{"id":57510,"date":"2023-06-03T10:15:45","date_gmt":"2023-06-03T04:45:45","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=57510"},"modified":"2023-06-01T16:52:07","modified_gmt":"2023-06-01T11:22:07","slug":"what-is-the-meaning-of-corporate-insolvency-resolution-process-cirp","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/what-is-the-meaning-of-corporate-insolvency-resolution-process-cirp\/","title":{"rendered":"What is the Meaning of Corporate Insolvency Resolution Process (CIRP)?"},"content":{"rendered":"\n<p>The main behind enacting the Insolvency and Bankruptcy Code of 2016 was to combine and amend such laws that relate to the reorganization and insolvency resolution of corporate persons, <strong><a href=\"https:\/\/corpbiz.io\/partnership-firm-registration\">partnership firms<\/a><\/strong>, and individuals in a timely manner in order to maximize the value of such person\u2019s assets, to encourage entrepreneurship, increase access to credit, and balance the stakeholder&#8217;s interest, including changing the order of priority for payment of government dues and establishing. The term &#8220;Corporate Insolvency Resolution Process&#8221; (CIRP) refers to insolvency proceedings involving corporations. Under this procedure, any corporate debtor who defaults would permit a financial creditor, an operational creditor, or the corporate debtor itself to start a corporate insolvency resolution process in relation to that corporate debtor. The creditors of the corporate debtor can recover money through the Corporate Insolvency Resolution Process (CIRP). A corporation or <strong><a href=\"https:\/\/corpbiz.io\/llp-registration\">Limited Liability Partnership<\/a><\/strong> (LLP) that owes money to its creditors is referred to as a corporate debtor.<\/p>\n\n\n\n<p>The\nrequirements for conducting insolvency or bankruptcy of individuals,\npartnership firms, LLPs, and enterprises are laid forth in <strong>the Insolvency and Bankruptcy Code, 2016<\/strong><sup><a href=\"https:\/\/www.indiacode.nic.in\/bitstream\/123456789\/2154\/1\/AA31__2016.pdf\"><strong>[1]<\/strong><\/a><\/sup>\n(the &#8220;IBC&#8221;). However, the IBC&#8217;s bankruptcy and liquidation procedures\nfor corporate debtors only apply when there is a minimum default amount of Rs.\n1 crore.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/what-is-the-meaning-of-corporate-insolvency-resolution-process-cirp\/#What_is_Corporate_Insolvency_Resolution\" >What is Corporate\nInsolvency Resolution?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/what-is-the-meaning-of-corporate-insolvency-resolution-process-cirp\/#Who_are_Financial_Creditors\" >Who are\nFinancial Creditors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/what-is-the-meaning-of-corporate-insolvency-resolution-process-cirp\/#Who_are_Operational_Creditors\" >Who are\nOperational Creditors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/what-is-the-meaning-of-corporate-insolvency-resolution-process-cirp\/#Steps_Involved_In_Corporate_Insolvency_Resolution_Process\" >Steps Involved\nIn Corporate Insolvency Resolution Process<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/what-is-the-meaning-of-corporate-insolvency-resolution-process-cirp\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Corporate_Insolvency_Resolution\"><\/span>What is Corporate\nInsolvency Resolution?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Companies\ntake loans from creditors or operational creditors, and they are required to\nrepay the loan amount within the specified time. Now, if the company cannot pay\noff the debt within the specified time, the loan becomes due. Therefore, in the\nprevious time, if the company was unable to pay the debts, then there was a\nconcept of the company winding up, but due to this economy suffered huge\nlosses. To eradicate the concept of winding up due to non-payment to creditors,\nthe Corporate Insolvency Resolution Process (CIRP) was brought.<\/p>\n\n\n\n<p>With\nthis process, if the company is unable to pay off the debts, then some other company\nor individual can pay the company&#8217;s debts and acquire the company. This helped\nin the revival of the company. After this, default in payment to the creditors\nis no longer a ground for company winding up, and in place of this, the process\nof CIRP has been inserted. Now, as the loan repayment time limit is passed, and\nthe company has made default, the financial and operational creditor can file\nthe application for repayment of their money to the NCLT with proof of such\ndefault proposed interim resolution professional for carrying out the process\nof CIRP.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_are_Financial_Creditors\"><\/span>Who are\nFinancial Creditors?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nfinancial creditor is an individual or company to whom the opposite party owns\na certain amount of money. These are generally banking institutions that\nprovide loans to companies for business expansion.<\/p>\n\n\n\n<p><strong>Documents\nRequired By Financial Creditors to Submit For Repayment:<\/strong><\/p>\n\n\n\n<p>These\nare the documents submitted by the financial creditors along with the\napplication to the NCLT for repayment of their loan amount:<\/p>\n\n\n\n<ul><li>Any such document can be\nused as evidence of the default committed by the company.