies, industry chambers, law firms, banks, resolution applicants, academicians and domain experts, who provided insightful comments and suggestions.

This is a sincere attempt to show that Corporate Insolvency Resolution Process (CIRP) is a team-based work process, various stakeholders’ balance competing considerations in the interests of value maximisation, credit growth and promotion of entrepreneurship.

It is conceivable for an insolvency system to function with minimal interventions by courts or government agencies but it’s not conceivable for such a system to function effectively without involving various stakeholders, specialists, especially for reorganization. “The probability of effective reorganization increases when agents of reorganization have the capacity to decide whether rescuing business is feasible and to advise on alternative courses of action -liquidation, reorganization, creative combinations of these and to reorganize the company itself, such capacities depend on a sufficient supply of expert labor and corresponding team work. Therefore a regulatory system with common aim that delivers competency, integrity and subtle solution is must. When a company or LLP becomes insolvent or commits a default, the financial creditor, operational creditor or the corporate debtor can file an application to initiate the CIRP by the Adjudicating Authority, i.e. National Company Law Tribunal (‘NCLT’). 

The financial creditor can initiate the CIRP against the corporate debtor by applying to NCLT. The operational creditor should first give a demand notice of an unpaid invoice to the corporate debtor demanding the default payment amount. When the operational creditor does not receive payment from the corporate debtor after the expiry of ten days of delivery of the demand notice or invoice demanding payment, he can apply to NCLT for initiating the CIRP. A partner or member of the corporate debtor authorised to initiate CIRP or a person in charge of managing the affairs or who has control and supervision over the financial affairs of the corporate debtor can initiate the CIRP with NCLT.   NCLT will pass an order within fourteen days of either admitting or denying the CIRP application. The CIRP will commence from the admission date of the application by NCLT. The CIRP completion period is 180 days from the admission date of the CIRP application.

Also Read  Sarla Verma & Ors. v. Delhi Transport Corporation & Anr. (2009)

CIRP may be initiated by a financial creditor under section 7, an operational creditor under section 9 and corporate applicant of corporate debtor under section 10 of the Code. The committee of creditors is required to pass a resolution, with sixty-six percent of the total voting share, to extend the CIRP. Thereafter, the resolution professional needs to file an application to the Adjudicating Authority seeking approval for such extension. During CIRP, the responsibility to comply with the requirements under any law on behalf of the corporate debtor lies with the interim resolution professional and resolution professional, as the case may be.

Normally, the Corporate Insolvency Resolution Process (CIRP) is required to be completed within 180 days from date of application by NCLT to initiate the corporate insolvency process – section 12(1) of Insolvency Code, 2016 further extension upto maximum 90 days under section 12(3) of Insolvency Code, 2016 shall be granted but the Corporate Insolvency Resolution Process (CIRP) shall mandatorily be completed within a period of 330 days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under section 12 of Insolvency Code and the time taken in legal proceedings in relation to such resolution process of the corporate debtor under second proviso to section 12(3) of Insolvency Code[2].

As per regulation 16 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the committee of creditors having only operational creditors shall consist of following members:

  1. eighteen largest operational creditors by value or all operational creditors, where they are less than eighteen in number;
  2. one representative elected by workmen other than workmen included under ‘a’; and
  3. one representative elected by all employees other than employees included under ‘a’

The committee of creditors, may, in the first meeting or subsequent meeting either resolve to appoint the interim resolution professional as resolution professional or to replace the interim resolution professional by another resolution professional by at least sixty-six percent voting share.

No. Section 28(1)(a) to (m) of the Code, elaborate the list of actions that require prior approval of the committee of creditors by a vote of sixty-six per cent of the voting shares. These include matters like interim finance, creation of security interest over the assets of corporate debtor, change of capital structure or recording any change in ownership interest of corporate debtor, undertaking related party transactions, making change in management, etc.

Considering the above-mentioned regulations and requirement for Corporate Insolvency Resolution Process one can infer that the time process is relatively dependent on the actions of the individuals (i.e. Creditors, Debtors, Resolution Professionals and various other stakeholders) and the process is interdependent on each other. Thus it can be concluded that the CIRP is a team work based process and it require subtle participation and contribution of each and every stakeholders and professionals.

[1] Insolvency and Bankruptcy Code, 2016 (Code).

[2] Inserted vide Insolvency and Bankruptcy Code (Amendment) Act, 2019, w.e.f. 16-8-2019.

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