Corporate Insolvency Resolution Process (CIRP)
The Insolvency and Bankruptcy Code, 2016 (“IBC”), is a revolutionary piece of legislation aimed at resolving insolvency and bankruptcy issues in a time-bound manner, thereby ensuring the protection of creditors’ rights while providing an opportunity for the revival of distressed companies. Unlike traditional debt recovery mechanisms, the IBC prioritizes collective creditor action and seeks to maximize the value of the Corporate Debtor’s assets.
One of the key features of the IBC is the Corporate Insolvency Resolution Process (“CIRP”), which allows creditors or even the Corporate Debtor itself to initiate insolvency proceedings before the National Company Law Tribunal (“NCLT”).
Who Can File an Application for CIRP?
Under Section 6 of the IBC, the following entities have the right to file an application to initiate CIRP against a Corporate Debtor:
Financial Creditors (FC): These are creditors who have extended loans or other forms of financial credit to the Corporate Debtor. In legal terms, if a creditor fulfils the following creditor, he is a financial creditor, if the debt, which is disbursed is against the consideration for the time value of money, i.e., money borrowed against the payment of interest. Examples include banks, financial institutions, allottees in a real estate project or bondholders, etc.
Operational Creditors (OC): These are creditors owed debts related to the supply of goods, services, or dues such as wages. Examples include vendors, suppliers, contractors, or employees.
Corporate Debtor (CD): A company that is facing financial distress may also voluntarily apply to initiate CIRP.
The CIRP Process: Step-by-Step Explanation
Step 1: Filing of Application seeking CIRP in NCLT:
The CIRP begins when any eligible creditor or the Corporate Debtor itself files an application before the NCLT, seeking the initiation of insolvency proceedings. Mandatory Requirement: For Financial Creditors and Corporate Debtors, it is mandatory to propose the name of a Resolution Professional (RP) in the application. However, for applications filed by Operational Creditors, proposing the RP is optional.
Step 2: Admission of the Application and Appointment of Interim Resolution Professional (IRP):
Once the NCLT admits the CIRP application, it appoints an Interim Resolution Professional (IRP) to take over the management of the Corporate Debtor. The IRP plays a crucial role during the initial phase of CIRP.
Key Duties of the IRP:
> Assume control of the Corporate Debtor’s assets and operations.
> Constitute the Committee of Creditors (CoC), which comprises all Financial Creditors.
> Issue a Public Announcement to invite claims from all creditors.
Step 3: Public Announcement by the IRP
Within three days of being appointed, the IRP must make a public announcement inviting creditors to submit their claims. This announcement is crucial as it ensures that all creditors, big and small, are informed about the CIRP process and can participate in it.
Where Should the Public Announcement be Published?
The IRP must publish the public announcement in the following locations:
> Newspapers: One English and one regional language newspaper with wide circulation in the area where the Corporate Debtor’s registered office or corporate office is located.
> Corporate Debtor’s Website (if available).
> Designated Website Notified by the Insolvency and Bankruptcy Board of India (IBBI).
The public announcement contains important details, such as:
> The date of CIRP commencement.
> The last date for submission of claims.
> Contact details of the IRP.
> Instructions for creditors on how to submit their claims.
Step 4: Submission of Claims by Creditors
Once the public announcement is made, creditors must submit their claims to the IRP within the prescribed time limit. The last date for submission of claims is generally no later than 14 days from the date of the public announcement. However, creditors who miss the initial deadline may still submit their claims up to 90 days from the CIRP commencement date, as per Section 12 of the IBC.
Even after the expiry of 90 days, if any creditor has failed to file its claim, it may still choose to file its claim before the IRP/RP, as the case may be, and in case of rejection for filing it belatedly, the claimant can move to NCLT, against the said decision, as the Tribunal has the jurisdiction to reverse the said decision u/s 60(5) of the IBC.
How to File Claims: A Detailed Guide for Different Types of Creditors
Depending on the type of creditor, the process for filing claims and the required documentation may vary. Below is a detailed explanation:
1. Filing Claims by Operational Creditors (OC)
Operational Creditors (except workmen and employees) must submit their claims using Form B. This form can be downloaded from the IBBI’s official website.
Details to be Provided in Form B:
> Name and address of the Operational Creditor.
> Proof of identity.
> Total amount of the claim, including the interest if any.
> Documentary evidence supporting the claim (e.g., unpaid invoices, contracts, demand notices).
> Details of any pending dispute with the Corporate Debtor regarding the debt.
2. Filing Claims by Financial Creditors (FC)
Financial Creditors (other than homebuyers and class creditors) must submit their claims electronically using Form C.
Details to be Provided in Form C:
> Name, address, and identification proof.
> Total amount claimed, including interest.
> Financial statements or other evidence showing non-payment of debt.
> Copies of any court or tribunal orders adjudicating on the non-payment issue (if applicable).
3. Filing Claims by Homebuyers or Class of Creditors
Homebuyers or other class creditors must submit their claims using Form CA, which is also filed electronically.
Details to be Provided in Form CA:
> Name, address, and proof of identity.
> Total amount claimed, including interest, in case of refund.
> Agreement to sell, allotment letter, or payment receipts to prove the existence of debt.
> Selection of an authorized representative from the list of insolvency professionals provided in the public announcement.
4. Filing Claims by Workmen and Employees
Workmen and employees of the Corporate Debtor can submit claims for unpaid wages using Form D. If there is a large group of employees, they may collectively submit their claims through an authorized representative using Form E.
Documents to Support the Claim:
> Employment contract or proof of employment.
> Salary slips, wage records, or demand notices for unpaid wages.
> Orders from labour courts or tribunals, if applicable.
5. Filing Claims by Other Creditors
Creditors who do not fall under the above categories (e.g., trade creditors, unsecured creditors) can submit their claims using Form F.
Documents Required:
> Evidence of the outstanding debt (e.g., bank statements, demand notices).
> Any court or tribunal orders confirming the non-payment of the claim.
It is important to take note that nowadays, the RPs have commenced inviting claims, in a dedicated portal, therefore, it is pivotal that the public announcement be read very carefully and diligently, and if the need arises, professional assistance may be taken.
Conclusion
The CIRP process under the IBC is designed to ensure a transparent, time-bound, and fair resolution of insolvency cases. By adhering to the prescribed procedures and timelines, creditors can protect their rights and actively participate in the resolution process. Whether you are an Operational Creditor, Financial Creditor, or a homebuyer, timely submission of claims is crucial to ensure your interests are represented during the CIRP.
For more information on the CIRP process and filing claims, visit the IBBI’s official website or take appointment by clicking here, or by contacting +91-8447248119 or mail@advkumardeepraj.com
