The Corporate Debtor's Role in Initiating CIRP
The Insolvency and Bankruptcy Code (IBC), 2016, revolutionized corporate insolvency resolution in India. While creditors often initiate the Corporate Insolvency Resolution Process (CIRP), the IBC also empowers the corporate debtor itself to trigger this process. Understanding the corporate debtor's role is crucial for effective practice and for ensuring a fair and efficient resolution mechanism.
When Can a Corporate Debtor Initiate CIRP?
A corporate debtor can initiate CIRP if it has committed a 'default' in the repayment of a debt, or a part thereof, or has failed to pay a debt when it has become due and payable. This default must be of a minimum amount as prescribed by the Code. The initiation is typically done by filing an application before the Adjudicating Authority (National Company Law Tribunal - NCLT).
Key Requirements for Debtor-Initiated CIRP
For a corporate debtor to successfully initiate CIRP, several conditions must be met:
| Requirement | Details |
|---|---|
| Default | Existence of a debt and a default in its repayment, as defined under the IBC. |
| Corporate Applicant | The application must be filed by the corporate debtor itself, acting as a corporate applicant. |
| Board Resolution | A special resolution passed by the shareholders of the corporate debtor, or a resolution passed by the partners in the case of a limited liability partnership, approving the filing of the application. |
| Financial Creditor Consent | In certain cases, consent from financial creditors might be required, though this is more common for specific types of restructuring. |
| Minimum Debt Threshold | The default must be of a minimum amount prescribed by the Central Government (currently ₹1 lakh). |
The Application Process
The application is filed in Form-I with the Adjudicating Authority (NCLT). It must be accompanied by:
- Proof of default, including records of debt and default.
- The special resolution or partner's resolution approving the application.
- Details of the proposed Insolvency Professional (IP) who will act as the Interim Resolution Professional (IRP).
The NCLT has a strict timeline to admit or reject the application, typically within 14 days of its filing. If admitted, the CIRP commences.
Advantages of Debtor-Initiated CIRP
Initiating CIRP voluntarily can offer several advantages to the corporate debtor:
- Control over the Process: The debtor can choose the Interim Resolution Professional (IRP) and potentially influence the selection of the Resolution Professional (RP).
- Opportunity for Revival: It provides a structured framework to explore revival and rehabilitation plans, potentially saving the company from liquidation.
- Moratorium: Upon admission, a moratorium is imposed, preventing creditors from pursuing individual recovery actions, which can provide breathing space.
- Stakeholder Engagement: It allows the debtor to proactively engage with stakeholders, including employees, suppliers, and potential investors, to chart a path forward.
Challenges and Considerations
Despite the advantages, debtor-initiated CIRP also presents challenges. The debtor must be prepared for intense scrutiny from the NCLT and the Committee of Creditors (CoC). Transparency and full disclosure are paramount. The success of the CIRP heavily relies on the debtor's ability to present a viable resolution plan and cooperate with the Resolution Professional and the CoC.
Section 10 of the Insolvency and Bankruptcy Code, 2016.
₹1 lakh (as currently prescribed by the Central Government).
The Role of the Corporate Debtor Post-Admission
Once CIRP is admitted, the corporate debtor's management is suspended, and the Resolution Professional takes control. However, the debtor's management and employees are expected to cooperate fully with the RP, providing all necessary information and assistance to facilitate the resolution process. Their knowledge of the business operations is often invaluable in formulating a realistic resolution plan.
The process of initiating CIRP by a corporate debtor can be visualized as a flowchart. It begins with the debtor identifying a default. This triggers internal discussions, leading to a board resolution or partner's resolution. Subsequently, an application is prepared and filed with the NCLT. The NCLT then reviews the application for admission or rejection. Upon admission, a moratorium is declared, and an Interim Resolution Professional (IRP) is appointed, marking the commencement of the CIRP.
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Learning Resources
The official source for the Insolvency and Bankruptcy Code, 2016, providing the complete legal text and amendments. Essential for understanding the foundational provisions.
Detailed regulations governing the Corporate Insolvency Resolution Process (CIRP), including specific rules for applications and procedures.
A guide to the procedures and practices followed by the National Company Law Tribunal (NCLT), crucial for understanding the application and admission process.
An in-depth article explaining the key aspects of the IBC, including the role of various stakeholders and the initiation of CIRP.
A detailed explanation of the CIRP, covering its objectives, stages, and the roles of different parties involved, including the corporate debtor.
An opinion piece discussing the nuances and strategic considerations of a corporate debtor initiating CIRP voluntarily.
A video tutorial explaining the process and requirements for a corporate debtor filing an application under Section 10 of the IBC.
Analysis of significant court decisions that have shaped the interpretation and application of IBC provisions related to debtor-initiated CIRP.
A Wikipedia overview of the IBC, providing context, history, and key features of the legislation.
A practical guide to understanding and navigating the CIRP, with insights into the debtor's role and responsibilities.