<\/li><li>They are also required to\npropose a name of any such officer that can act as an interim resolution\nprofessional.<\/li><li>Other information or\ndocuments as the board may require.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_are_Operational_Creditors\"><\/span>Who are\nOperational Creditors?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Operational\ncreditors are not any financial institutions; they are the normal people who\nhave provided a loan to the company for any specific reason. They may be\nemployees, government, vendors, suppliers, etc.<\/p>\n\n\n\n<p><strong>Documents\nRequired By Operational Creditors to Submit For Repayment<\/strong><\/p>\n\n\n\n<p>These\nare the documents submitted by the operational creditors along with the\napplication to the NCLT for repayment of their loan amount:<\/p>\n\n\n\n<ul><li>Copy of the invoice or\ndemand letter that the operational creditor has sent to the business debtor.<\/li><li>An affidavit showing that\nthe corporate debtor has not provided notice of a dispute about the outstanding\noperating debt.<\/li><li>If available, a copy of\nthe certification from the financial institutions managing the operational\ncreditor&#8217;s accounts stating that the corporate debtor has not paid any\noutstanding operational debts.<\/li><li>A copy of any information\nutility report that, if available, confirms that the corporate debtor has not\npaid any outstanding operating debts.<\/li><li>Any additional evidence\nmust be that show that the corporate debtor has not paid any outstanding\noperating debt amount or any other document as prescribed by the Central\nGovernment.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Steps_Involved_In_Corporate_Insolvency_Resolution_Process\"><\/span>Steps Involved\nIn Corporate Insolvency Resolution Process<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here\nare the steps involved in Corporate Insolvency Resolution Process:<\/p>\n\n\n\n<ul><li><strong>Filing an Application to the NCLT<\/strong><\/li><\/ul>\n\n\n\n<p>Firstly,\nfile an application to the NCLT for repayment of the outstanding by the\ncreditor. Along with the application, the creditor is also required to submit\nany other document that can be used as evidence to ascertain that the company\nhas not made any repayment of the outstanding loan amount. Moreover, the\ncreditor is also required to propose a name of an individual who can work as an\ninterim resolution professional. <\/p>\n\n\n\n<p>On\nreceiving the application, the NCLT will check the application and the\nbackground of the person whose name has been suggested for becoming an interim\nresolution professional. If the NCLT is satisfied with the application, they\nwill proceed. If some mistakes are found, NCLT will send a notice to the\napplicant, ask him to correct the errors, and send it back within seven days of\nintimation.<\/p>\n\n\n\n<ul><li><strong>Commencement Date of CIRP <\/strong><\/li><\/ul>\n\n\n\n<p>This\nis the date on which the <strong>Corporate Insolvency Resolution Process<\/strong> admits\nthe application of the creditor. It is the process of CIRP that the entire\nresolution of the company shall be completed within 180 days which may be\nextended to not more than 90 days if approved by the NCLT. Now, this time\nperiod starts on the date of commencement of <strong>Corporate Insolvency Resolution\nProcess<\/strong>, that is, the date on which the NCLT admits the application. <\/p>\n\n\n\n<ul><li><strong>Interim Resolution Professional Is Appointed For an Interim Period<\/strong><\/li><\/ul>\n\n\n\n<p>The\nboard of directors is reviewed before a corporate debtor is admitted to the\nCIRP (Corporate Insolvency Resolution Process). Additionally, the management is\nentrusted to a neutral &#8220;interim resolution professional&#8221;. The\nmanagement loses all control over the operations of the firm starting at this\npoint and continuing through the completion of the CIRP (Corporate Insolvency\nResolution Process).<\/p>\n\n\n\n<ul><li><strong>Moratorium<\/strong><\/li><\/ul>\n\n\n\n<p>This\nis a process under which all the company transactions are seized, including all\nthe civil proceedings, execution of the decree, and order. Moreover, any\napplication or proceedings on account of the recovery of shares cannot be\ninitiated. <\/p>\n\n\n\n<ul><li><strong>Verification of Claims <\/strong><\/li><\/ul>\n\n\n\n<p>The\nappointed interim resolution professional verifies and complies with the claims\nof the creditors and makes a record. Moreover, he incorporates a committee of\ncreditors. This company generally involves financial creditors, but if there\nare no financial creditors in the company, then the top 18<sup>th<\/sup> largest\noperational creditors, based on the value of their debts, one representative of\nworkmen and one representative of employees, will form the committee.