INSOLVENCY AND BANKRUPTCY CODE (Syllabus: GS Paper 3 – Economy)

Context: A recent study of  Investment Information and Credit Rating Agency (ICRA) revealed that as of FY24, creditors realized   only   4%  of  their  claims under the  Insolvency and  Bankruptcy Code (IBC).

Insolvency and  Bankruptcy Code (IBC)

• About: India’s bankruptcy law, designed to consolidate the existing framework by creating a comprehensive code for handling insolvency and bankruptcy cases. 
• Mechanism:

o Initiation: Filed by either the (financial or operational) to the NCLT. debtor or creditors

o Threshold: Default amount must be at least ₹1 crore.

o Deadline: 330 days for the completion of the resolution process

o NCLT Decision: The tribunal has 14 days to accept or reject the application, providing reasons if rejected.

• Interim Resolution Professional (IRP): IRP is appointed by the NCLT to take control of the debtor's assets and operations.

o Duties: Collects information, constitutes the Committee of    Creditors CoC, and manages the company's affairs.

o CoC Powers: Decides to continue with the IRP or appoint a new Insolvency Professional (IP).

• Resolution Plan: IP invites resolution plans from potential investors.

o Approval: A plan needs a 66% vote in favor from the CoC members.

o Submission to NCLT: The approved plan is submitted to the NCLT for final approval.

• Liquidation: If no resolution plan is approved within the stipulated timeframe or if the CoC decides so. The company's assets are sold off, and the proceeds are distributed among creditors.
• The Corporate Insolvency Resolution Process (‘CIRP’) is a recovery mechanism for the creditors of a corporate debtor. A corporate debtor means a company or Limited Liability Partnership (‘LLP’) that owes a debt to its creditors.