The Insolvency & Bankruptcy Code, 2016

1.1 Introduction

If, untreated
known as
Individuals insolvency, it will
Bankruptcy
The term lead to Bankruptcy
'Insolvency' can
be used for known as If, untreated
Organization/
Corporate insolvency, it will
Corporates
Insolvency lead to Liquidation

 Features of the Insolvency and Bankruptcy Code: Comprehensive Law, No Multiplicity of Laws, One
Window Clearance, One Chain of Authority, Low Time Resolution, Priority to the interests of workman and
employees & New Regulatory Authority (IBBI)
 5 Pillars of the Regulatory Mechanisms:
o Insolvency and Bankruptcy Board of India – The Code provides for establishment of a Regulator who
will oversee these entities and to perform legislative, executive and quasi-judicial functions with respect
to the Insolvency Professionals, Insolvency Professional Agencies and Information Utilities.
o Insolvency Professional Agencies (IPA) – The Code provides for establishment of insolvency
professionals agencies to enroll and regulate insolvency professionals as its members. IPA will perform
three key functions i.e. Regulatory (drafting detailed standards and codes of conduct), Executive
(monitoring & inspecting members on a regular basis, gathering information on their performance &
malfeasance in the conduct of IP duties) and Quasi-judicial (addressing grievances of aggrieved parties).
o Insolvency Professionals – The Code provides for insolvency professionals as intermediaries who would
play a key role in the efficient working of the bankruptcy process. In the resolution process, the insolvency
professional verifies the claims of the creditors, constitutes a creditors committee, runs the debtor's
business during the moratorium period and helps the creditors in reaching a consensus for a revival plan.
In liquidation, the insolvency professional acts as a liquidator and bankruptcy trustee.
o Information Utilities – The Code envisages creation of information utility to collect, collate, authenticate
and disseminate financial information of debtors in centralized electronic databases, at all times. It
requires creditors to provide financial information of debtors to multiple utilities on an ongoing basis.
Such information would be available to creditors, resolution professionals, liquidators and other
stakeholders in insolvency and bankruptcy proceedings. The purpose of this is to remove information
asymmetry and dependency on the debtor's management for critical information that is needed to swiftly
resolve insolvency.
o Adjudicating Authority – The Adjudicating Authority for corporate insolvency and liquidation is the
National Company Law Tribunal (NCLT). Appeals against NCLT orders shall lie with National Company
Law Appellate Tribunal (NCLAT) and thereafter to the Supreme Court of India. For individuals and other
persons, the Adjudicating Authority is the Debt Recovery Tribunal (DRT), appeals lie to the Debt
Recovery Appellate Tribunal (DRAT) and thereafter to the Supreme Court.

1.2 Applicability of the Code

As per section 1, it extends to the whole of India except Part III (Insolvency Resolution and Bankruptcy for
Individuals and Partnership Firm) which excludes the state of Jammu and Kashmir.
This Code shall apply to:

Companies (Governed Partnership Personal Individuals,

Notified
by Companies Act, Firms & Guarantors to other than
LLP Body
2013/ any previous Proprietorship Corporate personal
Corporates
law/ any special Act) Firms Debtors guarantors

The Code shall not apply to corporates in finance sector. Thus, the Code does not cover Bank, Financial
Institutions, Insurance Company, Asset Reconstruction Company, Mutual Funds, Collective Investment Schemes
or Pension Funds. However, the Central Government can notify financial service providers for purpose of
insolvency and liquidation proceedings, which may be conducted under the IBC, in consultation with appropriate
financial sector regulator.
NBFC is engaged in various activities and hence NBFC is not excluded from definition of 'corporate
person' under section 3(7) of Insolvency Code. NBFC can be a 'corporate debtor'.

