Complete Overview of the CIRP Process Under IBC

Introduction

Corporate insolvency is a crucial challenge for businesses globally. In India, the CIRP process under IBC (Insolvency and Bankruptcy Code, 2016) has redefined the way financial distress is handled. The implementation of the IBC provides a clear framework for addressing corporate insolvency cases, ensuring a faster resolution and protection for creditors, employees, and other stakeholders.

Before the IBC, distressed companies faced unstructured and prolonged legal battles, making it difficult to resolve financial issues promptly. However, under the CIRP process under IBC, India now boasts a more transparent and time-bound system for resolving insolvency.

For example, a leading manufacturing firm may experience severe liquidity issues due to market volatility, with mounting debts. Previously, such a firm would have languished in a protracted legal process. However, today, the CIRP process under IBC offers a structured framework that ensures a faster resolution, either by enabling business revival or by moving to liquidation with clear guidelines for asset distribution.

This process has emerged as a key tool in managing corporate insolvency in India, helping stakeholders recover dues efficiently while protecting businesses’ long-term viability.

What is the CIRP Process Under IBC?

It refers to a systematic framework for resolving corporate insolvency under the Insolvency and Bankruptcy Code, 2016. It ensures the timely resolution of distressed companies within a strict timeline of 180-330 days, depending on the complexity of the case. The process prioritizes the interests of creditors and other stakeholders, aiming for a solution that either revives the company through restructuring or leads to its liquidation under the IBC compliance framework.

Key Objectives of the CIRP Process:

1. Reviving Distressed Companies: By providing a chance for restructuring and business continuity.
2. Maximizing Asset Value: Ensures assets are used efficiently to benefit creditors.
3. Minimizing Legal Delays: Prevents the lengthy litigation that historically delayed insolvency resolution in India.

Example: A real estate firm burdened with unpaid loans and project delays can leverage the CIRP process under IBC to enter into a resolution plan with creditors, thus avoiding liquidation and continuing operations.

Key Stages of the CIRP Process:

The CIRP process under IBC involves several crucial stages designed to ensure effective resolution or liquidation of a distressed company.

1. Filing of CIRP Application

• Who Can File?
  The application can be filed by creditors (both financial and operational), the corporate debtor, or their authorized representatives.
  
• Documents Required:
  Financial documents, debt statements, and proof of default.
  

2. Admission & Moratorium

• NCLT Admission:
  The National Company Law Tribunal (NCLT) reviews the application within 14 days.
• Moratorium:
  Once admitted, a moratorium is imposed, freezing any legal actions or claims against the company for the duration of the CIRP process under IBC.

3. Appointment of Resolution Professional (RP)

• The RP is appointed to oversee the resolution process, taking control of the company’s affairs and working to find solutions.

4. Public Announcement & Claims Verification

• The RP invites creditors to submit their claims, verifying liabilities and assets.

5. Formation of the Committee of Creditors (CoC)

• CoC Formation:
  The Committee of Creditors (CoC) is formed, consisting of the company’s financial creditors. This committee has a pivotal role in approving the resolution plan.

6. Submission and Approval of Resolution Plan

• Resolution Plan:
  Bidders submit their plans for business revival, which are then reviewed by the CoC and NCLT for approval.

7. Liquidation (if no resolution is found)

• If no resolution plan is approved, the company enters liquidation, and assets are distributed among creditors according to the IBC waterfall mechanism.

Who Can Initiate CIRP?

The CIRP process under IBC can be initiated by:

• Financial Creditors:
  Banks, NBFCs, bondholders, and other lenders with debts exceeding ₹1 crore.
  
• Operational Creditors:
  Suppliers, service providers, and employees with overdue payments.
  
• Corporate Debtor:
  The company itself can also initiate the process.
  

Example: Over 85% of CIRP cases under IBC are initiated by financial creditors, typically due to unpaid debts.

Role of the Resolution Professional (RP) in CIRP

The Resolution Professional (RP) plays a critical role throughout the CIRP process under IBC:

1. Takes control of the company’s management and operations.
2. Prepares the Information Memorandum, which includes details of the company’s financials.
3. Evaluates bids and resolution plans.
4. Conducts meetings with the Committee of Creditors (CoC).
5. Ensures compliance with IBC law and timelines.

Benefits of a Skilled RP:

• The experience and expertise of the RP directly influence the success rate of CIRP cases, improving resolution outcomes and reducing the likelihood of liquidation.

Timeframe and Legal Compliance in CIRP

The CIRP process under IBC operates within strict timelines to ensure timely resolution:

1. Initiation & Admission: 14 days
2. Moratorium & RP Appointment: 30 days
3. Resolution Plan Submission: 180 days (extendable to 330 days)
4. Approval by NCLT: Final approval is granted within the allotted timeframe.

Impact of CIRP on Creditors and Stakeholders

• Banks & Lenders:
  They recover dues faster and with more certainty, reducing the financial strain.
  
• Employees:
  Employees benefit from structured payouts, although job security may be uncertain during the resolution phase.
  
• Suppliers & Vendors:
  Receive clarity on outstanding payments and their respective recovery.
  
• Shareholders:
  Shareholders may experience dilution or restructuring of their holdings, depending on the resolution plan.

How to File an Application for CIRP?

1. Gather Documents:
   Collect financial records, debt statements, and evidence of default.
   
2. File Form 1 with NCLT:
   Submit the application to NCLT, along with supporting documentation.
   
3. NCLT Review:
   The NCLT verifies the application within 14 days and either accepts or rejects it.
   
4. Initiation of CIRP:
   Upon acceptance, the CIRP process under IBC officially begins.

Future Scope of CIRP Process & Market Trends

1. Increased Adoption in MSMEs:
   The trend of pre-packaged insolvency solutions for MSMEs is expected to grow in FY 2024-25.
   
2. Challenges:
   Issues such as bidder scarcity and legal complexities continue to affect the process, especially in distressed asset valuations.
   
3. Increased CIRP Cases:
   The rising economic stress, coupled with the growing number of distressed companies in sectors like real estate and infrastructure, is expected to drive a 40% increase in CIRP filings in the coming fiscal year.

Conclusion

The CIRP process under IBC has transformed the landscape of corporate insolvency in India. By offering a structured, time-bound mechanism, it ensures quicker resolutions, greater creditor protection, and an organized liquidation process. Over the past few years, this process has not only restored many businesses but has also protected the interests of creditors and stakeholders alike.

RegisterKaro’s Role in CIRP Process

RegisterKaro helps businesses navigate the complex CIRP process under IBC by offering:

1. Legal Consultation & CIRP Filing
2. Liaison with NCLT and IBBI Authorities
3. Resolution Plan Drafting & Compliance Support

For expert assistance in navigating the CIRP process under IBC, contact us today at support@registerkaro.in or call us at +918447746183.

Frequently Asked Questions (FAQs)

1. How long does the CIRP process take?
   Typically, the CIRP process under IBC lasts 180 days, extendable up to 330 days.
   
2. What happens if no resolution plan is approved?
   If no resolution plan is approved, the company proceeds to liquidation.
   
3. Can a company voluntarily apply for CIRP?
   Yes, a company can self-initiate the CIRP process  under IBC.
   
4. Who can initiate CIRP?
   Financial creditors, operational creditors, or the corporate debtor can initiate CIRP.
   
5. What is the role of the Resolution Professional?
   The Resolution Professional (RP) takes control of the company’s affairs and ensures compliance with the CIRP process under IBC.