IIBF Resolution of Stressed Assets cheat sheet

IBC 2016 came into force on 1 December 2016; the Code applies to companies, LLPs, individuals and partnership firms, but individual/partnership insolvency provisions were notified only from 1 December 2019.

Corporate insolvency is triggered only by a financial creditor, operational creditor or the corporate debtor itself, and only on a 'default' - defined in s.3(12) as non-payment of a debt that is due and payable, with no minimum threshold for a financial creditor filing.

For operational creditors, s.4 prescribes a minimum default threshold of Rs 1 crore (raised from Rs 1 lakh by notification in March 2020) before an application can be admitted.

A financial creditor files under s.7, an operational creditor under s.9 (after a 10-day demand notice under s.8), and the corporate debtor itself under s.10; s.11 bars a corporate debtor from filing under s.10 if it has undergone CIRP in the preceding 12 months.

Admission under s.7(5) requires the NCLT to be satisfied that a default has occurred and the application is complete; the Supreme Court in Innoventive (2018) held the adjudicating authority must admit once default is shown, with limited scope to look behind the debt.

On admission, s.14 imposes a moratorium on institution or continuation of suits, execution of judgments, and transfer/encumbrance of assets by the corporate debtor; s.14(1)(a) bars proceedings against the corporate debtor, not against its promoters or guarantors.

The CIRP must be completed within 330 days including extensions and any litigation (s.12, as amended in 2019); failure leads to liquidation under s.33, unless the CoC decides to extend or the corporate debtor is referred to a resolution plan.

The resolution professional is appointed by the NCLT and confirmed by the Committee of Creditors; the RP takes over management of the corporate debtor under s.17 and prepares the information memorandum under s.29.

A resolution plan must be approved by at least 66% of the voting share of the CoC (s.30(4) read with Regulation 39 of the CIRP Regulations), and is then submitted to the NCLT for approval under s.31, which binds all stakeholders including dissenting creditors and the corporate debtor.

The CoC under s.21 comprises financial creditors; where a class of creditors is represented by an authorised representative (e.g. homebuyers, debenture holders), the AR votes on their behalf under s.25A.

Voting is by value, not headcount: a financial creditor's voting share equals its financial debt divided by the total financial debt of all financial creditors (Regulation 21 of the CIRP Regulations).

A resolution plan must provide for payment of CIRP costs in priority, and must not contravene any provision of law; s.30(2) requires the RP to check that it provides for operational creditors' dues at least equal to what they would receive in liquidation.

The Supreme Court in Essar Steel (2019) held that the CoC's commercial decision to distribute proceeds between financial and operational creditors is not open to judicial review under s.30(2), and that the NCLT/NCLAT cannot rewrite the plan.

Section 29A bars a resolution applicant who is an undischarged insolvent, a wilful defaulter, a promoter of the corporate debtor, or a person convicted of an offence, from submitting a resolution plan; the bar extends to connected persons.

Section 53 sets the waterfall for liquidation proceeds: insolvency resolution costs and liquidation costs first, then secured creditors and workmen dues (24 months), then employee wages (12 months), then financial creditors (unsecured), then government dues, then other creditors.

Section 36 excludes certain assets from the liquidation estate, including assets owned by third parties, assets subject to a trust, and personal assets of the corporate debtor's promoters.

A resolution plan approved under s.31 is binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders; the NCLT order is a decree of court and can be enforced as such.

The Code's first schedule to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 prescribes the format of the information memorandum and the resolution plan.

The Insolvency and Bankruptcy Board of India (IBBI) is the regulator under s.188; it registers insolvency professionals, insolvency professional agencies, and information utilities, and frames regulations under s.196.

Insolvency professionals are regulated by IBBI and must be members of a registered insolvency professional agency; their fees are set by the CoC, not by the Code.

The National Company Law Tribunal (NCLT) is the adjudicating authority for companies and LLPs; the Debt Recovery Tribunal (DRT) is the adjudicating authority for individuals and partnership firms; appeals lie to NCLAT and then to the Supreme Court.

The NCLAT hears appeals from NCLT orders within 30 days (extendable by 15 days on sufficient cause); the Supreme Court hears appeals from NCLAT under s.62.

Pre-packaged insolvency resolution (Chapter III-A, inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2021) is available only to MSMEs, with a base resolution plan prepared by the debtor and approved by the CoC before filing.

The Code provides for a 'fresh start' and 'summary resolution' process for individuals and partnership firms with assets below a prescribed threshold, notified by the Central Government.

Section 12A permits withdrawal of a CIRP application with the approval of 90% of the CoC, following the Supreme Court's decision in the Swiss Ribbons case (2019) which read down the earlier requirement.

The Code's objective, as stated in the Preamble, is to consolidate and amend the law relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets.