1.3 Important Points from some Definitions

 Security interest shall not include a performance guarantee.
 Corporate applicant means
o corporate debtor
o a member or partner of the corporate debtor who is authorised to make an application for the corporate
insolvency resolution process under the constitutional document of the corporate debtor
o an individual who is in charge of managing the operations and resources of the corporate debtor
o a person who has the control and supervision over the financial affairs of the corporate debtor
 Dispute includes a suit or arbitration proceedings relating to the existence of the amount of debt, quality of
goods or service or breach of a representation or warranty.
 Initiation date means the date on which a financial creditor, corporate applicant or operational creditor makes
an application to the Adjudicating Authority for initiating corporate insolvency resolution process.
 Insolvency commencement date means the date of admission of an application for initiating corporate
insolvency resolution process by the Adjudicating Authority. However, where the interim resolution
professional is not appointed in the order admitting application, the insolvency commencement date shall be
the date on which such interim resolution professional is appointed by the Adjudicating Authority.
 Liquidation commencement date means the date on which proceedings for liquidation commence.
 Resolution applicant means a person, who individually or jointly with any other person, submits a resolution
plan to the resolution professional pursuant to the invitation.
 Financial debt means a debt alongwith interest and includes—
(a) Money borrowed against the payment of interest
(b) Amount raised under any acceptance credit facility or its de-materialised equivalent
(c) Amount raised by note purchase facility or by issue of bonds, notes, debentures, loan stock or any similar
instrument
(d) Any liability in respect of lease or hire purchase contract which is deemed as a finance or capital lease
under the Ind-AS or other prescribed AS
(e) Receivables sold or discounted other than on non-recourse basis
(f) any amount raised under any other transaction, including any forward sale or purchase agreement, having
the commercial effect of a borrowing (Any amount raised from an allottee under a real estate project shall
be deemed to be an amount having the commercial effect of a borrowing.)
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation
in rate (For calculating the value of any derivative transaction, only the market value of such transaction
shall be taken into account.)
(h) Any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit
or any other instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to
in sub-clauses (a) to (h)
1.4 The Corporate Insolvency Resolution Process
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Commitment of Default
The trigger event for the process is occurrence of default. Default occurs when a whole or any part of the
amount of debt has become due and payable and is not paid by the debtor.
The provisions shall be applicable only when the amount of the default ≥ Rs. 1,00,000. However, the CG may
by notification specify this minimum amount to be upto Rs. 1,00,00,000. [Section 4]

Filing of application before NCLT

The corporate insolvency process may be initiated against any defaulting corporate debtor by making an
application for corporate insolvency resolution. The application may be made by:

Operational Creditor Financial Creditor (itself or jointly

OC Corporate Debtor with other financial creditors, or any
(Demand Notice & Copy of Invoice) other person notified on behalf i.e.
guardian, executor or administrator of
Corporate Debtor OC estate, trustee including debenture
(within 10 days of receipt, intimate about existence of a dispute trustee, person duly authorized by the
(if any) along with record of pendency of any suit/ arbitration or BOD)
details of payment of unpaid operational debt in case the debt has
or is being paid) Reqd. with application
 Evidence in support of default (i.e.
If after 10 days, the OC does not receive his payment or
record of the default recorded with
confirmation of a dispute that existed before the demand notice
the information utility or such
was sent, he may file an application before the Adjudicating
other record or evidence of default
Authority for initiating a corporate insolvency resolution process.
as may be specified)
 Name of the IRP
Reqd. with application
♦ Evidence in support of default  any other specified information
(a) Copy of the invoice demanding payment or demand notice
(b) Affidavit that no notice is given by the corporate debtor
relating to a dispute of the unpaid operational debt Corporate Applicant
(c) Copy of the certificate from the financial institutions Reqd. with application
maintaining accounts of the OC confirming that there is no ♦ Particulars relating to books of
payment of an unpaid operational debt, if available account and other documents
(d) a copy of any record with information utility confirming that ♦ Name of IRP
there is no payment of an unpaid operational debt, if available ♦ SR passed by the corporate debtor
(e) any other proof confirming that there is no payment of an (or the resolution passed by at least
unpaid operational debt 3/4th of the total number of partners of
♦ Name of IRP (may give, not mandatory) the corporate debtor)
♦ Any other specified information

