Timeline for Corporate Insolvency Resolution Process

Ashish M. Shaji

24 Nov, 2020

In the past, there have been times when one has observed a delay in the completion of the corporate insolvency resolution process. Many a time, the completion of the process has gone beyond the prescribed time period under the Insolvency and Bankruptcy Code, 2016. This has resulted due to multiple legal proceedings filed by the stakeholders, and due to the backlog of cases, the pendency also increases. The long pendency of the legal proceedings has affected the timely completion of the Corporate Insolvency Resolution Process (CIRP).

In order to tackle this challenge, the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (Amendment Act) amended the Code to restrict the time period in which the CIRP shall be completed. A proviso has been included in sub-section 3 of section 12 by way of amendment. It states that the CIRP shall be completed within 330 days from the Insolvency Commencement date, including any extension of the corporate insolvency resolution process and the time taken in legal proceedings with respect to such CIRP. In order to understand the timeline and other relevant details, let us first have a clear understanding of the term corporate insolvency resolution process (CIRP).

What is the meaning of the Corporate Insolvency Resolution Process?

The insolvency resolution process of a corporate debtor is called the Corporate Insolvency Resolution Process. It is a recovery mechanism for creditors wherein if a corporate/company becomes insolvent, then a financial creditor, operational creditor, or the corporate may initiate CIRP. A company may be declared as insolvent if it is inefficient to pay off its debts to the creditors. CIRP is also a process through which it can be known whether or not the person who has defaulted is capable of repaying the debt.

The Corporate Insolvency Resolution Process may include ways to revive the company like raising funds for operation, seeking a new buyer to sell the company. The debts can be taken care of if another person submits a resolution plan to take over the company and pay the outstanding debts. In case the resolution plan is neither submitted nor approved by the committee of creditors, the CIRP process would fail.

How to apply for Corporate Insolvency Resolution Process?

The procedure for resolution or liquidation is as follows:

• A creditor of a corporate/company can request the National Company Law Tribunal. This is to admit that the company is entering into the CIRP.  The creditors must showcase the failure of payment of the debt that is in excess of one lakh rupees.
• Whenever a corporate debtor enters into the CIRP, the management is placed under an independent interim resolution professional. From here on, i.e., when it’s placed under the interim resolution professional till the end of the process (CIRP), the management ceases to have any control over the affairs of the company.
• Thereafter the interim resolution professional shall conduct verification and analysis of the corporate debtor’s creditors.
• The committee of creditors shall appoint an independent person to work as the resolution professional for the rest of the Corporate Insolvency Resolution Process. The resolution professional can be the same as the interim professional depending upon the committee of creditors.
• The resolution plan regarding the restructuring of the corporate should be approved within the prescribed time by the creditors.
• In case the plan is accepted and is sanctioned by the National Company Law Tribunal (NCLT) within the prescribed period, the resolution professional must take necessary approvals required under the law in one year’s time from the date of approval by adjudicating authority.
• In case the resolution plan is claimed, the NCLT shall order for the liquidation of the corporate debtor, and thereby the liquidator shall be appointed by the committee of creditors to sell the assets of the debtor and distribute it among the stakeholders.

Time Frame for completion of CIRP

The Insolvency and Bankruptcy Code provides that the Corporate Insolvency Resolution Process will be completed within one hundred eighty days from the date of the admission of the application to commence the process. The Code also provides for the extension of the CIRP period beyond the said one hundred eighty days period by filing an application to the adjudicating authority by the resolution professional. Thereafter, if the adjudicating authority thinks fit that due to the subject matter of the case, the process cannot be completed within one hundred eighty days, then the adjudicating authority may by order extend the time period of such process beyond one hundred eighty days, but it should not exceed ninety days.

The extension of the period of CIRP under this won’t be granted more than once. The amended proviso provides that the Corporate Insolvency Resolution Process will be completed mandatorily within three hundred thirty days from the insolvency commencement date, including the time taken in legal proceedings with respect to such process. It also provides that if the CIRP of a corporate debtor is pending, i.e., it has not completed within the period referred to in the above-mentioned lines, such resolution process shall be completed within ninety days from the commencement of insolvency and bankruptcy code (Amendment Act).

The 330 days period includes the following:

• Normal Corporate Insolvency Resolution Process period of 180 days,
• Extension of such period (only once) to 90 days granted by the adjudicating authority and,
• The time taken for legal proceedings with respect to the resolution process of the corporate debtor.

Implications of non-completion of the resolution process within the prescribed period

In case the resolution professional fails to submit the resolution plan within the prescribed time period of 180 days or 330 days, including the extension granted under the section, the adjudicating authority has the right to initiate liquidation procedure. Initiation of liquidation procedure may result in winding up of the company, and further, the proceeds shall be distributed among the creditors as per the Code.

Serious consequences shall be followed if the resolution process is not completed within the prescribed time period; therefore, it is critical to ensure timely completion of the process.

Model Timeline for CIRP

The table below represents a model timeline for Corporate Insolvency Resolution Process:

Conclusion

Earlier, there were many confusing timelines, and it leads to multiple interpretations, thereby not only causing confusion to the stakeholders, but frequent litigations hampered the entire process. The new timelines may help in avoiding such inconvenience and delays. The amendment contains enough teeth to ensure timely completion of the process. An official finding suggests that this insolvency law has improved the resolution process in India as compared to earlier measures. The government has been proactive in taking steps to improve the efficiency of the insolvency and bankruptcy code by increasing the number of NCLT benches and the number of insolvency professionals. It shall also help in facilitating the process of CIRP.