IBBI Limited Insolvency cheat sheet

Framework statutes: the Insolvency and Bankruptcy Code, 2016 (IBC) is operationalised by the CIRP Regulations 2016, Liquidation Process Regulations 2016, Insolvency Professionals Regulations 2016, IU Regulations 2016, and the IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations 2016; adjudication sits with NCLT (companies/LLPs) and DRT (individuals/partnerships), with NCLAT and the Supreme Court in appeal.

Who may initiate: a financial creditor, an operational creditor, or the corporate debtor itself files under Section 7, 9, or 10 respectively. Section 7 and 9 require a default of at least Rs 1 crore (threshold raised from Rs 1 lakh by notification in March 2020); Section 10 has no separate creditor threshold but requires the corporate debtor to show default.

Section 7 admission test: NCLT admits on existence of a financial debt and default, and must decide within 14 days of filing (extendable where the application is incomplete or defective). Section 9: the operational creditor serves a demand notice under Section 8; the corporate debtor has 10 days to pay or show a pre-existing dispute. A genuine pre-existing dispute is a complete defence to Section 9, per Mobilox Innovations v. Kirusa (SC, 2017).

Section 10 (self-initiation): available only to a corporate debtor, requires a special resolution or 3/4 partner approval, and the corporate debtor must not have undergone CIRP in the preceding 3 years. Unlike Sections 7 and 9, Section 10 admission is discretionary and can be refused for mala fides.

Moratorium under Section 14 begins on the insolvency commencement date and bars institution/continuation of suits, execution of judgments, transfer/encumbrance of assets, and recovery or enforcement of security interest; it does not extinguish the debt or bar proceedings against guarantors (State Bank of India v. V. Ramakrishnan, SC 2018).

Timeline: CIRP must be completed within 330 days including extensions and litigation (Section 12, as amended), and the resolution plan must be approved by the CoC with at least 66% voting share (Section 30(4)). If no plan is approved, the corporate debtor goes to liquidation under Section 33.

Section 29A ineligibility: a resolution applicant is ineligible if it is an undischarged insolvent, a wilful defaulter, disqualified under Section 29A clauses, or a promoter/management of a corporate debtor that has failed to resolve a stressed asset for over a year; connected persons are also covered.

Section 53 waterfall (liquidation): CIRP costs, then workmen dues (up to 24 months) and secured creditors (who may realise or relinquish security), then employee wages (up to 12 months), then financial creditors (unsecured), then government dues and secured creditor shortfall, then remaining debts, then preference/shareholders, then surplus to the corporate debtor.

Limitation: the Limitation Act, 1963 applies to IBC proceedings (B.K. Educational Services v. Parag Gupta, SC 2018), so the default must fall within the applicable limitation period unless extended.

Insolvency professional registration: an individual must clear the Limited Insolvency Examination (LIE) with at least 60% to be eligible for registration as an insolvency professional (IP) with IBBI, and must maintain that registration, comply with the Code of Conduct in the IP Regulations 2016, and hold a valid authorisation for assignment (AFA) to take fresh assignments.

IUs and IPAs: Insolvency Professional Agencies (IPAs) are registered with IBBI and admit IPs as professional members; IPs must be members of at least one IPA. Information Utilities (IUs) are registered under the IU Regulations 2016 and store financial information and default records submitted by creditors.

CoC voting: financial creditors vote in proportion to their financial debt; operational creditors and unsecured creditors without a vote in the CoC do not vote. Decisions require 51% unless a higher threshold is specified (e.g., 66% for resolution plan approval and certain Section 28 actions).

Resolution plan content: Section 30(2) requires payment of CIRP costs, payment of operational creditors at not less than liquidation value, payment of dissenting financial creditors at not less than liquidation value, and management capability; the plan must be submitted to NCLT for approval under Section 31.

Section 32A and Section 31 immunity: an approved resolution plan binds all stakeholders, and Section 32A grants immunity from prosecution for offences committed prior to the commencement of CIRP to the corporate debtor and its acquirers, subject to conditions and cooperation with investigation.

Liquidation process: the liquidator is appointed under Section 34, must complete the process within one year (extendable with CoC/NCLT approval), prepares a liquidation estate under Section 36, and can sell assets via auction; the liquidation value is distributed per Section 53.

Avoidance transactions: the resolution professional/liquidator must apply for avoidance of preferential transactions (Section 43), undervalued transactions (Section 45), extortionate credit transactions (Section 50), and fraudulent trading (Section 66); look-back periods are 2 years for related persons and 1 year for unrelated persons.

Pre-packaged insolvency resolution process (PPIRP) for MSMEs: introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2021, with a base resolution plan by the debtor and a 120-day process; the debtor remains in possession, and the CoC approves the plan by 66%.

Individual insolvency: Part III of the IBC provides fresh start (for debtors with assets below a threshold), insolvency resolution process, and bankruptcy; the adjudicating authority is the DRT, and the process is governed by the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 for personal guarantors to corporate debtors.