IBC Important questions

Question 1

When will the provisions of insolvency and liquidation of corporate persons be applicable on a

corporate person?

Answer

The provisions relating to the insolvency and liquidation of corporate debtors shall be applicable

only when the amount of the default is one lakh rupees or more. However, the Central Government

may, by notification, specify the minimum amount of default of higher value which shall not be

more than one crore rupees.

Question 2

Who may initiate corporate insolvency process against a corporate person?

Answer

The corporate insolvency process may be initiated against any defaulting corporate debtor by -

(a) Financial creditor,

(b) Operational creditor

(c) Corporate debtor

Question 3

What is the Insolvency Resolution Process for financial creditors?

Answer

A financial creditor either itself or along with other financial creditors may lodge an application

before the Adjudicating Authority (National Company Law Tribunal) for initiating corporate

insolvency resolution process against a corporate debtor who commits a default in payment of its

dues.

The financial creditor shall along with the application give evidence in support of the default

committed by the corporate debtor. He shall also give the name of the interim resolution

professional.

Where the Adjudicating Authority is satisfied that a default has occurred and the application by the

financial creditor is complete and there is no disciplinary proceedings pending against the

proposed resolution professional, it may admit such application made by the financial creditor.

Otherwise, the application may be rejected. However, the applicant may rectify the defect within

seven days of receipt of notice of rejection from the Adjudicating Authority.




Question 4

What is the Insolvency Resolution Process for operational creditors?

Answer

On the occurrence of default, an operational creditor shall first send a demand notice and a copy

of invoice to the corporate debtor.

The corporate debtor shall within a period of ten days of receipt of demand notice notify the

operational creditor about the existence of a dispute, if there is any and record of pendency of any

suit or arbitration proceedings. He shall also provide the details of repayment of unpaid operational

debt in case the debt has or is being paid.

After the expiry of ten days, if the operational creditor does not receive his payment or the

confirmation of a dispute that existed even before the demand notice was sent, he may file an

application before the Adjudicating Authority for initiating a corporate insolvency resolution

process.

The Adjudicating Authority shall within fourteen days of receipt of the application, admit or reject

the application. However, before rejecting the application, an opportunity shall be given to the

applicant to rectify the defect within seven days of receipt of rejection.

Question 5

What are the eligibility criteria for appointment of an Insolvency Professional as a Resolution

Professional for a corporate insolvency resolution process?

Answer

As per Regulation 3 of Insolvency and Bankruptcy (Insolvency Resolution) Regulation, 2016, an

insolvency professional shall be eligible for appointment as a resolution professional for a

corporate insolvency resolution process if he and all partners and directors of the insolvency

professional entity of which he is partner or director are independent of the corporate debtor i.e.,

 He is eligible to be appointed as an independent director on the board of the corporate debtor

u/s 149 of the Companies Act, 2013, where the corporate debtor is a company.

 He is not a related party of the corporate debtor.

 He is not an employee or proprietor or a partner of a firm of auditors or company secretaries

in practice or cost auditors of the corporate debtor in the last three financial years.

 He is not an employee or proprietor or a partner of a legal or consulting firm that has or had

any transaction with the corporate debtor amounting to ten per cent or more of the gross

turnover of such firm in the last three financial years.

Question 6

What is the procedure of Insolvency Resolution Process for a Corporate Applicant?




Answer

Where a corporate debtor has committed a default, a corporate applicant thereof may file an

application for initiating corporate insolvency resolution process with the Adjudicating Authority.

The corporate applicant shall furnish the information relating to books of account and other

documents and a resolution professional shall be appointed as interim resolution professional.

The Adjudicating Authority may either accept or reject the application within fourteen days of

receipt of application. However, applicant should be allowed to rectify the defect within seven days

of receipt of notice of such rejection.

Question 7

Is there any time limit for completion of the Insolvency Resolution Process?

Answer

Section 12 of the Code states that any Insolvency Resolution Process shall be completed within a

period of one hundred and eighty days from the date of admission of the application to initiate the

process.

However the National Company Law Tribunal (NCLT) may on an application made by the

resolution professional, under a resolution passed by the Committee of Creditors, by a vote of 75%

of voting shares, after consideration provide one extension which shall not extend more than 90

days.

Question 8

What is the effect of order of moratorium?

Answer

Moratorium has been explained in Section 14 of the Code, during the moratorium period the

following acts shall be prohibited:

a) The institution of suits or continuation of any pending suits or proceedings against the

corporate debtor including execution of any judgment, decree or order in any court of law,

tribunal, arbitration panel or other authority;

b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its

assets or any legal right or beneficial interest therein;

c) Any action to foreclose, recover or enforce any security interest created by the corporate

debtor in respect of its property including any action under the SARFAESI Act, 2002

d) The recovery of any property by an owner or lessor where such property is occupied by or

in the possession of the corporate debtor.




Question 9

What is a Resolution plan?

Answer

A resolution plan is a proposal agreed to by the Debtors and Creditors of an entity in a collective

mechanism to propose a time bound solution to resolve the situation of insolvency.

As per Section 30, the Insolvency Resolution Professional (IRP) within the prescribed time i.e. 180

days or in case of extension 270 days, where Fast Track Resolution within 90 days or in case of

extension 135 days, is required to submit the Resolution Plan to Adjudicating Authority (NCLT)

prepared by the Resolution applicant on the basis of information memorandum.

The Resolution Plan should provide for:

(i) payment of insolvency resolution costs;

(ii) repayment of the debts to operational creditors;

(iii) management of affairs of the Company after approval of the resolution plan;

(iv) implementation and supervision of the resolution plan;

(v) does not contravene provisions of the law for the time being in force; and

(vi) conforms to such other requirement as may be specified by the Board.

Question 10

When can a corporate person initiate voluntary liquidation process?

Answer

Section 59 of the Code empowers a corporate person intending to liquidate itself voluntarily if it

has not committed any default to initiate voluntary liquidation proceedings under the provisions of

this Code.

Any corporate person registered as a company shall meet the following conditions to initiate a

voluntary liquidation process:-

(a) A declaration from majority of the directors of the company verified by an affidavit stating

i. That they have made a full inquiry into the affairs of the company and have formed an

opinion that either the company has no debts or that it will be able to pay its debts in full

from the proceeds of assets to be sold in the voluntary liquidation; and

ii. That the company is not being liquidated to defraud any person.

(b) The declaration shall be accompanied with the following documents, namely:

i. Audited financial statements and a record of business operations of the company for the

previous two years or for the period since its incorporation, whichever is later;




ii. A report of the valuation of the assets of the company, if any, prepared by a registered

valuer.

(c) After making the declaration the corporate debtor shall within four weeks -

i. Pass a special resolution at a general meeting stating that the company should be

liquidated voluntarily and insolvency professional to act as the liquidator may be

appointed.

ii. Pass a resolution at a general meeting stating that the company be liquidated

voluntarily as a result of expiry of the period of its duration (fixed by its articles or on the

occurrence of any event in respect of which the articles provide that the company shall

be dissolved, if any) and appointing an insolvency professional to act as the liquidator.