INSOLVENCY AND BANKRUPTCY LAWS UNIT II
- www.lawtool.net
- Mar 28
- 7 min read
Updated: Jun 6
Corporate insolvency can be a daunting process, both for affected companies and their creditors. Understanding the corporate insolvency resolution process (CIRP) is crucial for stakeholders involved in business operations. The following sections will break down the various elements of the CIRP, including initiation, timelines, fast track processes, procedures, and liquidation.
INSOLVENCY AND BANKRUPTCY LAWS UNIT II
Corporate Insolvency Resolution Process • Persons who may initiate the process (Sec. 6 to 11) • Time-limit for Completion of Resolution and Moratorium Process (Sec. 12 to 14) • Fast Track Corporate Insolvency Resolution Process (Sec. 55 to 58) • Procedure relating to Insolvency Resolution Process (Sec. 15 to 32) • Liquidation Process (Sec. 33 to 54)
Persons Who May Initiate the Process (Sec. 6 to 11)
1. Persons Who May Initiate CIRP (Sections 6 to 11)
The initiation of the Corporate Insolvency Resolution Process can be undertaken by various parties as per the provisions outlined in Sections 6 to 11 of the Insolvency and Bankruptcy Code (IBC).
One of the primary entities that can initiate the CIRP is the corporate debtor itself. This affords companies the opportunity to take proactive measures to address their financial distress before it escalates beyond management’s control.
Creditors are also pivotal in this process, as they can file for the CIRP when they believe that the corporate debtor is unable to pay its dues. Secured creditors, such as banks or individuals who hold collateral against loans, and operational creditors, who provide goods or services without immediate payment, have distinct rights and obligations when initiating the CIRP.
Additionally, the corporate debtor's shareholders or partners can initiate the process under specific conditions. Such provisions are essential in ensuring that all relevant parties can seek resolution for their financial grievances.
Time-limit for Completion of Resolution and Moratorium Process (Sec. 12 to 14)
2. Time-limit for Completion and Moratorium (Sections 12 to 14)
Section 12 – Time-limit for CIRP:
Must be completed within 180 days from admission.
Extendable by 90 days (only once), with 66% of CoC approval.
Maximum time: 330 days, including all extensions and legal proceedings.
Section 13 – Declaration of Moratorium:
Upon admission, NCLT declares moratorium and appoints Interim Resolution Professional (IRP).
Section 14 – Moratorium:
Prohibits:
Institution of suits/proceedings
Transfer of assets
Enforcement of security
Recovery of property
Once the initiation of the CIRP is successfully completed, it is crucial to adhere to the time-limited framework established in Sections 12 to 14 of the IBC. The timely completion of the resolution process is vital to saving enterprise value and ensuring fair treatment of existing creditors.
The resolution process must be completed within a period of 180 days from the date of initiation. If necessary, this period can be extended for a further 90 days, making it a maximum of 270 days in total. This extension is crucial as it provides an opportunity for the stakeholders to negotiate potential resolutions with the corporate debtor's management effectively.
Moreover, the moratorium period that accompanies the CIRP bench is key to protecting the corporate debtor during resolution. During this phase, no suits or proceedings can be initiated or continued against the corporate debtor, allowing it to focus entirely on achieving a resolution. This moratorium helps to guard against assets being stripped away during the resolution process.
Fast Track Corporate Insolvency Resolution Process (Sec. 55 to 58)
3. Procedure Relating to CIRP (Sections 15 to 32)
Key Provisions:
Section 15 – Public announcement of CIRP.
Section 16 – Appointment of Interim Resolution Professional (IRP).
Section 17-20 – Powers and duties of IRP.
Section 21 – Formation of Committee of Creditors (CoC).
Section 22 – Appointment of Resolution Professional (RP).
Sections 23-27 – RP’s conduct and replacement, if needed.
Section 28 – Certain actions requiring CoC approval (e.g., borrowing money).
Section 29 – Preparation of Information Memorandum.
Section 30 – Submission of Resolution Plan.
Section 31 – Approval of Resolution Plan by NCLT (binding on all).
Section 32 – Immunity to corporate debtor for offences prior to CIRP upon successful resolution.
The Fast Track Corporate Insolvency Resolution Process, outlined in Sections 55 to 58 of the IBC, provides a more efficient mechanism for companies facing imminent liquidations or possessing lesser debt amounts. This process is geared towards speeding up the resolution for smaller companies, making it a critical aspect for SMEs and start-ups.
The time frame for a fast track process is significantly shorter, requiring the resolution to be completed within 90 days, with a possible extension of up to 45 days. This expedited timeline emphasizes the urgency of addressing insolvency issues, particularly for smaller entities that may not weather prolonged disruptions.
Initiation of the fast track process can similarly be done by the corporate debtor or creditors, and it follows similar procedures to the standard CIRP, albeit with frameworks in place to ensure it remains efficient.
The designation of fast track processes is a reflection of the IBC’s commitment to support small businesses while ensuring that asset value is preserved and liabilities are managed swiftly.
