INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co
CIRP, PPIRP and liquidation process under the Code The Code enacted in 2016 focuses on financial and organisational remodelling of the CD in distress. It contains mechanisms for resolution and revival of financially distressed companies and lays down the process of liquidation in case the resolution process fails to rescue the CD. The Code comprises of four main institutions to facili - tate the processes envisaged thereunder: • insolvency professionals and insolvency profes - sional agencies responsible for the conducting of the processes; • information utilities as repositories of financial information relating to the CD; • adjudicating authorities which are the National Company Law Tribunal (NCLT), the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court of India; and • the Insolvency and Bankruptcy Board of India (IBBI) (statutory regulator). CIRP An application for initiation of a CIRP may be filed by a financial creditor (FC) (who disburses debt against the consideration for the time value of money), operational creditors (OC) (who have provided goods and services to the CD in exchange for money and also includes employees and government creditors) or by the CD itself, before the NCLT on a default of a minimum amount of approximately USD121,565 by the CD. The CIRP commences on the date the NCLT accepts the application filed by the creditor or the CD and operates for a limited period of 180 days extendable by 90 days but not more than a total of 330 days. In practice, however, CIRPs have at times continued beyond prescribed timelines. The powers of the board of directors of the CD are suspended and the management of the CD vests in the insolvency professional appointed as the interim resolution professional (IRP) by the NCLT. The IRP is responsible for protecting and preserving the assets of the CD and managing the affairs of the CD as a going concern. The personnel of the CD are required
to extend all assistance and co-operation to the IRP as may be required to manage the CD as a going concern. At the time of acceptance of the CIRP application, the NLCT declares a moratorium whereby actions against the CD and its assets are halted and no legal proceed - ings can be commenced or continued. However, con - tinued supply of essential goods and services such as electricity, water, information technology and tel - ecommunication services to the CD is mandatory. The moratorium operates until the completion of the CIRP. The IRP makes a public announcement of the initia - tion of the CIRP and calls for submission of claims by creditors of the CD. The IRP verifies all claims received and constitutes a committee of creditors (CoC) com - posed of all unrelated FCs of the CD. In the first meet - ing, the CoC resolves either to appoint another insol - vency professional as the resolution professional (RP) or to permit the IRP to continue as the RP. The RP, in consultation with the CoC, invites market participants (known as resolution applicants) to sub - mit resolution plans for the purposes of restructuring and revival of the CD. The Code disqualifies certain persons from submitting plans, including the incum - bent management of the CD in certain instances. A resolution plan can propose various measures including, but not limited to: • a change in capital structure by way of merger; • amalgamation; • demerger; • debt restructuring; • one-time settlement; • transfer or sale of assets of the CD; and • change in the portfolio of goods or services pro - vided by the CD. The RP examines and scrutinises the plans received for certain mandatory requirements under the Code and places all compliant plans before the CoC. The CoC, by exercising its commercial wisdom, selects a plan for the turnaround of the CD by a major - ity vote of 66% in value. The plan approved by the
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