The IBC also recognises the classification of creditors into secured and unsecured creditors for purpose of ‘distribution waterfall’ in liquidation. Where any person is a financial creditor as well as an operational creditor, such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor. Where the assets of the corporate debtor have been completely liquidated, as per Section 54 the liquidator shall make an application to the NCLT for the dissolution of such corporate debtor. Here, the NCLT has not been given any authority to look into the merits of such decision of CoC as the relevant section inserted under the Code i.e. Firm’s objective is to maintain the highest standards of professionalism while providing services to the utmost satisfaction of clients. On the other hand, the NCLT will pass a liquidation order for the debtor if: Upon passing the liquidation order by the NCLT, a liquidator is appointed by the NCLT and the liquidation process commences. #FoundersSpotlight on Concept of Bankruptcy with Adv. The Resolution professional after a review of the same as per the guidelines provided in the Code shall present the same to the committee of creditors for its approval. Under the IBC, creditors are broadly classified as financial creditors and operational creditors. Before we set out to explore the Code, it is vital to learn these definitions below: (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; “default” means non-payment of debt when the whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. NCLT has ordered the district magistrate’s office to immediately release properties that have been attached for not paying power bills. This act aims at reducing complexity, to promote entrepreneurship and to protect the interests of all stakeholders. The Resolution professional after a review of the same as per the guidelines provided in the Code shall present the same to the committee of creditors for its approval. If the corporate insolvency resolution process is successful (ie, a resolution plan for the debtor is approved by the committee of creditors and then by the NCLT), then the debtor will not be liquidated. properties of the Corporate Debtor are insufficient to cover the cost of Liquidation process, and the affairs of the Debtor do not require further investigation may apply to NCLT for early dissolution of the Corporate Debtor. Hence, a proposed reorganisation is defeated if no resolution plan is received or if the committee of creditors do not approve any resolution plan within the mandated time frame or if after constitution of the committee (and prior to confirmation of a resolution plan), the committee of creditors decide to liquidate the debtor. This is to update the stakeholders of the Corporate debtor that the application filed in the Hon'ble Supreme court in relation to ongoing Liquidation proceedings of Su-kam Power Systems Limited has been dismissed by the court . The liquidator may, after verification of claims, either admit or reject the claim. There is no classification of creditors into secured and unsecured creditors for the purpose of resolution of the corporate debtor. 01.12.2017 NCLT order approval of resolution plan; 04.01.2018 NCLAT order not to execute Resolution Planon; 06.09.2018 NCLAT order , direction to NCLT to initiate Liquidation; 26.10.2018 NCLT order initiating Liquidation; 30.10.2018 Public Announcement Form-B; 05.01.2019 List of stakeholders - Liquidation… The Scheme becomes effective once a certified copy of the NCLT order is filed with the Registrar of Companies. Once approved by the committee of creditors, the plan has to be approved by the NCLT. If the debtor owes any debt to any person, creditors representing two-thirds in value of the debt should also approve this resolution. The Scheme can be between the company and its creditors or any class of them or the company and its shareholders or any class of them. In a non-bankruptcy scenario, dissolution can take place in the manner outlined below. Once the corporate insolvency resolution process for a company starts, the process provided in the IBC (and related regulations) on invitation and approval of a resolution plan needs to be followed. From the date of appointment of the interim resolution professional, the management of the affairs of the corporate debtor shall vest in the interim resolution professional; and the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional. The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. In both cases, if the resolution is not achieved during the prescribed timelines, the NCLT passes a liquidation order and here again, the process of liquidation remains the same. Following this, the liquidator moved to the appellate tribunal, which set aside the NCLT order and directed it to complete the process. Upon hearing of the petition, and objections (if any), the NCLT sanctions the Scheme by way of an order. All resolution plans that comply with the mandatory requirements set out under the IBC are placed before the committee for its consideration. The financial creditor files the application to the NCLT in a prescribed form along with all prescribed documents (including documents showing debt and default) and the requisite fees. Needless to say, the personnel of the corporate debtor shall extend necessary support to the interim resolution professional. However, there are exceptions to this rule, and the law in this regard is not fully settled. Insolvency and bankruptcy code bill was introduced in the Indian parliament by the NDA government in 2015 but got final clearance in May 2016 parliament session. Insolvency And Bankruptcy Code, 2016 2. Ltd., held that operational creditors have no right to use IBC either before time or for any immaterial considerations or as a replacement for the debt replacement procedure. If the NCLT is satisfied that the resolution plan meets the mandatory requirements of the IBC (and accompanying regulations) and has provisions for its effective implementation, it shall, by order, approve the resolution plan. As per Section 10 of the Code, a corporate applicant may file an application for initiating corporate insolvency resolution process and such application shall be accompanied by: • the information relating to its books of account and such other documents for such period as may be specified; • the information relating to the resolution proposed to be appointed as an interim resolution professional; Furthermore, the application for initiating insolvency proceedings must be supported or approved by a special resolution by the shareholders of the corporate debtor or a resolution passed by at least three-fourth of the total number of the partners. The liquidator continued to pursue the said application. Only when there is a claim, a debt and a default of the same, then arises the question of an insolvency proceeding. In general, there is some difference between filings by a financial creditor and filings by an operational creditor. The committee may approve any resolution plan by a vote of not less than 66 per cent of the voting share (calculated with reference to the value of financial debt admitted), after considering its feasibility and viability. According to Section 22, the first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors and the committee of creditors, may, in the first meeting, by a majority vote of not less than sixty-six per cent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. Accept the updated privacy & cookie policy . 