Persons not entitled to initiate insolvency process

Corporate debtor
o already undergoing an insolvency resolution process
o in respect of whom a liquidation order has been made
o having completed corporate insolvency resolution process 12 months preceding the date of making of
the application

Corporate debtor or financial creditor

o violated any of the terms of resolution plan which was approved 12 months before the date of making
of an application

The Adjudicating Authority may allow the withdrawal of application admitted, on an application with the
approval of 90% voting share of the CoC.
 Admission or Rejection of Application
NCLT may either accept or reject the application within 14 days of receipt of application. In case of any
defect, the applicant shall be given 7 days from receipt of rejection notice to rectify it. However, if the NCLT
has not ascertained the existence of default and passed an order within such time, it shall record its
reasons in writing for the same. The corporate insolvency resolution process (CIRP) shall commence from
the date of admission of application by the NCLT. It is referred to as the Corporate Insolvency Resolution
Date.

Moratorium [Sec 14]

NCLT will declare moratorium period during which no action can be taken against the company or the assets
of the company, to keep the Company as a going concern i.e. all suits and legal proceedings etc. against the
Corporate Debtor shall be in abeyance.

The following acts shall be prohibited during moratorium:

i. Institution or continuation of any suits or proceedings against the corporate debtor including execution
of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority
ii. Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect
of its property including any action under the SARFAESI Act, 2002
iii. The recovery of any property by an owner or lessor where such property is occupied by or in the
possession of the corporate debtor
iv. Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any
legal right or beneficial interest

The following act shall not be prohibited during moratorium:

i. Supply of essential goods or services to the corporate debtor as may be specified
ii. Surety in a contract of guarantee to a corporate debtor.
iii. Notified transactions by the CG in consultation with any financial regulator

The order of moratorium shall have effect from the date of such order till the completion of the corporate
insolvency resolution process. However, if the Adjudicating Authority approves the resolution plan or passes
an order for liquidation, the moratorium shall cease to have effect from the date of such order.

Interim Resolution Professional (IRP)

IRP is appointed by the NCLT (within 14 days from the commencement date) to manage the affairs of
Corporate Debtor till the date of appointment of the Resolution Professional by Committee of Creditors.

If the application was filed by a financial creditor (FC) or corporate debtor (CD), the insolvency professional
proposed shall be appointed as the IRP, if no disciplinary proceedings are pending against him.
If the application was filed by OC and no proposal for an IRP was made, NCLT shall make a reference to
IBBI for the recommendation of an insolvency professional to act as an IRP. IBBI shall recommend the name
within ten days of the receipt of a reference from the Adjudicating Authority. However, if an IRP was proposed
in the application, such person shall be appointed, if no disciplinary proceedings are pending against him.

Powers:
a) Management of Affairs: Shall vest in the IRP from the date of his appointment
b) Exercise of Power of BOD/ Partners: The powers of the Board of Directors/ Partners of the corporate
debtor shall stand suspended and be exercised by the IRP.
c) Reporting of officers/managers: To the IRP and provide access to documents and records as may be
required by the IRP
d) Instructions to financial institutions: The financial institutions maintaining accounts of the corporate
debtor shall act on the instructions of the IRP in relation to such accounts and furnish all information
relating to the corporate debtor available with them to the IRP.

) Duties – Receive and collate claims of creditors, Constitute a committee of creditors, Collect info relating to
the CD, File info collected with the IU, Monitor the assets, Take control and custody of any asset over which
the CD has ownership rights, Perform such other duties as may be specified by the Board
(Note – Assets shall not include assets owned by 3rd party or by subsidiary of CD or notified assets.)

Public Announcement
IRP shall make a public announcement of initiation of corporate insolvency resolution process in Form A
immediately within 3 days from the date of his appointment specifying:
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Committee of Creditors (CoC)

After the collation of all claims and determination of the financial position of the CD, the IRP shall
constitute a committee of creditors. The first meeting shall be held within 7 days of its constitution.

