Insolvency and Bankruptcy Code (IBC) 2016: A Complete Guide for Creditors and Debtors

Understanding the Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code (IBC), 2016 is India’s comprehensive legislation for the resolution of insolvency in a time-bound manner. Prior to the IBC, India had a fragmented insolvency framework with multiple laws and forums, resulting in prolonged proceedings and low recovery rates. The IBC consolidated the existing framework and introduced a creditor-driven, time-bound resolution process.

Corporate Insolvency Resolution Process (CIRP)

The CIRP is the primary mechanism under the IBC for resolving corporate insolvency. The process begins with an application filed before the National Company Law Tribunal (NCLT) by a financial creditor, operational creditor, or the corporate debtor itself. Upon admission, a moratorium is imposed prohibiting any suits, proceedings, or recovery actions against the corporate debtor.

An Interim Resolution Professional (IRP) is appointed to manage the affairs of the corporate debtor. The IRP is subsequently confirmed or replaced by a Resolution Professional (RP) by the Committee of Creditors (CoC). The RP invites resolution plans from potential resolution applicants, and the CoC evaluates and approves a plan with the approval of at least 66% of voting share.

Timeline and Resolution

The CIRP must be completed within 180 days, extendable by up to 90 days. The Supreme Court has held that the overall timeline should not exceed 330 days including litigation time. If no resolution plan is approved within the timeline, the corporate debtor is ordered to be liquidated.

For Creditors: Filing and Participating

Financial creditors with a default of ₹1 crore or more (threshold raised from ₹1 lakh) can file for CIRP. Operational creditors can also initiate CIRP after issuing a demand notice and waiting 10 days. Creditors must file their claims with the RP within the stipulated time and participate actively in the CoC proceedings to protect their interests.

For Debtors: Rights and Protections

The IBC provides certain protections for corporate debtors, including the moratorium that protects against enforcement actions during CIRP, the right to submit a resolution plan (subject to eligibility under Section 29A), and the protection of essential services during the resolution process. Understanding these rights is essential for businesses facing insolvency proceedings.