Businesses can face financial trouble. Market downturns, cash flow issues, or unforeseen events can lead to insolvency. When a company is unable to pay its debts, it enters a critical phase. Therefore, it needs a structured legal framework to either revive or wind down its operations. This is where the Corporate Insolvency Resolution Process (CIRP) comes into play. The Insolvency and Bankruptcy Code (IBC), 2016 governs this process. The primary objective is to maximize the value of the corporate debtor's assets. A secondary, but equally important, objective is to promote entrepreneurship. In addition, it aims to balance the interests of all stakeholders. A successful CIRP can save a company. Conversely, a failed one leads to liquidation. The process is complex and time-bound. Consequently, it requires expert legal guidance. We at Rajendra NCLT Law Firm provide these specialized services. We help companies, creditors, and other parties navigate this intricate process.

Professional Services for Corporate Insolvency Resolution Process (CIRP)

Professional Services for Corporate Insolvency Resolution Process (CIRP): Rajendra NCLT Law Firm

Initiating the CIRP: The First Step

The CIRP can be initiated by various parties. First, a financial creditor can file an application. A financial creditor is someone to whom a "financial debt" is owed. This includes banks, financial institutions, and even homebuyers. Second, an operational creditor can also file. An operational creditor is owed an "operational debt." This refers to dues for goods or services supplied. Third, the corporate debtor itself can initiate the process. This is known as a voluntary application. The application must be filed with the National Company Law Tribunal (NCLT). The NCLT serves as the Adjudicating Authority. A formal petition must be meticulously drafted. It must contain specific details. It must prove that a "default" has occurred. The threshold for default is currently one crore rupees. Our firm assists clients in preparing this petition. We ensure all legal requirements are met. As a result, we increase the chances of the application being admitted. We also provide representation during the NCLT hearing.

The Moratorium Period and Its Implications

Once the NCLT admits the application, a moratorium is declared. This is a very important phase. The moratorium is a temporary suspension. It prohibits creditors from filing new lawsuits against the company. It also stops all debt recovery actions. Furthermore, it prevents the corporate debtor from transferring any of its assets. This period provides a much-needed breathing space. It allows the company to stabilize. It prevents a "fire sale" of assets. The moratorium protects the company's value. It gives the newly appointed Insolvency Resolution Professional (IRP) time to take control. Our lawyers advise clients on the scope and implications of the moratorium. We help them understand their rights and duties during this period. We ensure that no party violates the moratorium order. Consequently, we maintain the integrity of the process.

The Role of the Insolvency Resolution Professional (IRP)

The NCLT appoints an Interim Resolution Professional (IRP). The IRP is an independent professional. They take over the management of the corporate debtor. Their first task is to make a public announcement. They also invite creditors to submit their claims. The IRP then verifies these claims. They collate them into a list. This list forms the basis for the next stage. After the IRP's term, a Committee of Creditors (CoC) is formed. The CoC consists of all financial creditors. The CoC then decides whether to confirm the IRP as the permanent Resolution Professional (RP). In fact, they can also choose a new RP. The RP's role is critical. They manage the company. They run it as a going concern. They also prepare the groundwork for a resolution plan. We work closely with the IRP and RP. We ensure our clients’ claims are accurately represented. We also provide legal support to the IRP/RP. We help them comply with all legal duties.

The Resolution Plan and Its Approval

The core objective of CIRP is to find a resolution. The RP invites potential investors. These investors are called Resolution Applicants. They submit their proposed resolution plan. A resolution plan is a comprehensive proposal. It outlines how the corporate debtor will be revived. It can involve debt restructuring. It can propose a merger or acquisition. It can even suggest a complete management change. The RP presents all viable plans to the CoC. The CoC evaluates these plans. They consider what is best for all stakeholders. They must approve a plan with a minimum vote of 66%. Once approved by the CoC, the plan is submitted to the NCLT. The NCLT must then sanction the plan. The NCLT’s approval makes the plan binding on all parties. This includes the corporate debtor and all creditors. Our firm advises both creditors and resolution applicants. We help creditors assess the feasibility of a plan. We help applicants draft a legally compliant and attractive plan. Therefore, our involvement is crucial for a successful outcome.