Composition

Financial Creditors exist Financial Creditors don’t exist

OR
All financial creditors are related
All financial creditors parties of the corporate debtor

If a FC is a related party, it shall not have any right of 18 largest operational

representation, participation or voting in a meeting of the creditors by value
CoC. 1 representative elected
However, such restriction shall not apply to a FC by all workmen
(regulated by a financial sector regulator) if it is a related 1 representative elected
party solely because of conversion of debt into equity by all employees
shares or instruments convertible into equity shares, prior
to the insolvency commencement date.
If a person is both FC and OC, such person shall be a FC to the extent of the financial debt and be included in the CoC
with voting share proportionate to the financial debts and shall be considered an OC to the extent of the operational debts.

In case of Joint FCs (as part of a consortium or agreement), each such FC shall be part of the CoC and their voting
share shall be determined on the basis of the financial debts owed to them.

After the constitution of committee of creditors, the IRP is required to file a report certifying the constitution
to the Adjudicating Authority on or before the expiry of 30 days from the date of appointment of the IRP.

Voting and Conduct of the Meeting: Unless otherwise specified, the decisions shall be taken by 51% & the
meetings shall be conducted by the RP.

Notice of the Meeting: The RP shall give a notice of the meeting of the CoC to:
 Members of the CoC (including the authorised representatives)
 Members of the suspended BOD or the partners
 OCs (or their representatives) if the amount of their aggregate dues ≥ 10% of the debt.
Persons other than members of the CoC (mentioned above) do not have right to vote in the meeting. However,
they may attend the meetings.

Quorum for the Meeting: At least 33% (voting rights) of the members of the COC either in person or by
video/audio means; If requisite quorum is not met, the meeting shall be automatically adjourned to same time,
same place, next day. The adjourned meeting shall quorate with the members attending the meeting.
 Resolution Professional (RP)
In the first meeting of the CoC, the IRP or any other IP shall be appointed to act as RP by votes ≥ 66%.
If any other IP is appointed to act as RP, it shall file an application before NCLT for the appointment
of the proposed RP. If IBBI does not confirm the name of the proposed RP within 10 days of the receipt, the
NCLT shall direct the IRP to continue as the RP until the Board confirms.

Powers:
1. Convene and attend all meetings of the CoC
2. Take custody and control of all the assets of the CD
3. Raise interim finances subject to the approval of the CoC
4. Maintain an updated list of claims
5. Represent and act on behalf of the CD with 3rd parties
6. Invite prospective lenders, investors, and any other persons to put forward solutions
7. Present all resolution plans at the meetings of the CoC
8. Prepare the information memorandum
9. Appoint accountants, legal or other professionals
10. File application for avoidance of transactions

Duties: Preserve and protect the assets of the CD including the continued business operations

Eligibility of an IP to be appointed as a RP: If he and all partners/ directors of the IP entity are independent
of the CD i.e. he is
a) Eligible to be appointed as an independent director u/s 149 of the CA, 2013
b) Not a related party of the CD
c) Not an employee/ proprietor/ partner of a
o Firm of auditors or secretarial auditors in practice or cost auditors of the CD in the last 3 FYs
o Legal or consulting firm that has or had any transaction with the CD amounting ≥ 5% of the gross
turnover of such firm in the last 3 FYs

Fees of RP (and any costs incurred by the RP in running the business of the CD as a going concern):
Shall be included in the CIRP costs and have priority over other costs in the event of winding up of the CD

Replacement of RP
If a debtor or a creditor is of the opinion that the RP is required to be replaced, he may apply to the Adjudicating
Authority for replacement of such professional. The Adjudicating Authority shall may make reference to the
Board for replacement within 7 days of receipt of the application.

The CoC may, at a meeting, by 66% voting shares resolve to replace the RP, subject to a written consent from
the proposed RP. The CoC shall forward the name of the new proposed IP to the Adjudicating Authority and
after confirmation by the Board he shall be appointed in the same manner as appointment of IRP.

