Understanding Corporate Insolvency Resolution Process (CIRP)

Introduction 

The Insolvency and Bankruptcy Code (IBC) was introduced in India in 2016 to provide a  unified framework for resolving insolvency issues. One of the key components of the IBC is  the Corporate Insolvency Resolution Process (CIRP), which provides a mechanism for resolving insolvency issues faced by companies. 

The CIRP is a legal process initiated when a company defaults on its payments to creditors. It  provides a mechanism for creditors to recover their dues and for the company to restructure its operations and become financially viable. The process is initiated when a  creditor files a petition with the National Company Law Tribunal (NCLT) seeking to initiate insolvency proceedings against a company. 

The NCLT appoints an interim resolution professional (IRP) to take control of the company's  affairs and initiate the CIRP. The IRP is responsible for managing the company's day-to-day  operations. The resolution plan outlines how the company's operations will be restructured  to make it financially viable and repay its debts.

During the CIRP process, the company's assets are protected from seizure or foreclosure by  the creditors. This provides the CD, RP and COC with a breathing space to restructure its  operations and become financially viable. The entire program is time bound, and the  creditors have to submit their claims within a specified period, and the IRP verifies and  approves the claims. 

CIRP is a Time-Bound Process 

The CIRP process is a time-bound process that aims to resolve the insolvency issue within a  maximum period of 330 days, including any extensions granted by the NCLT. This ensures  that the process is completed in a timely manner, and the company's operations can be  resumed as soon as possible. 

Once the resolution plan is prepared, it is presented to the creditors for approval. The  creditors have to vote on the plan, and if it is approved by a minimum of 66% of the  creditors, the plan is submitted to the NCLT for approval. The NCLT then reviews the plan  and approves it if it meets the required criteria. NCLT, however, does not question the  commercial judgment of the COC. 

If the resolution plan is not approved by the creditors or the NCLT, the company is  liquidated, and its assets are sold off to repay the creditors. This is the last resort and is only  done when all other avenues for resolving the insolvency issue have been exhausted. 

The CIRP process has been successful in resolving many insolvency cases in India. It has  provided a mechanism for creditors to recover their dues and for companies to restructure  their operations and become financially viable. The success of the CIRP process has also  increased investor confidence in the Indian economy.

One of the key benefits of the CIRP process is that it provides a transparent mechanism for  resolving insolvency issues. The process is overseen by the NCLT, which ensures that all  parties involved are treated fairly and equitably. This has helped to create a culture of  responsible lending and borrowing in India, where companies are encouraged to operate  within their means and creditors are encouraged to lend responsibly. 

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Also Read: Insolvency and Bankruptcy Code - Objectives and Procedure

Conclusion 

The CIRP process is a vital component of the IBC in India. It provides a mechanism for  resolving insolvency issues and ensuring that companies become financially viable. The  success of the CIRP process has increased investor confidence in the Indian economy and  has helped to promote a culture of responsible lending and borrowing. The CIRP process is a  transparent and time-bound process that ensures that all parties involved are treated fairly  and equitably, making it a key tool in resolving insolvency issues in India.

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