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Getting your dues: Procedure for creditors to file under IBC

Getting your dues: Procedure for creditors to file under IBC

31, Aug 2019

Micro, Small and Medium Enterprises (MSME) have a duel battle to fight. One is growing competition and the other is a growing requirement of funds. Any irrecoverable debtor will have a considerable strain on the business of MSME. The recent Insolvency and Bankruptcy Code (IBC) has been a big sigh of relief for MSMEs, which would ensure the faster debt recovery or liquidation process. 

The IBC Law was brought about with the objective to ensure that ease of doing business greatly improves in India. This law has simplified the winding-up process in respect of companies, which was earlier fragmented due to multiplicity of statutes as well as forums. 

One of the main purposes of this code is to empower the creditor wherein he or she can get back the dues through the Corporate Insolvency Resolution Process (CIRP) or through liquidation of defaulting debtor entity. 

When does the Insolvency and Bankruptcy Code (IBC) apply?
The Insolvency and Bankruptcy code at present can only be triggered if there is a minimum default of Rs 1 lakh. This process can be triggered by way of filing an application before the National Company Law Tribunal (NCLT). The process can be initiated by two classes of creditors which would include financial creditors and operational creditors. But for the application to be admitted, the creditor will have to show that a requisite default is ascertainable. 

Another important aspect that has to be seen in respect of Insolvency and Bankruptcy Code (IBC) is that at present only companies (both private and public limited company) and Limited Liability Partnerships (LLP) can be considered as defaulting corporate debtors. This code also contains provisions in respect of individual insolvency, but these provisions have not been notified they have consequently not come into force yet. Therefore cases relating to unpaid debts against individuals and partnership firms would fall outside the purview of this code.

What happens once National Company Law Tribunal (NCLT) admits the application against defaulting debtor? 
As soon as the matter is admitted by the NCLT, the NCLT proceeds with the appointment of an Interim Resolution Professional (IRP) who takes over the management of the defaulting debtor. The Resolution Professional may then be continued or removed, contingent on the wishes of the Committee of Creditors (COC). The role of the Resolution Professional primarily entails making on efforts to ensure that the defaulting debtor should as far as possible continue to operate as a going concern. All efforts will be made to ensure that the maximum realization of debts can take place as a consequence of the Corporate Insolvency Resolution Process (CIRP) process. 

What is Corporate Insolvency Resolution Process (CIRP)?
The CIRP may include necessary steps to revive the company such as raising fresh funds for operation, looking for a new buyer to sell the company as going concern. The outstanding debts may be satisfied by way of another person submitting a Resolution plan to take over the Company and pay off the remaining debts. In the event a resolution plan is not submitted or not approved by the committee of creditors (COC), the CIRP process is deemed to have failed. In such a situation the liquidation proceedings would then commence subject to the order of the tribunal. 

Definite timeline for Resolution Plan
In light of the recent amendment to the code, for conducting the entire process a time period is specified which is 330 days. 

Will Limitation Period apply in IBC?
The Limitation period has been made applicable by the insertion of section 238A in the IBC. The earlier view was that this would be applicable only for cases arising after the amendment. But the Supreme Court has clarified that this would be applicable to old cases as well. But like any other suit, the limitation period can be condoned by the appropriate authority. 

Who bears the cost of Resolution process?
Another important question that arises is who is responsible for incurring the expenses of the Resolution Process while the CIRP is in effect? It is the applicant creditor who would incur the expenses of the Resolution Professional which is otherwise known as Resolution Costs. But such an applicant would be reimbursed at a later stage at the time of approval of Resolution Plan or at the time of Liquidation. 

Abhay Chandalia is Co-founder, Share Samadhan Private Limited. It is India’s leading Investment & Debtor recovery company focusing on the recovery of Lost / Forgotten / Blocked or Old Investment and can be found at www.sharesamadhan.com 

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