Insolvency resolution & liquidation for corporates

By,
CS S DHANAPALCS S DHANAPAL
Sr. Partner
M/s S Dhanapal & AssociatesM/s . S Dhanapal & Associates
A Firm of Practising Company Secretaries, Chennai
S.DHANAPAL

S.DHANAPAL
Partner, S Dhanapal & Associates

Financial CreditorFinancial Creditor
Any person to whom a financial
debt is owed and includes a
person to whom such debt has
BoardBoard
Insolvency & Bankruptcy
Board of India established
under sub section(1) of
Operational CreditorOperational Creditor
A person to whom an
operational debt is owed and
includes any person to whom
been legally assigned/
transferred
under sub-section(1) of
Section 188
such debt has been legally
assigned / transferred
Insolvency ProfessionalInsolvency Professional Resolution ProfessionalResolution Professional
A person enrolled u/s 206 with
an insolvency professional
agency as its member and
registered with the Board as an
Insolvency professional u/s 207
An Insolvency Professional
appointed to conduct the
Corporate Insolvency Resolution
Process and includes an Interim
Resolution ProfessionalInsolvency professional u/s 207 Resolution Professional
Voting ShareVoting Share
Share of voting rights of a single financial
creditor in the committee of creditors which iscreditor in the committee of creditors which is
based on the proportion of the financial debt
owed to such financial creditor in relation to
the financial debt owed by the Corporate
debtor
S.DHANAPAL

APPLICABILITYAPPLICABILITY INITIATORINITIATOR
Corporate debtors
with minimum
default of Rs.
APPLICABILITYAPPLICABILITY
1 Fi i l C dit
INITIATORINITIATOR
1,00,000/-
CG ib
1. Financial Creditor
2. Operation
Creditor
CG may prescribe a
higher amount up to
Rs. 1,00,00,000/-
(One Crore)
3. Corporate Debtor
( )
S.DHANAPAL

 Form of application, manner & fees shall be
amp
D il f d f d f l f Details of record of default, name of
resolutionresolution professionalprofessional, any other detail shall
be furnished with application;be furnished with application;
 Adjudication Authority (NCLT) within 14 days Adjudication Authority (NCLT) within 14 days
ascertain the existence of default;
S.DHANAPAL

NCLT shall admit the
application if
NCLT shall dismiss
the application ifapplication if
1. Default has occurred
pp
1. Default has not occurred
2. Application is complete
3. No disciplinary action pendingNo disciplinary action pending
against theagainst the Resolution ProfessionalResolution Professional
2. Application is not complete
3. Disciplinary action is pending
against the Resolution Professional
CIRP shall commence from the dateCIRP shall commence from the date
Prior to rejection, notice for
CIRP shall commence from the dateCIRP shall commence from the date
of admission of applicationof admission of application
rectification of the defect within 7
days, shall be given to the applicant
S.DHANAPAL

On occurrence of default the debtor shall beOn occurrence of default the debtor shall beOn occurrence of default, the debtor shall be
delivered a demand noticedemand notice along with invoice in
such form & manner ampamp
On occurrence of default, the debtor shall be
delivered a demand noticedemand notice along with invoice in
such form & manner ampamp
Within 10 days of receipt of demand notice, the
debtor shall bring to the notice of creditor
Within 10 days of receipt of demand notice, the
debtor shall bring to the notice of creditordebtor shall bring to the notice of creditor
either:
debtor shall bring to the notice of creditor
either:
Repayment of unpaid
operational debt along
with proof
Repayment of unpaid
operational debt along
with proof
Existence of dispute (if
any) & record of
pendency of suit /
Existence of dispute (if
any) & record of
pendency of suit /
with proofwith proof
arbitrationarbitration
S.DHANAPAL

 If the Operational Creditor has not heard
from the debtor within 10 days of demand
notice, he may file for CIRP.
 The form manner & fees of application shall The form, manner & fees of application shall
be amp
 Propose a resolutionresolution professionalprofessional to act as Propose a resolutionresolution professionalprofessional to act as
Interim Resolution Professional
 Adjudication Authority (NCLT) within 14 daysj y ( ) y
ascertain the existence of default;
S.DHANAPAL