Procedure Relating to Insolvency Resolution Process (Sec. 15 to 32)
4. Liquidation Process (Sections 33 to 54)
Key Provisions:
Section 33 – Initiation of Liquidation:
On rejection or non-submission of resolution plan.
On order by NCLT due to CIRP failure.
Sections 34-36 – Appointment and powers of Liquidator; liquidation estate.
Section 37-39 – Verification and consolidation of claims.
Section 40-42 – Determination and appeal against claim rejection.
Section 43-51 – Avoidance of undervalued, preferential, fraudulent, and extortionate transactions.
Section 52-54 – Distribution of proceeds and dissolution of corporate debtor.
Throughout the duration of the CIRP, specific procedures guide the resolution efforts, as detailed in Sections 15 to 32.
Upon initiation, the National Company Law Tribunal (NCLT) appoints an Insolvency Resolution Professional (IRP) to manage the process. The IRP plays a crucial role in conducting meetings with creditors, assessing financial capabilities, and preparing information memorandums.
Within 30 days of the IRP's appointment, a meeting of creditors must be held where decisions are made regarding the course of the resolution. Key stakeholders meet to discuss potential resolutions and formulate a committee of creditors (CoC), which becomes instrumental in overseeing the process.
The IRP is tasked with soliciting resolution plans from potential investors, and the CoC evaluates them, ensuring they comply with the IBC’s guidelines. It is the responsibility of the CoC to approve these plans and determine the best path forward based on the company's specific financial situation.
Throughout this process, transparency is paramount. The IRP is mandated to provide creditors with regular updates, reflecting the IBC’s emphasis on robust communication during the critical financial resolution phase.
Liquidation Process (Sec. 33 to 54)
5. Fast Track CIRP (Sections 55 to 58)
Section 55 – Application for fast track:
For small companies, startups, or unlisted companies with total assets below threshold.
Section 56 – Time-limit:
Complete CIRP within 90 days, extendable by 45 days (only once).
Section 57-58 – Applicability and procedure same as normal CIRP, with adjustments for timeline and scope.
In scenarios where the resolution process fails, the liquidation process comes into play, outlined extensively in Sections 33 to 54 of the IBC. Liquidation may occur post the expiration of the resolution period or when the CoC decides that the corporate debtor cannot be restructured viably.
The process begins with the NCLT issuing a liquidation order, which allows the IRP to transition into a Liquidator responsible for the sale and distribution of the corporate debtor's assets. The aim of liquidation is to ensure that creditors recover amounts owed to them to the best extent possible, even when business continuity is not viable.
The liquidator's responsibilities are comprehensive, encompassing asset valuation, sale of assets, and resolution of claims from creditors. An organized approach to asset sales can significantly affect the returns creditors receive.
The process culminates in the dissolution of the corporate debtor, concluding with the filing of the final liquidation report with the NCLT and obtaining an order for dissolution.
Understanding these provisions is crucial for stakeholders who might find themselves in similar situations, as it offers not only a strategic overview of insolvency procedures but also insight into protecting their interests.
Summary Table of CIRP (Sections 6 to 58)
Topic | Section(s) | Key Points |
Who Can Initiate CIRP | 6–11 | Financial Creditor (Sec. 7), Operational Creditor (Sec. 9), Corporate Applicant (Sec. 10). Certain persons restricted (Sec. 11). |
Time Limit & Moratorium | 12–14 | 180 days (extendable by 90), max 330 days. Moratorium on legal actions, asset transfers, etc. (Sec. 14). |
Public Announcement | 15 | IRP to make public announcement. |
Appointment of IRP/RP | 16, 22 | IRP appointed by NCLT; CoC may replace with RP. |
Committee of Creditors (CoC) | 21 | Formed by IRP; financial creditors only. |
RP’s Role | 23–27 | Manages CIRP, evaluates resolution plans. |
CoC Approvals | 28 | Certain decisions need 66% CoC approval. |
Resolution Plan | 30–31 | Submitted by applicants, approved by CoC and NCLT. Binding on all. |
Failure of CIRP | 33 | Liquidation starts if no plan is approved. |
Liquidator & Process | 34–54 | Liquidator appointed, assets sold, proceeds distributed. Avoidance of unfair transactions (Sec. 43–51). |
Fast Track CIRP | 55–58 | For small/startup/unlisted firms. Completed in 90 days (extendable by 45). |
Conclusion
Navigating the Corporate Insolvency Resolution Process is a multifaceted endeavor that requires familiarity with the legal framework established under the IBC. From understanding who can initiate the CIRP to the details surrounding the liquidation process, each section contributes to a broader understanding of corporate insolvency management.
The importance of timely action, adherence to prescribed timelines, and the involvement of key stakeholders cannot be overstated. As businesses face an increasingly complex financial landscape, having clarity about these processes is essential for effective and proactive financial management.
By leveraging the provisions outlined in the IBC, stakeholders can embark on journeys toward recovery, paving the way for renewed financial health and sustainability. Whether through standard procedures or fast track processes, it is clear that knowledge is a fundamental tool in successfully navigating the intricacies of the corporate insolvency resolution process.

Comentários