Cross-border insolvency provisions (Part Z, ss.234-235) are not yet operational; India has not adopted the UNCITRAL Model Law on Cross-Border Insolvency, though the Code empowers the Central Government to enter into bilateral agreements.

A financial creditor's claim must be supported by records of the debt; an operational creditor must first deliver a demand notice under s.8(1) in the prescribed Form 3 or 4, and the corporate debtor has 10 days to reply.

The corporate debtor can escape admission if it shows the existence of a pre-existing dispute (the 'existence of dispute' defence, recognised in Mobilox Innovations v. Kirusa Software, 2017) - the dispute must be genuine and not spurious.

The information utility (NeSL is the registered IU) is the designated repository for financial information; a financial creditor can rely on IU records to establish default under s.7.

The RP must constitute the CoC within 30 days of the insolvency commencement date, and the first CoC meeting must be held within 7 days of its constitution (Regulation 19 of the CIRP Regulations).

The RP must publish a public announcement inviting claims within 3 days of appointment, and claims must be submitted within 14 days of the public announcement (Regulations 6 and 12 of the CIRP Regulations).

A resolution plan submitted to the NCLT must be accompanied by the CoC's approval with a 66% vote and the RP's certification that the plan meets the requirements of s.30(2); the NCLT has 30 days to approve or reject.

Section 32A grants immunity to the corporate debtor and its resolution applicant from prosecution for offences committed before the commencement of CIRP, provided the plan is approved and the applicant is not a party to the offence.

The 'look-back' period for avoidance transactions under ss.43-51 is 2 years for preferential transactions and 1 year for undervalued transactions (from the insolvency commencement date), and the RP must file avoidance applications.

Section 43 covers preferential transactions; s.45 covers undervalued transactions; s.49 covers transactions defrauding creditors; s.66 covers fraudulent trading and wrongful trading, which can lead to personal liability of directors.

A transaction can be avoided if it was entered into during the look-back period and the corporate debtor was unable to pay its debts at the time; the RP can apply to the NCLT for avoidance orders under s.44 or s.48.

The 'related party' definition under s.5(24) is broad and includes promoters, directors, holding/subsidiary companies, and persons associated with them; related-party resolution applicants are barred under s.29A.

Section 29A(c) bars a person who is a promoter or in management of a corporate debtor that is a non-performing asset for more than one year, from submitting a resolution plan.

The Code's first schedule to the CIRP Regulations prescribes the manner of inviting resolution plans; the RP must issue a request for resolution plans (RFRP) with a timeline and evaluation matrix.

The CoC can approve a plan even if it does not maximise value immediately, provided it is the best available option; the Supreme Court in the Essar Steel case upheld the CoC's primacy in commercial decisions.

The Code provides for a 'reverse CIRP' or pre-pack for MSMEs under Chapter III-A, where the debtor prepares a base resolution plan and the CoC approves it before the NCLT admits the application.

The IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 were amended in 2020 to require the RP to seek the CoC's approval for the plan within 165 days of the insolvency commencement date.

Section 60(5) gives the NCLT jurisdiction to entertain applications by or against the corporate debtor, including questions of priorities and claims, but the Supreme Court in Gujarat Urja (2021) held this does not extend to contractual disputes unrelated to insolvency.

The 'insolvency commencement date' is the date of admission of the application by the NCLT (s.5(12)); the 'insolvency resolution process period' runs from that date until the plan is approved or liquidation is ordered.

A resolution plan can include a 'haircut' on secured creditors and can restructure debt, but it must be approved by the CoC and must not violate any law; the NCLT cannot modify the plan's commercial terms.

Section 31(4) provides that the NCLT order approving the plan is binding on all stakeholders, including the Central Government, State Governments and local authorities, in respect of claims arising out of the plan.

The Code's third schedule to the CIRP Regulations prescribes the format for the resolution plan; the plan must include a statement of the assets and liabilities of the corporate debtor.

The 'waterfall' under s.53 applies to liquidation, but in CIRP the CoC has discretion to distribute proceeds among creditors, subject to the plan being approved by 66% and meeting the s.30(2) conditions.

The Supreme Court in the Swiss Ribbons case (2019) upheld the constitutional validity of the Code, including the differential treatment of financial and operational creditors and the s.29A bar.

The Code's 'creditor-led' model gives primacy to the CoC, which is a body of financial creditors; operational creditors have no vote in the CoC but are protected by the s.30(2) minimum-liquidation-value test.

The Code's timeline for CIRP is 180 days from the insolvency commencement date, extendable by 90 days by the CoC (s.12(2)), and the 330-day outer limit includes extensions and litigation (s.12(3)).

The RP must submit the resolution plan to the NCLT within 30 days of CoC approval; the NCLT has 30 days to approve or reject the plan (s.31(1)).

