The Insolvency and Bankruptcy Code, 2016 (IBC) which has replaced the earlier ‘debtor in possession’ insolvency regime with a more expedient ‘creditor in control’ regime provides that in case of default of debt or interest payment by the corporate debtor, any financial or operational creditor (or corporate debtor) can make an application to the adjudicating authority (i.e. National Company Law Tribunal for companies, limited liability partnerships and other body corporates) under the Code for commencing the Insolvency Resolution Programme.
Important points to be taken note of:
- Once such an application is conceded by the NCLT, a between time determination expert will be delegated and the specialist will proclaim a ban period amid which all pending and future legitimate activities against organization will stay in suspension. Amid the ban time frame, the determination proficient is required to constitute an advisory group of lenders (barring the related gatherings) which would incorporate both money related leasers and operational loan bosses. The fundamental motivation behind the board of trustees is to make a determination design inside the stipulated time span, with a specific end goal to resuscitate the corporate account holder. For this reason, IBC gives that such an arrangement must have the endorsement of no less than 75% of the leasers and an inability to affirm determination design would as a matter of course prompt the start of liquidation procedures.
- With the end goal of procedures under the Code, a refinement has been made between ‘Money related Creditors’ and ‘Operational Creditors’. It is appropriate to take note of that the Companies Act, 2013 does not make any such grouping and just uses the term ‘lender’. Further, this arrangement under IBC has been utilized to put the loan bosses on various platforms at each phase of the procedures whether they relate to practicality of utilizations, endorsement of determination design or dissemination of benefits (if there should arise an occurrence of liquidation). In this manner, with a view to secure their interests, it is basic for banks to be totally mindful of the scope of choices/rights accessible to them under IBC.
Financial Creditor and Operational Creditor:-
Section 5 (7)
-Financial creditor means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to.
Section 5 (20)
–Operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.
|Meaning of the term Debt
Section 5 (8)
-financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes items referred to in sub
-clauses (a) to (i).
Section 5 (21)
-operational debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local Authority.
(28) -Voting right of a financial creditor is based on the proportion of the financial debt owed to such financial creditor- The approval of committee of creditor shall be obtained by a vote of not less than seventy five percent of the voting shares.
Section 215 (3)
-An operational creditor may submit financial
information to the information
|Initiation of Corporate Insolvency Resolution Process
(1) -On occurrence of a default, a
financial creditor shall either by itself or jointly with other financial creditors may file an application
for initiating corporate insolvency
resolution process against a
Corporate debtor before the Adjudicating officer.
Section 8 (1)
–On occurrence of a default the operational
creditor may, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor.
The operation creditor may file an application after the expiry of 10 days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-Section (2) of section 8.
|Appointment of Interim Resolution Professional
Section 7 (3)
-The financial creditor shall along with the application furnish the name of the resolution professional
proposed to act as an interim
Section 9 (4)
creditor may propose a
resolution professional to
act as an interim resolution
|Constitution of committee of creditors
Section 21 (2)
-The committee of creditors shall
consist solely of financial creditors
, and all financial creditors of the
Operational creditors shall not form part of committee.
|Submission of Financial Information
Section 215 (2)
-A financial creditor shall submit financial information and information relating to assets in relation to Which any security interest has been created.
Section 215 (3)
-An operational creditor may submit financial Information to the information utility.
In order to succeed in initiating corporate insolvency resolution process against a debtor, it is sine qua non to prove that the creditor falls within the ambit and scope of the definition of either ‘Financial Creditor’ under Section 5(7) or ‘Operational Creditor‘ under Section 5(20) of the IBC.
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Disclaimer – the above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.