Extension of the time for CIRP

The CIRP needs to be completed within 180 days from the date of admission of the application to initiate such
process.
The RP shall file an application to the AA to extend the period, if a resolution is passed by the CoC
by 66% of the voting shares. If the AA is satisfied that the CIRP cannot be completed within 180 days, it may
extend the duration by such further period, but not exceeding 90 days. It shall not be granted more than once.
CIRP must be completed within 330 days from the insolvency commencement date, including any
extension and time taken in legal proceedings in relation to such resolution process of the corporate
debtor.
If the CIRP of a corporate debtor is pending and has not been completed within such 330 days,
it shall be completed within 90 days from the date of commencement of the IBC (Amendment) Act,
2019.
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Resolution Plan
The RP shall prepare an Information Memorandum containing info for preparing the resolution plan. RP shall
also provide access of the following to a Resolution Applicant in order to prepare the Resolution Plan:
 Financial position of corporate debtor
 Other matters pertaining to corporate debtor
 Information required by applicant for resolution plan

A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible u/s 29A.

The RP shall examine each resolution plan received by him to confirm that each resolution plan –
a) provides for payment of CIRP costs in priority to the other debts of the CD
b) provides for the payment of the debts of OCs
c) provides for the management of affairs of the CD after approval of the resolution plan
d) does not contravene any of the provision of the law. (If any approval of shareholders is required for
implementation of the resolution plan, such approval shall be deemed to have been given and shall not be
any contravention.)
e) conforms to other requirements specified by the Board
f) implementation and supervision of the resolution plan

The RP shall present to the resolution plans to the CoC for its approval. The CoC may approve a resolution
plan by ≥ 66% voting share.
(The resolution applicant may attend the meeting of the CoC in which the resolution plan of the applicant is
considered. However, he shall not have a right to vote unless he is also a member of the CoC.)

The RP shall submit the approved resolution plan to the Adjudicating

Authority

If it is satisfied that the approved resolution plan meets the specified If it is satisfied that the
requirements, it shall by order approve the resolution plan which resolution plan does
shall be binding on the CD and its employees, members, creditors, not confirm to the
guarantors, CG, SG, Local authority and other stakeholders requirements, it may,
by an order, reject the
resolution plan.
The resolution applicant shall obtain approvals required under any
law within a 1 year from approval of the resolution plan by the Liquidation
Adjudicating Authority or within such period provided in such law, process shall be
whichever is later. However, where the resolution plan contains a initiated.
provision for combination u/s 5 of the Competition Act, 2002, the
resolution applicant shall obtain the approval of the Competition
Commission of India prior to approval of resolution plan by the CoC.

Moratorium shall cease and the Resolution Plan shall start being
implemented.

Grounds for Appeal against Approval of Resolution Plan

(a) The resolution plan does not comply with
 Any provisions of any law for the time being in force
 Any other criteria specified by the Board
(b) There has been material irregularity in exercise of the powers by the RP during the CIRP.
(c) CIRP costs have not been provided for repayment in priority to all other debts.
(d) Debts owed to OCs have not been provided for in the resolution plan in the specified manner.
Order of Liquidation – Cases
a) No Resolution Plan received (Before expiry of CIRP/ Fast track CIRP)
b) CoC decides to liquidate the CD by ≥ 66% voting share and intimates the Adjudicating Authority of
such (at any time, even before preparation of the information memorandum)
c) Resolution plan approved by the AA is contravened by the CD and any person other than CD, whose
interests are prejudicially affected, makes an application to the Adjudicating Authority for liquidation

Moratorium: Once the Adjudicating Authority passes an order of liquidation, a moratorium is imposed on
pending legal proceedings against the CD, and the assets of the CD (including the proceeds of liquidation)
vest in the liquidation estate.