If no plan is approved within the CIRP period, the NCLT orders liquidation under s.33, and the RP becomes the liquidator unless replaced by the CoC.

The liquidator must publish a public announcement inviting claims within 5 days of the liquidation order and must prepare a liquidation estate inventory; the sale of assets is by public auction or private sale with CoC approval.

Section 52 gives secured creditors the option to realise their security interest outside the liquidation waterfall, by enforcing it in accordance with the SARFAESI Act or the DRT, but they must relinquish their claim on the liquidation estate.

The Code's 'first charge' principle under s.53 places secured creditors and workmen dues above unsecured financial creditors, but the Supreme Court in the Rainbow Papers case (2022) held that statutory dues of the government can rank as secured creditors if they have a first charge.

The IBBI (Liquidation Process) Regulations, 2016 prescribe the manner of sale of assets, the liquidator's fees, and the distribution of proceeds; the liquidator must complete the process within 12 months, extendable by the NCLT.

The Code's 'avoidance' provisions (ss.43-51) allow the RP or liquidator to claw back preferential, undervalued or fraudulent transactions; the look-back period is 2 years for preferential transactions and 1 year for undervalued transactions.

Section 238 of the Code gives it overriding effect over other laws, including the SARFAESI Act, the Recovery of Debts Due to Banks and Financial Institutions Act, and the Companies Act, 2013, in case of inconsistency.

The Supreme Court in the Dena Bank v. Bhikhabhai Prabhudas Parekh case (2000) and later in the State Tax Officer v. Rainbow Papers case (2022) clarified the priority of government dues in liquidation.

The Code's 'creditor-in-control' model means the CoC, not the NCLT, decides the fate of the corporate debtor; the NCLT's role is to ensure the process is conducted in accordance with the Code.

The 'resolution plan' must address the payment of CIRP costs, the dues of operational creditors, and the dues of dissenting financial creditors, and must be implementable within a specified timeframe.

The Code's 'information utility' (NeSL) stores financial information and provides it to the RP; a financial creditor's claim can be verified against IU records, which are treated as evidence of default.

The IBBI's 'Insolvency and Bankruptcy Code (Amendment) Act, 2020' introduced a 'pre-packaged insolvency resolution process' for MSMEs, and the 2021 amendment operationalised Chapter III-A.

The Code's 'fresh start' process for individuals and partnership firms with assets below Rs 1 lakh (as notified) allows a discharge from debt after a summary process, without a full CIRP.

The Code's 'cross-border insolvency' provisions (Part Z) are not yet in force; India has not adopted the UNCITRAL Model Law, and cross-border insolvency is governed by bilateral agreements and the Code's s.234-235.

The Code's 'default' definition under s.3(12) is non-payment of a debt that is due and payable; a debt includes a liability in respect of a claim that is due, and a 'claim' includes a right to payment, whether or not it is reduced to judgment.

A financial creditor under s.5(7) is a person to whom a financial debt is owed, including a person to whom such debt has been legally assigned or transferred; a financial debt under s.5(8) includes money borrowed against interest, including debentures, bonds and loans.

An operational creditor under s.5(20) is a person to whom an operational debt is owed; an operational debt under s.5(21) includes a claim in respect of goods or services, including employment, and dues payable to the government.

The Code's 'corporate person' includes a company, a limited liability partnership, and any other person incorporated with limited liability; 'corporate debtor' means a corporate person who owes a debt to any person.

The Code's 'resolution applicant' means a person who submits a resolution plan; the 'resolution plan' means a plan proposed by a resolution applicant for insolvency resolution of the corporate debtor.

The Code's 'committee of creditors' means a committee of financial creditors, and where there are no financial creditors, the CoC is constituted by the operational creditors; the CoC's decisions are taken by a vote of not less than 66% of the voting share.

The Code's 'voting share' of a financial creditor is the proportion of the financial debt owed to that creditor to the total financial debt owed to all financial creditors; a creditor with no voting share cannot vote.

The Code's 'insolvency professional' means a person enrolled with an insolvency professional agency and registered with the IBBI; the IP acts as the RP, liquidator or bankruptcy trustee, as the case may be.

The Code's 'adjudicating authority' for corporate persons is the NCLT, and for individuals and partnership firms is the DRT; the 'appellate authority' is the NCLAT, and appeals from NCLAT lie to the Supreme Court.

The Code's 'moratorium' under s.14 prohibits the institution of suits or proceedings against the corporate debtor, the continuation of pending suits, the execution of any judgment, and the transfer or encumbrance of assets by the corporate debtor.

The moratorium does not apply to proceedings against the corporate debtor's guarantors, as held by the Supreme Court in the State Bank of India v. V. Ramakrishnan case (2018); the guarantor's liability is co-extensive with the corporate debtor's.

