A Beginner's Guide to Corporate Insolvency Resolution Process (CIRP) under the IBC

Introduction

The Insolvency and Bankruptcy Code (IBC), 2016, revolutionized the debt recovery landscape in India by replacing fragmented laws with a single, time-bound framework. The Corporate Insolvency Resolution Process (CIRP) is the core mechanism under the IBC designed to rescue distressed corporate debtors and maximize value for creditors.

Who Can Trigger CIRP?

CIRP can be initiated against a corporate debtor that defaults on a minimum threshold of debt (currently set at ₹1 crore) by:

1. Financial Creditors: Entities like banks and financial institutions that lend money.
2. Operational Creditors: Vendors, suppliers, or employees who provide goods or services.
3. Corporate Debtor: The company itself, through its directors or shareholders.

Step-by-Step Outline of the Process

• Filing the Application: The application is filed before the National Company Law Tribunal (NCLT) under Section 7 (Financial Creditor), Section 9 (Operational Creditor), or Section 10 (Corporate Debtor).
• Admission & Moratorium: Upon admission, the NCLT declares a moratorium under Section 14, halting all pending lawsuits, asset sales, and enforcement actions against the debtor.
• Appointment of IRP: The NCLT appoints an Interim Resolution Professional (IRP) who takes control of the company's management from the board of directors.
• Committee of Creditors (CoC): The IRP constitutes the CoC, comprising all financial creditors. The CoC controls the destiny of the debtor, including voting to replace or confirm the IRP as the permanent Resolution Professional (RP).
• Resolution Plan Approval: The RP invites bids or 'Resolution Plans' from potential buyers. The CoC must approve a plan with at least a 66% voting majority. The approved plan is then submitted to the NCLT for final sanction.

Strict Timelines

One of the defining features of the IBC is its timeline-driven structure. Under Section 12, CIRP must be completed within 180 days from the date of admission, extendable once by up to 90 days. However, the absolute outer limit for completion, including any litigation delays, is 330 days. If no resolution plan is approved within this timeline, the NCLT orders the liquidation of the company.