NCLT shall admit the
application if
NCLT shall dismiss
the application if
1. Application is complete 1. Application is incomplete
2. No repayment of debts
3. Invoice / notice for payment delivered
by the creditor
4 No record of disp te / no notice of
2. There has been repayment of debts
3. Invoice / notice for payment is not
delivered by the creditor
4 There is record of dispute / notice of4. No record of dispute / no notice of
dispute received
5. No disciplinary proceeding pendingNo disciplinary proceeding pending
against theagainst the Resolution ProfessionalResolution Professional
4. There is record of dispute / notice of
dispute received
5. Disciplinary proceeding pending
against the Resolution Professional
Corporate Insolvency Resolution Process
shall commence
Prior to rejection, notice for rectification
of the defect within 7 days, shall be
shall commence
y
given to the applicant
S.DHANAPAL

 A Corporate applicant shall initiate CIRP –
f f h ll bform, manner, fees shall be amp
 Details of books of accounts, proposed
interim resolution professional, etc shall beinterim resolution professional, etc shall be
furnished
 WithinWithin 1414 daysdays the Adjudicating Authority
(NCLT) h ll ith d itd it // di idi i th(NCLT) shall either admitadmit // dismissdismiss the
application
 Prior to rejection,rejection, noticenotice shall be given to Prior to rejection,rejection, noticenotice shall be given to
rectify errors withinwithin 77 daysdays
 CIRP shall commence from the date of
d i i f li tiadmission of application
S.DHANAPAL

•Undergoing CIRPUndergoing CIRP
•Completed CIRP 12 months
preceding application date
Corporate
•Who has violated any terms ofviolated any terms of
resolution plan preceding 12resolution plan preceding 12
monthsmonths
O h li id tili id ti i d d
Debtor
Financial
•On whom liquidationliquidation is ordered
•Who has violated any terms ofviolated any terms of
l ti l di 12l ti l di 12
Creditor
resolution plan preceding 12resolution plan preceding 12
monthsmonths
S.DHANAPAL

MoratoriumMoratorium
PublicPublic
announcementannouncement
ResolutionResolution
ProfessionalProfessional
Institution of suits,
f
Interim Resolution
f
Institution of suits,
transferring of
assets etc
Detailed info shall
be disclosed
Professional shall
be appointed within
14 days by NCLT
Effective till the
date of completion
In such manner asas
may be prescribedmay be prescribed
Tenure shall not
exceed 30 days
of CIRP
may be prescribedmay be prescribed exceed 30 days
S.DHANAPAL

 ManagementManagement ofof affairsaffairs shall vest with IRP
 PowersPowers ofof BODBOD shall stand suspended &
exercised by IRP
IRP h ll h llll hh IRP shall have accessaccess toto allall thethe corporatecorporate
documentsdocuments
 Managers & officers shall reportreport toto IRPIRP Managers & officers shall reportreport toto IRPIRP
 Financial institutions maintaining accounts
(auditors)(auditors) shallshall actact onon thethe instructionsinstructions ofof IRPIRP(auditors)(auditors) shallshall actact onon thethe instructionsinstructions ofof IRPIRP
S.DHANAPAL

Collect Info on assets Claim:Claim:
a. A right to payment, whether /
& liabilities – collate
all claims
a. A right to payment, whether /
not such right is reduced to
judgment, fixed, disputed,
undisputed, legal, equitable,
d d
Constitute Creditors
Committee – Monitor
secured or unsecured;
b. Right to remedy for breach of
contract under any law for the
time being in force, if such
assets & operations
Take Custody of assets - File
g
breach gives rise to a right to
payment, whether or not such
right is reduced to judgment,
fixed matured unmaturedTake Custody of assets File
info with Information Utility (a
person registered with the Board
as Information Utility)
fixed, matured, unmatured,
disputed, undisputed,
secured or unsecured
y
S.DHANAPAL

Time LimitTime Limit CoCo--operation from Personneloperation from Personnel
Personnel of the
180 days180 days
(from the date of admission)
Personnel of the
Corporate Debtor
(promoter, directors, manager,
KMP employee etc )(from the date of admission)
+
90 days90 days
KMP, employee etc.)
shall cooperate with thecooperate with the
Interim ResolutionInterim Resolution
P f i lP f i l(extension by NCLT- if
approved by 75% votes in
creditors committee meeting)
ProfessionalProfessional
Failing which, IRP cang ,
apply to NCLT for
directions
S.DHANAPAL

1. To appoint accountant, legal / other professional
2. To enter into / amend contracts / transactions
3. To raise Interim finance
4 To issue instructions to personnel4. To issue instructions to personnel
5. Any other action as necessary5. Any other action as necessary
S.DHANAPAL

