MEANING OF INSOLVENCY AND BANKRUPTCY AS PER THE CODE

Most people are confused with the usage of term insolvency and bankruptcy. A person who is unable to pay his debt become insolvent. Insolvency is the stage which can lead to the bankruptcy. A person at the stage of insolvency can contact the corporate lawyer so that he can be revived of his distressed condition.

On the other hand, bankruptcy is the stage where there is no scope of revival. A legal procedure called bankruptcy offers defence and relief to people who are unable to pay their obligations. A person facing the situation of bankruptcy can approach the corporate lawyer who will further help him in the appointment of Licensed Insolvency Trustee to sell their assets, get in touch with their creditors, and look into their financial situation after bankruptcy.

Thus, insolvency and bankruptcy Code is enacted which provides the whole procedure to help the creditors as well as debtors. The Code, on the one hand, helps the creditors to recover their money, and on the other hand, the Code also aims to revive the corporate debtor in a speedy and cost-effective manner. This Code applies to individuals, partnership firms, LLPs, and companies as well. The creditors as well as debtors can approach the corporate lawyers to initiate the corporate insolvency resolution process if the amount of default is a minimum Rs. 1 crore.

STAGES INVOLVED FOR THE INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS

If you are a corporate debtor or a financial/operational creditor you can approach the corporate lawyer to initiate the process as per the Code. The stages for the initiation of Insolvency Resolution process are –

STAGE 1: APPLICATION FOR INITIAION OF CIRP:

1. If you are a financial creditor to whom the financial debt is owed, then you can approach the corporate lawyer to file an application before the NCLT for initiation of CIRP as per Section 7 of the Code. Along with the application, the financial creditors have to furnish the record of default that is being recorded with the information utility, the name of the resolution professional to act as interim resolution professional, and any other information that is specified by the insolvency board.
2. If you are an operational creditor to whom the operational debt is owed, related to the goods and services, then you can approach the corporate lawyer to file an application before the NCLT for initiation of CIRP against the corporate debtor as per Section 9 of the Code. The corporate lawyer shall guide the operational creditors to first give a demand notice for the unpaid operational debt to the corporate debtor as per Section 8 of the Code, and then when he does not receive the notice of any existing dispute or the notice of payment within 10 days from the receipt of the demand notice, then the operational creditor may initiate the CIRP.

STAGE 2: ACCEPTANCE OR REJECTION OF THE APPLICATION

When the application for initiation of CIRP is made before the NCLT with the help of a corporate lawyer, NCLT, within 14 days from the receipt of the application, either accepts the application or rejects the same as per sections 7 and 9 of the Code. If NCLT is satisfied that the application is complete, default has occurred, and no disciplinary proceedings are pending against the interim resolution professional, the NCLT accepts the application and, on the contrary, rejects the application.

STAGE 3: DECLARATION OF MORATORIUM

As per section 13 of the Code, after the admission of the application the NCLT declare the moratorium, causes a public announcement for the initiation of CIRP and appoint the interim resolution professional

STAGE 4: CONSTITUION OF COMMITTEE OF CREDITORS

After the appointment of interim resolution professional, the professional verifies and collate all the claims against the corporate debtors to ascertain the financial position of the corporate debtor. After the collation of claims the committee of creditors is constituted as per section 21 of the Code. As per section 21 of the Code, all the decisions of the committee shall be taken by the vote of not less than 51% of voting shares of the financial creditors.

STAGE 5: APPOINTMENT OF RESOLUTION PROFESSIONAL

Within seven days after the committee’s formation, the creditors’ committee must convene for the first time. The interim resolution professional will be chosen or replaced by the committee of creditors at their first meeting, with a majority vote cast by at least 66% of the financial creditors’ voting shares.

STAGE 6: PREPARATION OF INFORMATION MEMRANDUM AND RESOLUTION PLAN

As per section 29 of the Code, the resolution professional shall prepare the information memorandum based on which the resolution applicant formulates the resolution plan. The resolution plan includes the payment of debt of the creditors as well as the management of affairs of the corporate debtor.

STAGE 7: APPROVAL OF THE RESOLUTION PLAN

If the NCLT is satisfied that the resolution plan is approved by the committee of creditors under sub-section (4) of section 30 and meets all the requirements mentioned in sub-section (2) of section 30, the NCLT approves the resolution plan. The resolution plan will be binding on the corporate debtor, its employees, members, creditors, including the Central Government, any State Government, or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force

STAGE 8: APPEAL

If any person is aggrieved by the decision of the adjudicating authority that is NCLT, they can approach the corporate lawyer to file an appeal before the NCLAT as per section 61 of the Code. The corporate lawyer will help the person to file an appeal before the NCLAT in a time bound manner that is within 30 days.

If the person is aggrieved by the decision of NCLAT, he/she can approach the corporate lawyer to prefer an appeal in the honourable supreme court as per section 62 of the Code. The corporate lawyer will help the person to file an appeal before the Supreme Court in a time bound manner that is within 45 days from the receipt of the order.