&nbsp; <\/p>\n\n\n\n<ul><li><strong>Appointment of Resolution Professional<\/strong><\/li><\/ul>\n\n\n\n<p>After\nmaking the Committee of Creditors, the first resolution will be passed\nregarding the appointment of a Resolution Professional during the committee&#8217;s\nfirst meeting. It says \u201cwhether this interim resolution professional is fit for\nthe purpose of continuing as a resolution professional\u201d. Now, the committee,\nwith 66% of the majority, will decide whether the interim resolution\nprofessional will continue as resolution professional or not. If the majority\nfavours the interim resolution professional, he will continue being a\nresolution professional and carry on the further process. Suppose the committee\ndoes not want the interim professional to serve as the insolvency resolution\nprofessional. In that case, they will recommend the name of the new\nprofessional to the NCLT, and the new resolution professional will be appointed\nif the NCLT is satisfied by the name suggested by the creditor\u2019s committee. <\/p>\n\n\n\n<ul><li><strong>Information Memorandum<\/strong><\/li><\/ul>\n\n\n\n<p>Now,\nthe appointed resolution professional will prepare the information memorandum\ncontaining details of all the assets, liabilities, and other important details\nabout the company. He is also required to verify the claims of the creditors.<\/p>\n\n\n\n<ul><li><strong>Resolution Applicant<\/strong><\/li><\/ul>\n\n\n\n<p>A\nresolution applicant is a person who decides to take over the company after\npaying off all the company liabilities. He checks the information memorandum of\nthe company prepared by the resolution professional, and on the basis of this\nmemorandum, he prepares a resolution plan and submits it to the insolvency\nresolution professional. <\/p>\n\n\n\n<ul><li><strong>Resolution Plan<\/strong><\/li><\/ul>\n\n\n\n<p>The\nresolution professional checks whether all the requirements, such as payment of\nthe cost of CIRP, repayment of the full amount of debt of the financial and\noperational creditors, and correct implementation of the resolution plan, are\nfulfilled. If all the requirements are fulfilled in the resolution plan, and\nthe resolution professional is satisfied, he will place this plan before the\ncommittee of creditors. <\/p>\n\n\n\n<p>Now,\nin order to approve the plan, the committee must have 66% of the majority to\npass the resolution if they find that the resolution plan can satisfy all the\ndebts and be in accordance with the law. After approval from the committee, the\nresolution professional will send the plan to the NCLT for final approval.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">If NCLT Approves the Resolution Plan<\/h3>\n\n\n\n<p>The\nNCLT will give final approval if all the required conditions are fulfilled in\nthe plan, such as:<\/p>\n\n\n\n<ul><li>CIRP Cost <\/li><li>Repayment of debt<\/li><li>Proper implementation <\/li><\/ul>\n\n\n\n<p>Once\nthe NCLT approves the plan, it will be binding on everyone. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">If NCLT Does Not Approve the Resolution Plan<\/h3>\n\n\n\n<p>The\nNCLT will not approve the resolution plan if it lacks something or if it does\nnot fulfil all the required criteria. If NCLT rejects the plan, they will order\nthe company for liquidation, where the company&#8217;s revival and existence will\nend. Herein, all the company&#8217;s assets will be sold, and the revenue generated\nwill be used for repayment of debts, and the company will dissolve. This is the\nlast step when no option is left, and the company does not have the funds to\noperate further. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Corporate Insolvency Resolution Process is the process of saving a company from dissolution as to save the company and the economy of the company. A vast process is involved, which initiates when the creditors whose debts are unpaid within a period file an application to the NCLT for recovery of their amount. An insolvency resolution professional is appointed who takes care of the whole process.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read Our Article<\/b>: <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/understanding-the-process-of-winding-up-a-company-in-india\/\">Understanding The Process Of Winding Up A Company In India<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The main behind enacting the Insolvency and Bankruptcy Code of 2016 was to combine and amend such laws that relate to the reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a timely manner in order to maximize the value of such person\u2019s assets, to encourage entrepreneurship, increase access to credit, and [&hellip;]<\/p>\n","protected":false},"author":59,"featured_media":57532,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[3715],"tags":[3716],"acf":{"service_id":"3"},"authorName":"Anushka Saxena","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2023\/02\/MicrosoftTeams-image-109.jpg","authorDescription":"Anushka Saxena is a final year law student from Indore Institute of Law. She is an hardworking, dedicated and fun-loving person. Her area of interest lies in corporate laws and IPR.","postViews":3831,"readingTime":6,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/57510"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=57510"}],"version-history":[{"count":2,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/57510\/revisions"}],"predecessor-version":[{"id":57514,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/57510\/revisions\/57514"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/57532"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=57510"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=57510"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=57510"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}