Challenges and Legal Disputes in CIRP

The CIRP is often fraught with legal challenges. Disputes can arise at any stage. For example, a creditor’s claim might be rejected by the IRP. This can lead to a legal battle. A resolution plan might be challenged by a dissenting creditor. The challenge can be based on legal grounds. It might be argued that the plan is not fair or equitable. In such cases, the matter goes to the NCLT. An appeal against an NCLT order can be filed with the National Company Law Appellate Tribunal (NCLAT). Further appeals can be made to the Supreme Court of India. Our firm specializes in NCLT and NCLAT litigation. We represent clients in all these forums. We argue complex legal points. We protect our clients’ interests. We have a deep understanding of the Insolvency and Bankruptcy Code (IBC). This knowledge allows us to anticipate legal hurdles. We craft strategies to overcome them.

The Outcome: Resolution or Liquidation

The CIRP has a strict timeline. The initial period is 180 days. It can be extended by a further 90 days. If no resolution plan is approved within this period, the NCLT orders liquidation. In liquidation, the company's assets are sold. The proceeds are distributed to creditors according to a pre-defined waterfall mechanism. The waterfall mechanism is a hierarchy of payments. Secured creditors are paid first. Then come employees' dues. Finally, other creditors receive their share. The goal of CIRP is always to avoid liquidation. However, sometimes it is the only option. Our firm provides legal support during the liquidation process as well. We help liquidators with legal compliance. We ensure a fair distribution of assets. We help creditors maximize their recovery.

FAQs on Corporate Insolvency Resolution Process (CIRP)

1. What is the minimum default amount for initiating the CIRP?

A creditor or a corporate debtor can initiate the Corporate Insolvency Resolution Process (CIRP) if the default amount is at least one crore rupees. This minimum threshold was increased from one lakh rupees to prevent frivolous or minor cases from clogging the system. The application is filed with the National Company Law Tribunal (NCLT), which serves as the Adjudicating Authority.

2. What happens to the company's management during the CIRP?

During the CIRP, the existing management of the company (the board of directors) is suspended. An independent professional, known as the Interim Resolution Professional (IRP), takes over the management. The IRP's primary role is to act in the best interests of all stakeholders, manage the company as a going concern, and protect its assets. Subsequently, the creditors can either confirm the IRP as the permanent Resolution Professional (RP) or appoint a new one.

3. What is the moratorium period, and what are its effects?

The moratorium is a legally mandated period of temporary suspension that begins once the NCLT admits the CIRP application. Its main effect is to halt all legal proceedings and debt recovery actions against the company. This includes lawsuits, foreclosures, and asset seizures. The moratorium provides a crucial breathing space for the company to stabilize and for a resolution plan to be formulated without external pressures.

4. What is a "resolution plan," and who approves it?

A resolution plan is a detailed proposal outlining how the insolvent company will be revived. It can include restructuring its debt, selling assets, or even changing management. The Resolution Professional (RP) invites potential investors, known as Resolution Applicants, to submit plans. The Committee of Creditors (CoC), which represents the financial creditors, reviews these plans and must approve one with a minimum vote of 66%. The final approval is then given by the NCLT, making the plan binding on all parties.

5. What happens if a resolution plan is not approved within the specified time?

The CIRP has a strict timeline, typically 180 days with a potential extension of 90 days. If no resolution plan is approved by the NCLT within this period, the company will be ordered for liquidation. In this process, the company's assets are sold off, and the proceeds are distributed to creditors according to a pre-defined legal hierarchy known as the waterfall mechanism.

Conclusion

The Corporate Insolvency Resolution Process is a complex legal journey. It is a lifeline for financially distressed companies. It is a powerful tool for creditors. The process, however, requires specialized legal knowledge. It needs an understanding of the IBC. It needs experience with the NCLT and NCLAT. At Rajendra NCLT Law Firm, we provide this expertise. We offer professional services to all stakeholders. We assist in filing petitions. We advise on the moratorium. We help with claim verification. We also represent clients in legal disputes. Our dedication ensures your rights are protected. Our strategic guidance helps achieve a favorable resolution. We are committed to navigating this complex legal landscape for you. Contact us today to secure a strong legal partner.

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