 After collation of Claims & determination of
financial position – FinancialFinancial CreditorsCreditors
CommitteeCommittee shallshall bebe constitutedconstitutedCommitteeCommittee shallshall bebe constitutedconstituted
 A RelatedRelated PartyParty, who is a creditor – shall notyy
have any right of representation, participation
/ voting in the committee meeting
 All the decisions of the Committee shall have
a minimumminimum ofof 7575%% votingvoting sharesharegg
 Resolution professional to provide details /
info to the Committee withinwithin 77 daysdaysinfo to the Committee withinwithin 77 daysdays.
S.DHANAPAL

Bankruptcy Board to
1st Meeting of Creditors Committee to be called within 7 days
of its constitution
Replace Interim
approve the
appointment
If not heard from
Appoint of
Resolution
p
Resolution
Professional
If not heard from
Board within 10
days – NCLT shall
order the IRP to
Resolution
Professional –
with 75% voting
share
continue until the
Board confirms
Re-appoint Communicate theshare
pp
Interim
Resolution
Professional
Communicate the
decision to IRP,
NCLT, Corporate
Debtor
Professional
S.DHANAPAL

Meetings shall be conducted by Resolution Professional
Who can No rights to
Representation
Meetings shall be conducted by Resolution Professional
attend Vote
Representation
Insolvency
1. Members of
Committee;
2 M b f
1. Members of
the suspended
BOD
Insolvency
Professional can be
appointed by any
creditor to represent
him2. Members of
suspended BOD
3. Operational
2. Partners
3. One
representative
him
Fees for Insolvency
Creditors & their
representatives
representative
of operational
Creditor
Professional shall be
born by the creditor
himself
S.DHANAPAL

 Preserve & protect assets;
 Immediate custody of assets; Immediate custody of assets;
 Represent & act on behalf of the Corporate
Debtor
R i i t i fi Raise interim finances;
 Appoint accountant, legal / other professionals;
 Maintain an updated list of claims;
 Convene & attend all meetings of creditors
committee;
 Prepare information memorandum;p
 Invite prospective lenders, investors etc;
 Present all resolution plans at meetings;
 File application for avoidance of transactions; etc File application for avoidance of transactions; etc
S.DHANAPAL

Creditors Committee MeetingCreditors Committee Meeting
Resolution Professional shall be
replaced any time
Resolution Professional shall be
replaced any time
With 75% voting shares approvalWith 75% voting shares approval
replaced any timereplaced any time
Adjudicating Authority (NCLT)Adjudicating Authority (NCLT)
The name of proposed resolution professional shall be forwarded to NCLTThe name of proposed resolution professional shall be forwarded to NCLT
Bankruptcy Board of IndiaBankruptcy Board of India
If approved – the new Resolution
professional shall be appointed
If approved – the new Resolution
professional shall be appointed
If any disciplinary proceeding pending against the
new resolution professional – the existing RP shall
continue till the appointment of new RP
If any disciplinary proceeding pending against the
new resolution professional – the existing RP shall
continue till the appointment of new RP
p ppp pp continue till the appointment of new RPcontinue till the appointment of new RP
S.DHANAPAL

Items that need approvalItems that need approval ProcedureProcedureItems that need approvalItems that need approval ProcedureProcedure
 Raise interim finance in excess
of limits;  Approval in creditors
committee Create security interest over
assets;
 Change capital structure;
change in o nership interest
committee
 With 75% voting shares
 change in ownership interest;
 Instructions to auditors for
debit transactions in excess of
limits;
required
 Any action takenlimits;
 Undertake related party
transactions;
 Amend constitutional
 Any action taken
without approval is
VOIDVOID & such action
shall be reported to thedocuments;
 Delegate authority to any
others;
shall be reported to the
Bankruptcy BoardBankruptcy Board
 Dispose any shares;
 change in management; etc S.DHANAPAL

Information
Memorandum
•in such form &
Submission of
Resolution Plan
•Approval subject
Adjudicating
Authority
•Shall either•in such form &
manner
prescribed by
Board
•Approval subject
to 75% voting
shares in
creditors
•Shall either
approve / reject
the resolution
planBoard
•With all the
relevant
f '
creditors
committee
•Resolution
f l
plan
•If approved – the
moratorium order
h llinformation's professional can
attend the
meeting, but can
shall cease to
have effect &
•All the
not vote unless
he is a financial
creditor
documents shall
be forwarded to
the Board
S.DHANAPAL

Who can file
•Creditor /
When can file
•Corporate debtor
Time Limit
••90 days90 daysCreditor /
corporate debtor
•Along with
requisite proofs
Corporate debtor
with assets &
income below
level amp by CGamp by CG;
90 days90 days
•(from the date of
admission)
requisite proofs
amp byamp by
Bankruptcy boardBankruptcy board
level amp by CGamp by CG;
•Corporate debtor
with such class of
dit / h
•+
••90 days90 days
•(extension by
creditors / such
amount amp byamp by
CGCG
( y
NCLT- if
approved by 75%
votes in creditors
•Such other
category amp byamp by
CGCG
committee
meeting)
S.DHANAPAL