The Code's 'essential supplies' provision under s.14(2A) (inserted in 2020) requires the RP to ensure that the supply of essential goods and services to the corporate debtor continues during the moratorium.

The Code's 'interim resolution professional' (IRP) is appointed by the NCLT at the time of admission and acts as the RP until the CoC appoints a new RP; the IRP takes control of the corporate debtor's assets and records.

The Code's 'public announcement' under s.15 must be made by the IRP within 3 days of appointment, inviting claims from creditors; the announcement must be in the prescribed form and published in newspapers and on the IBBI website.

The Code's 'information memorandum' under s.29 must be prepared by the RP and must contain the assets and liabilities of the corporate debtor, the latest financial statements, and other information relevant to the resolution plan.

The Code's 'evaluation matrix' under Regulation 36 of the CIRP Regulations must be disclosed to the CoC and must be used to evaluate resolution plans; the matrix must be based on the plan's feasibility, viability and implementation.

The Code's 'request for resolution plans' (RFRP) under Regulation 36A must be issued by the RP to prospective resolution applicants, with a timeline of at least 30 days for submission of plans.

The Code's 'resolution plan' must be approved by the CoC by a vote of not less than 66% of the voting share; the plan must be submitted to the NCLT within 30 days of approval, and the NCLT must approve it within 30 days.

The Code's 'avoidance transactions' provisions (ss.43-51) allow the RP to apply to the NCLT for orders to avoid preferential, undervalued or fraudulent transactions; the look-back period is 2 years for preferential transactions and 1 year for undervalued transactions.

The Code's 'fraudulent trading' provision under s.66 allows the NCLT to order a person who carried on business with intent to defraud creditors to make a contribution to the corporate debtor's assets; 'wrongful trading' under s.66(2) applies where a director knew or ought to have known that insolvency was inevitable.

The Code's 'section 29A' bar applies to a resolution applicant who is a promoter or in management of a corporate debtor that is a non-performing asset for more than one year; the bar extends to connected persons and to persons acting jointly or in concert.

The Code's 'section 32A' immunity protects the corporate debtor and the resolution applicant from prosecution for offences committed before the CIRP, provided the plan is approved and the applicant is not a party to the offence.

The Code's 'section 31' order approving a resolution plan is binding on all stakeholders, including the Central Government, State Governments and local authorities; the order is a decree of court and can be enforced as such.

The Code's 'section 53' waterfall applies to liquidation proceeds; in CIRP, the CoC has discretion to distribute proceeds among creditors, subject to the plan being approved by 66% and meeting the s.30(2) conditions.

The Code's 'section 52' allows secured creditors to realise their security interest outside the liquidation waterfall, but they must relinquish their claim on the liquidation estate; this option is available only in liquidation, not in CIRP.

The Code's 'section 60(5)' jurisdiction of the NCLT extends to applications by or against the corporate debtor, including questions of priorities and claims, but not to contractual disputes unrelated to insolvency (Gujarat Urja, 2021).

The Code's 'section 238' gives it overriding effect over other laws, including the SARFAESI Act and the Recovery of Debts Act, in case of inconsistency; this ensures the Code's timelines and processes prevail over other recovery mechanisms.

The Code's 'pre-packaged insolvency resolution process' (Chapter III-A) is available only to MSMEs; the debtor prepares a base resolution plan, and the CoC approves it before the NCLT admits the application.

The Code's 'fresh start' process for individuals and partnership firms with assets below a prescribed threshold allows a discharge from debt after a summary process, without a full CIRP; the threshold is notified by the Central Government.

The Code's 'summary resolution' process for individuals and partnership firms with assets below a prescribed threshold allows a simplified CIRP, with a shorter timeline and reduced procedural requirements.

The Code's 'cross-border insolvency' provisions (Part Z, ss.234-235) are not yet operational; India has not adopted the UNCITRAL Model Law, and cross-border insolvency is governed by bilateral agreements and the Code's provisions.

The Code's 'insolvency professional' must be enrolled with an insolvency professional agency and registered with the IBBI; the IP's fees are set by the CoC, not by the Code, and must be reasonable and transparent.

The Code's 'information utility' (NeSL) stores financial information and provides it to the RP; a financial creditor's claim can be verified against IU records, which are treated as evidence of default.

The Code's 'adjudicating authority' for corporate persons is the NCLT, and for individuals and partnership firms is the DRT; the 'appellate authority' is the NCLAT, and appeals from NCLAT lie to the Supreme Court.

The Code's 'committee of creditors' decisions are taken by a vote of not less than 66% of the voting share; a creditor with no voting share cannot vote, and a related party of the corporate debtor cannot vote in the CoC.

The Code's 'section 29A' bar applies to a resolution applicant who is an undischarged insolvent, a wilful defaulter, a promoter of the corporate debtor, or a person convicted of an offence; the bar extends to connected persons.