26 Mar, 2021. Further, the NCLT may reject the Scheme if the requirements under the Companies Act are not met or if any objection to the Scheme is made (and it agrees with such objection) or if it is contrary to public interest. Insolvency proceedings have always been an important tool for the protection of the rights of investors in a corporate entity. If the debtor’s insolvency cannot be resolved in Stage I, it is liquidated. Latest . This is essentially a reorganisation plan for the company. In the matter of Rajpal Abhikaran Private Limited (MP) CP (IB) No. The Interim Resolution professional shall make necessary appointments, enter into contracts, raise finance and take other actions as may be necessary to keep the corporate debtor as a going concern. And yet after more than two-and-a-half years the process is far from over. How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? Court Liquidation: Creditors' Voluntary Liquidation: Deed of Company Arrangement: Deregistration: Members' Voluntary Liquidation: Restructuring (Part 5.3B) Scheme of Arrangement: Voluntary Administration: Winding Up Application We handle NCLT, Liquidation and Personal Guarantee.. liquidation process, claims are invited to determine the total amount of dues of the Corporate Debtor and the priority of payments out of the liquidation estate. If there is a default on any debt, the only way for the debtor to commence its liquidation is by initiating its insolvency resolution process (ie, Stage I) under the IBC. I. a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed. For any Insolvency and Bankruptcy Law (IBC) related matter, A corporate debtor who has committed a default may initiate its own corporate insolvency resolution process (voluntary reorganisation) under the IBC by filling an application with the relevant NCLT. A financial creditor may file an application not only in the case of default in its own debt but also in the case of default in any financial debt of any other financial creditor. Once the dissolution order is passed by the NCLT, the company stands dissolved. The National Company Law Appellate Tribunal has set aside an NCLT order, and directed to start the liquidation process of energy firm Surana Power. And in such event, the aggrieved person may, according to Section 61, appeal to the National Company Law Appellate Tribunal (NCLAT) within thirty days and therefrom to the Supreme Court, within forty-five days from the date of receipt of such order from the NCLAT. Details of Liquidation process . A financial creditor or operational creditor of the debtor can initiate the resolution process of the debtor by filing an application to the NCLT (having jurisdiction over the registered office of the debtor) if there is a default of 10 million rupees or more. The operational creditors do not form part of the committee of creditors and hence have no voting rights. Once the application of the creditor is admitted by the NCLT, the corporate insolvency resolution process of the corporate debtor starts. Such dispute should exist prior to receipt of the demand notice by the debtor. 100 homebuyers’ nod must for IBC against realtor-Supreme Court. Under the Companies Act, a company can be wound up by the NCLT (and thereafter dissolved after the liquidation process) if a default is made by the company in making filings of its balance sheet and profit and loss account or annual return to the Registrar of Companies for any consecutive five years or if the company does not commence its business within a year from its incorporation or suspends its business for a whole year or if the NCLT is of the opinion that it is just and equitable that the company should be wound up. The application shall be accompanied by: • a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; • an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; • any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed. Obtain a declaration by way of affidavit from the majority of partners (in case of a limited liability partnership) or individuals constituting the governing body in the case of other corporate persons, stating that they have inquired into the affairs of the debtor and have formed an opinion that either the debtor has no debt or will be able to pay its debts in full from the liquidation estate; and that the debtor is not being liquidated to defraud any person. Liquidation Process of company and Model Timeline of Liquidation Process under IBC, 2016 The Insolvency and Bankruptcy Code, 2016 (IBC, 2016) provides for a time-bound process to resolve insolvency of the corporate debtor within a period of 180 days and one time extension of 90 days from date of the order passed by the Hon’ble National Company Law Tribunal (NCLT). Krishnan & Krishnan was founded in 2017, by a few young lawyers aspiring to see heights in the field. The prescribed time limit for completion of this process is 90 days from the date of the admission of the application (extendable by a further period of 45 days). The application stands admitted and the Tribunal has ordered for Liquidation of the Corporate Debtor by appointing Mr. Sanjai Kumar Gupta as the Liquidator . In the application, the company will request separate meetings of creditors or class of creditors, or shareholders or class of shareholders to approve of the Scheme. Company is going through liquidation process via NCLT Principal Bench,New Delhi order dated April 3,2019. , National ompany Law Tribunal (“ NCLT ”). What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects? (IB) 760-9-NCLT-AHM-2019. And, IBC proceedings can only be initiated upon all the provisions of appeal that have been used or are exhausted. The resolution professional shall then submit the resolution plan as approved by the committee of creditors to the NCLT. If the proposed reorganisation is defeated, the NCLT passes an order for liquidation of the debtor. No legal claim shall be sought against the corporate debtor in any other forum or court unless liquidation process is initiated or a resolution plan is made. While the Code provides for mechanisms to protect creditors, the Code is still used as a threat by several to arm-twist the companies to make payments that could not be disputed effectively. Chandhiok & Associates, Advocates and Solicitors, In brief: directors' and officers' liability for company insolvencies in India, First-step analysis: restructuring & insolvency in India, Merger control triggers and thresholds in India.