Corporate Insolvency Resolution

CFMARC provides corporate insolvency resolution process to companies and partnership firms. The process may be initiated by either the debtor or the creditors. A maximum time limit, for completion of the insolvency resolution process has been set for corporates and individuals. For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree.

A plea for insolvency is submitted to the adjudicating authority (NCLT in case of corporate debtors) by financial or operation creditors or the corporate debtor itself. The maximum time allowed to either accept or reject the plea is 14 days. If the plea is accepted, the tribunal has to appoint an Insolvency Resolution Professional (IRP) to draft a resolution plan within 180 days (extendable by 90 days) following which the Corporate Insolvency Resolution process (CIRP) is initiated by the court. Within 180 days from the start of the CIRP, a resolution plan for the revival of the company needs to be approved by creditors holding 75% of the financial debt. The NCLT can extend this by another 90 days.

For the said period, the board of directors of the company stands suspended, and the promoters do not have a say in the management of the company. The IRP, if required, can seek the support of the company’s management for day-to-day operations. If the CIRP fails in reviving the company the liquidation process is initiated.

An operational creditor needs to first make a demand for his unpaid debt and it is open to the corporate debtor to defend the claim on the basis that there is an ongoing dispute.

Any person, including the erstwhile management, the creditors, or a third party can propose such a plan. As it is the responsibility of the resolution professional to verify that the plan meets the criteria set out in the IBC, it would seem that the Resolution Professional cannot propose this plan, although this is not expressly prohibited under the IBC.

If a plan is approved within this period and is sanctioned by the NCLT, it is adopted and becomes binding on all “stakeholders” involved in the CIRP. The term “stakeholders” has not been defined and while the IBC expressly mentions that the resolution plan will bind the creditors, employees, members, and guarantors.

And if no resolution plan is approved in this period, the NCLT is required to order the liquidation of the corporate debtor. If an order of liquidation is passed, a liquidator will be appointed by the COC to sell the assets of the corporate debtor and distribute the assets among the stakeholders.

CFM Asset Reconstruction company Private Limited (CFMARC) is a company that specializes in evaluation, acquiring and resolution of stressed assets and distressed companies.

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