Adjudicating authority does not receive
a resolution plan;a resolution plan;
Resolution plan is rejected byj
the Adjudicating authority;
C dit C itt lCreditors Committee resolves
to liquidate;
If the approved resolution plan is contravened
by the corporate debtor;y p
S.DHANAPAL

Admission /
j ti frejection of
claims
Determination
of value of
claims
Verification
of claims
Appeal against
the decision of
Consolidation
of claims within
the liquidator
within 14 days
if any claim is
rejected
of claims within
30 days of
commencement
of liquidation
S.DHANAPAL

• Transfer of property / interest to the benefit
of creditorof creditor
• Shall not include transactions in ordinary
course of business
PreferentialPreferential
TransactionTransaction
• To a related party - 2 years of insolvency
commencement
Person other than related party one year
RelevantRelevant
• Person other than related party – one year
preceding the insolvency commencement
TimeTime
S.DHANAPAL

Avoid UTAvoid UTAvoid UTAvoid UT
UT if /
Relevant TimeRelevant TimeRelevant TimeRelevant Time
R l d
Application byApplication by
CreditorCreditor
Application byApplication by
CreditorCreditor
If h li id /•UT – gift /
transactions with
under value, not in
ordinar co rse of
•Related party –
within 2 years
preceding the
insol enc
•If the liquidator /
resolution
professional fails
to report to theordinary course of
business
•Liquidator /
R l ti
insolvency
commencement;
to report to the
NCLT – creditor /
member / partner
may apply to NCLTResolution
professional can
apply to NCLT to
declare such
•Any person –
within 1 year
preceding the
l
may apply to NCLT
for such orders
declare such
transactions as
void & reverse the
effect
insolvency
commencement;
effect
S.DHANAPAL

Where assets areWhere assets are
completely
liquidated
Liquidator shall
apply to
AdjudicatingAdjudicating
authority
The order of
liquidation shall be
filed within 7 days
with registrarg
S.DHANAPAL

A corporate person can liquidate itself even if there is noA corporate person can liquidate itself even if there is no
default committed;
• stating not liquidated to defraud
Declaration
from directors
• Annex – audited financial statements (previous 2 years) &
valuation report of assets
Special
• Approval for liquidation & appointment of Insolvency
Professional (within 4 weeks of declaration)Special
Resolution
Professional (within 4 weeks of declaration)
d d l f d b h ll
Creditors
Approval
• Creditors representing 2/3rds in value of debt shall approve
the special resolution within 7 days – the Voluntarythe Voluntary
liquidation process shall commenceliquidation process shall commence
S.DHANAPAL

ROC & Board
•Within 7 days the Registrar of Companies & Board shall
be intimated
•Where affairs are completely wound up and assets
Adjudicating
Authority
liquidated – liquidator shall apply to adjudicating
authority for dissolution
•Adjudicating authority shall order for dissolution – copy
of order shall be filed with Registrar within 14 days
Dissolution
of order shall be filed with Registrar within 14 days
S.DHANAPAL

National Company LawNational Company Law
Appellate TribunalAppellate Tribunal
Supreme CourtSupreme Court
pppp
•• With 30 daysWith 30 days
• of order of NCLT
•• With 45 daysWith 45 days
• of order of NCLATof order of NCLT
• +
•• 15 days15 days
of order of NCLAT
• +
•• 15 days15 daysyy
• (if satisfied that there
was sufficient cause for
f l h
yy
• (if satisfied that there
was sufficient cause for
f l h d )not filing within 30
days)
not filing within 45days)
S.DHANAPAL

P ti l P ltParticulars Penalty
Fraudulent initiation of proceedings /
furnishing false info in application
One Lakh to One Crore
Concealment of Property /
Misconduct in case of CIRP /
Falsification of books of corporate debtor
Imprisonment – 3 years to
5 years or / and
Fine one lakh to One Crorep
/ Willful & material omissions from
statements relating to affairs of corporate
debtor / False representation to creditors
/ contravention of moratorium or/ contravention of moratorium or
resolution plan / false information in
application by corporate debtor
Transactions defrauding Creditors / non
disclosure of dispute or repayment of debt
Imprisonment – 1 year to 5
years or / and
Fine one lakh to One Crore
S.DHANAPAL

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