Liquidator
Appointment
Where the Adjudicating Authority passes an order for liquidation, the RP appointed for the CIRP shall act as
the liquidator (subject to written consent submitted by the RP to the Adjudicatory Authority), unless replaced
by the Adjudicating Authority.
On his appointment, all powers of the BOD, KMP and partners of the CD shall cease to have effect and vest
in the liquidator.

Eligibility for appointment as Liquidator: If the person is independent of the CD i.e.

a) Eligible to be appointed as an independent director u/s 149 of the CA, 2013
b) Not a related party of the CD
c) Not an employee/ proprietor/ partner of a
o Firm of auditors or secretarial auditors in practice or cost auditors of the CD in the last 3 FYs
o Legal or consulting firm that has or had any transaction with the CD amounting ≥ 5% of the gross
turnover of such firm in the last 3 FYs

Powers:
i. Verify claims of the creditors
ii. Evaluate the assets and property of the CD
iii. Take all the assets, property, effects and actionable claims of the CD into his custody
iv. Carry out the business of CD for its beneficiary liquidation
v. Make the Progress Report of the CD

Liquidation estate
The liquidator shall form an estate of assets, which will be called the liquidation estate in relation to the CD.

It comprises of:
 Any assets over which the CD has ownership rights, including shares held in any subsidiary
 Assets subject to the determination of ownership by the court or authority
 Assets that may or may not be in possession of the corporate debtor
 Tangible & intangible assets
 Any assets or their value recovered through proceedings for avoidance of transactions
 Any asset in respect of which a secured creditor has relinquished security interest
 Any other property belonging to or vested in the CD at the insolvency commencement date
 All proceeds of liquidation as and when they are realised

It does not comprise of:

 assets owned by 3rd party but in possession of the CD (including assets held in trust, bailment contracts, sums due to
any workman or employee from provident/ pension/ gratuity fund, other contractual arrangements for right to use and not transfer
of title and notified assets)
 assets of any Indian or foreign subsidiary of the CD
 assets in collateral security held by financial service providers
 personal assets of any shareholder or partner of a CD except held on account of avoidance transactions that
may be avoided
 Specified assets (including which could be set-off due to mutual dealings between the CD and any creditor)
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Consolidation of claim
The liquidator shall collect the claims of creditors within 30 days from the commencement of liquidation
process.
A FC may submit a claim to the liquidator by providing a record of such claim with an information
utility. Where the claim is not recorded in the information utility, the FC may submit the claim as an OC along
with supporting documents. Where a creditor is partly FC and partly OC, he shall submit claims separately.

A creditor may withdraw or vary his claim within 14 days of submission.

The liquidator may, after verification of claims, either admit or reject the claim in whole or part and
communicate his decision to the creditor and CD within 7 days of such admission or rejection.

Avoidance of Certain Transactions

Preferential transactions: Transfer of property (or an interest Undervalued transactions: CD
thereof) for the benefit of a creditor/ surety/ guarantor such that makes a gift to a person or transfers
the transfer puts such in a beneficial position than it would have asset(s) at significantly less
been in the event of a distribution of assets consideration (+) this conduct isn’t in
In such case, the liquidator or RP shall apply to the the ordinary course of business of the
Adjudicating Authority for avoidance of preferential CD
transactions among other orders. In such case, the liquidator
or RP shall apply to the Adjudicating
Exceptions: Authority to declare such
(a) Transfer made in the ordinary course of the business (of transactions as void and reverse their
CD/ transferee) effect. Otherwise, a creditor, member
(b) Transfer creating a security interest in property acquired by or a partner of the CD can make the
the CD to the extent that – application. (This may lead to
i. such security interest secures new value and was given initiation of disciplinary proceedings
at the time/ after signing of a security agreement against the liquidator or RP also.)
containing a description of such property and was used
by CD to acquire such property, and Transactions defrauding
ii. such transfer was registered with an IU within 30 days creditors: Undervalued transaction
after the CD received possession of such property (+) deliberately entered to defraud
(c) Transfer made in pursuance of a court order the creditor (i.e. not in good faith)
The Adjudicating Authority
Note – "New value" means money or its worth in goods/ shall restore the position as it existed
services/ new credit/ release of property by the transferee before such transaction as if the
previously transferred in a transaction that is neither void nor transaction had not been entered into
voidable by the liquidator or RP, including proceeds of such and protect the interests of persons
property, but does not include a financial/ operation debt or who are victims of such transactions.
operational debt substituted for existing financial debt.

