IIBF Resolution of Stressed Assets common mistakes
IIBF Resolution of Stressed Assets · Understand the traps and how to avoid them.
Treating the IBC as the first resort for every default and selecting it as the answer whenever a borrower misses a payment, instead of first applying the RBI Prudential Framework's 30-day review period and the inter-creditor agreement route.
Candidates memorise 'IBC = resolution of stressed assets' from the exam title and overlook that the RBI framework requires a review period, ICA signing, and a resolution plan window before an account is referred under Section 7; questions testing sequencing therefore get answered with the wrong first step.
What to do instead
Build a one-page timeline: default, 30-day review period, ICA execution within 30 days of review trigger, resolution plan implementation period, and only then IBC reference. Practise questions that ask 'what is the FIRST step' separately from 'what is the ultimate remedy'.
Confusing the triggers and thresholds for Section 7 (financial creditor), Section 9 (operational creditor), and Section 11 (corporate applicant), and mixing up who must prove what at admission.
The three sections look similar on the surface, and candidates conflate the financial creditor's minimal 'debt and default' burden with the operational creditor's demand notice requirement and the corporate debtor's own application, leading to wrong answers on who can file and after what notice.
What to do instead
Memorise a comparison table with columns for applicant, proof required, pre-filing notice, and default threshold (Rs 1 crore). Attach the demand notice under Section 8 firmly to the operational creditor route only.
Confusing the roles and powers of the Interim Resolution Professional, Resolution Professional, and Committee of Creditors, for example assuming the RP approves the resolution plan or that the CoC runs the corporate debtor as a going concern.
The Code deliberately separates management of the corporate debtor (RP, subject to CoC oversight) from commercial decision-making (CoC), but candidates read 'resolution professional' as the decision-maker because the title sounds authoritative.
What to do instead
Write out the division: RP manages operations, runs the process, and prepares the information memorandum; CoC approves the resolution plan by the required majority; the Adjudicating Authority approves the plan. Test yourself by asking 'who does what' for each step.
Getting the voting threshold wrong, using a simple majority or two-thirds for CoC plan approval instead of 66 percent of votes of members present and voting, and mixing it with the threshold for other CoC decisions.
Thresholds are numeric and easy to blur, and the Code uses 66 percent for plan approval while other decisions and the pre-amendment position may sit differently in memory; candidates also count members rather than voting share.
What to do instead
Create a threshold card: 66 percent of votes of CoC members present and voting for plan approval, and note that voting share is based on financial debt owed, not headcount. Redo calculation-style questions until the base is automatic.
Misapplying the statutory timelines, treating the 180-day corporate insolvency resolution process and its 90-day extension as the whole story, and ignoring the outer limit of 330 days including extensions and litigation.
Candidates remember 180 plus 90 and stop there, forgetting the outer limit and the amendments on exclusions and mandatory completion, so questions on maximum permissible period or on what happens on lapse are answered incorrectly.
What to do instead
Draw the clock: 180 days, one 90-day extension on CoC approval, outer limit of 330 days including legal proceedings, and the consequence of failure being liquidation. Practise questions that ask for the maximum and for the trigger for extension.
Treating the moratorium under Section 14 as covering everything, including proceedings that are actually exempt, such as enforcement of security by a secured creditor outside the process in specified situations, or recovery proceedings before certain forums.
Section 14 is taught as a blanket shield, and candidates do not study the carve-outs and the amended position on third-party assets and on proceedings that survive the moratorium, so they over-apply it.
What to do instead
List what the moratorium covers and then list the exceptions and the amended scope, including the treatment of assets not owned by the corporate debtor and of specified enforcement actions. Use 'covered / not covered' flashcards.
Confusing avoidance transactions under Sections 43, 45, 49, and 66, and applying the wrong look-back period or wrong test to preferential transactions, undervalued transactions, and fraudulent or wrongful trading.
The sections sit close together, each has a different look-back period and mental element, and candidates learn 'avoidance' as one concept, so they assign the preferential transaction period to undervalued transactions or miss the intent requirement for fraudulent trading.
What to do instead
Build a four-row table with columns for section, transaction type, look-back period, and whether intent matters. Anchor the periods to the relevant date (insolvency commencement date) and test each row separately.
Assuming the resolution plan must maximise recovery for financial creditors only, and ignoring the statutory requirement to balance the interests of all stakeholders, including operational creditors and the treatment of their minimum entitlement.
Candidates focus on bank recovery because the exam is framed around stressed assets, and miss the Code's stakeholder-balance language and the regulatory position on operational creditor payments, producing answers that are commercially intuitive but legally wrong.
What to do instead
Note the plan's statutory criteria: balance all stakeholders, keep the corporate debtor a going concern, and provide for insolvency resolution process costs first. Revise the position on operational creditors' minimum entitlement as a separate point.
Mixing up liquidation waterfall priorities under Section 53, placing secured creditors, workmen dues, and insolvency resolution process costs in the wrong order or forgetting that process costs come first.
The waterfall has several tiers with sub-rules for secured creditors and workmen, and candidates reconstruct it from general company-law memory rather than the Code's specific order, so the ranking of dues gets inverted.
What to do instead
Write the Section 53 waterfall in order on one card, starting with insolvency resolution process costs and liquidation costs, then secured creditors and workmen dues with their specified treatment, then other stakeholders. Redo ranking questions against the card.
Treating personal guarantors and their assets as outside the corporate insolvency process, or assuming the moratorium on the corporate debtor automatically protects a personal guarantor.
Candidates study the corporate debtor route in isolation and do not connect the separate insolvency route for personal guarantors to the corporate debtor, so questions on creditor rights against guarantors and on parallel proceedings are answered from a mistaken premise.
What to do instead
Study the personal guarantor route as a distinct process with its own trigger and rules, and note that proceedings against a guarantor are separate from the corporate debtor's process. Add a short note on how creditor claims against guarantors interact with the corporate process.