Time Limits

Transferee is Related Party (other than employee) Transferee is not Related Party

2 years preceding insolvency 1 year preceding insolvency

commencement date commencement date

Extortionate credit transactions

If the CD has been a party to an extortionate credit transaction involving the receipt of financial or
operational debt within 2 years preceding the insolvency commencement date, the liquidator or RP, may
make an application to the Adjudicating Authority for avoidance of such transaction if the terms required
exorbitant payments to be made by the CD.
 Options to a Secured Creditor

Realise its security interest as per Sec 52 Relinquish

security
If in the course interest to the
Intimate Liquidator A secured Where the enforcement of
of realising a liquidation
the shall creditor may the security interest yields estate and
liquidator verify the enforce, secured asset, he an amount which is
faces resistance receive
existence realise, settle, proceeds from
of such compromise from the CD or
any person In excess Inadequate sale of assets
through or deal with as per Sec 53
the IU or the secured connected, he
other assets in may make an The unpaid debts
The secured
specified accordance application to of such secured
creditor shall
means with the Adjudicating creditor shall be
account and
applicable Authority. The paid in the
tender to the
laws and Adjudicating manner specified
liquidator
apply the Authority, on in Sec 53(1)(e)
such surplus
proceeds to the receipt of
recover the such application,
debts due to it. may pass CIRP costs due from such
necessary order. secured creditors shall be
deducted from the proceeds
and be transferred to the
liquidator to be included in
the liquidation estate.

Distribution of Assets [Sec 53]

CIRP & Liquidation costs

Workmen's dues for 24 months preceding the liquidation commencement date

AND Note – The fees
Debts owed to secured creditor if he has relinquished security as per Sec 52 payable to the
liquidator shall
Wages and any unpaid dues owed to employees (other than workmen) for 12 months be deducted
preceding the liquidation commencement date proportionately
from the
Financial debts owed to unsecured creditors proceeds
payable to each
Any amount due to CG or SG in respect of 2 years preceding the liquidation class of
commencement date recipients and
AND the proceeds to
Debts owed to a secured creditor for unpaid amount following the enforcement of the relevant
security interest recipient shall
be distributed
after such
Any remaining debts and dues
deduction.

Preference shareholders

Equity shareholders or partners

Dissolution
When the assets of the CD have been completely liquidated, the liquidator shall make an application to the
Adjudicating Authority for the dissolution of such corporate debtor.
The Adjudicating Authority shall on such application, order that the CD shall be dissolved from the
date of that order. A copy of such order shall be forwarded to the authority with which the corporate debtor is
registered within 7 days from such order.
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1.5 Fast Track Insolvency Resolution

Option available to
(a) CD with assets and income below the notified level
(b) CD with notified class of creditors or amount of debt
(c) Notified category of corporate persons [small company (u/s 2(85) of Companies Act,2013), start-up (other
than partnership firm; defined by Ministry of Commerce and Industry, unlisted company with total assets upto
Rs. 1 crore as per FS of immediately preceding the FY]

Time period
90 days from the insolvency commencement date
Extension – RP shall file an application to the Adjudicating Authority for extension if instructed to do so by
a resolution passed by 75% vote at a meeting of the CoC.: On receipt of an application, if the Adjudicating
Authority is satisfied it may by order extend by such further period, as it thinks fit, but not exceeding 45
days.
Procedure
An application for fast track corporate insolvency resolution process may be filed by
 Creditor
 CD

Supporting Documents
(a) Proof of the existence of default as evidenced by records available with an IU or other specified means
(b) Other specified information to establish that the CD is eligible for fast track CIRP

The process for conducting a corporate insolvency resolution process, shall apply mutatis mutandis to fast
track corporate insolvency resolution process.

1.6 Voluntary Liquidation when No Default [Sec 59]

A corporate person which has not committed any default may initiate voluntary liquidation proceedings, subject
to conditions and procedural requirements specified by the Board (IBBI).

Procedure
Company should first prepare declaration from majority of the directors verified by an affidavit stating –
(i) They have made a full inquiry into the affairs of the company and they have formed an opinion that either
the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in
the voluntary liquidation; and
(ii) Tthe company is not being liquidated to defraud any person

The declaration shall be accompanied with the following documents –

(i) Audited FS and record of business operations of the company for the previous 2 years (or since its
incorporation, if later)
(ii) Valuation report of the assets of the company prepared by a registered valuer

Within 4 weeks of the declaration, there shall be –

(i) SR requiring the company to be liquidated voluntarily, or
(ii) OR requiring the company to be liquidated voluntarily as a result of expiry of the period of its duration
fixed by its articles or on the occurrence of any event specifying that the company shall be dissolved
and
appointing an IP to act as the liquidator

If the company owes any debt to any person, then creditors representing 2/3rd in value shall need to approve
the resolution passed within 7 days of such resolution.

The Company shall notify the ROC and the IBBI about the resolution to liquidate the company within 7 days
of such resolution or the subsequent approval by the creditors, as the case may be.
 The voluntary liquidation proceedings in respect of a company shall be deemed to have commenced from the
date of passing of the resolution by members, subject to approval of creditors.

Where the affairs of the corporate person have been completely wound up, and its assets completely liquidated,
the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate
person.

The Adjudicating Authority shall on such application filed by the liquidator, pass an order that the CD shall
be dissolved from the date of that order.

A copy of the order shall be forwarded to the ROC within fourteen days from the date of such order.

1.7 Some Miscellaneous Points

Authorised Representatives
(6) If the terms as part of a consortium arrangement or syndicated facility provide for a single trustee or agent,
each financial creditor may –
(a) authorise the trustee to act on his behalf in the CoC to the extent of his voting share
(b) appoint an insolvency professional (other than the RP) at his own cost to represent himself in the CoC to the
extent of his voting share
(c) represent himself in the CoC to the extent of his voting share
(d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or
severally

(6A) Where a financial debt—

(a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a
trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall
act on behalf of such financial creditors;
(b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered
under section 21(6)(a), the interim resolution professional shall make an application to the Adjudicating
Authority along with the list of all financial creditors, containing the name of an insolvency professional,
other than the interim resolution professional, to act as their authorised representative who shall be
appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors;
(c) is represented by a guardian, executor or administrator, such person shall act as authorised representative
on behalf of such financial creditors,
and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the
committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.

Remuneration payable to the authorised representative –

(i) under clauses (a) and (c), if any, shall be as per the terms of the financial debt or the relevant documentation
(ii) under clause (b) shall be as specified which shall form part of the insolvency resolution process costs.

Voting by Authorised Representatives

 Duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of
creditors to the financial creditor he represents.
 Not act against the interest of the financial creditor he represents and shall always act in accordance with their
prior instructions
 If the authorised representative represents several financial creditors, then he shall cast his vote in respect of
each financial creditor in accordance with instructions received from each financial creditor, to the extent of
his voting share.
o If any financial creditor does not give prior instructions through physical or electronic means, the authorised
representative shall abstain from voting on behalf of such creditor.
o The authorised representative under section 21(6A) shall cast his vote on behalf of all the financial
creditors he represents in accordance with the decision taken by a vote of more than fifty per cent,
of the voting share of the financial creditors he represents, who have cast their vote. [Except for
withdrawal application under Sec 12A]

Resolution Plan
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Resolution plan means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor
as a going concern in accordance with Part II
Explanation – For the removal of doubts, it is hereby clarified that a resolution plan may include provisions
for the restructuring of the corporate debtor, including by way of merger, amalgamation and demerger.