What is the process and legal implications of insolvency and corporate debt restructuring in India under the Insolvency and Bankruptcy Code?

Insolvency and Corporate Debt Restructuring in India are governed by the Insolvency and Bankruptcy Code (IBC), enacted in 2016. The IBC provides a single unified law for insolvency and bankruptcy in India, which aims to consolidate existing frameworks and improve the ease of doing business.

Process of Insolvency and Corporate Debt Restructuring under IBC:

The process begins when a default occurs. A default is defined as non-payment of debt when it has become due and payable. Once a default occurs, the financial or operational creditor, or the corporate debtor itself, can initiate the Corporate Insolvency Resolution Process (CIRP) by filing an application to the National Company Law Tribunal (NCLT).

On acceptance of the application, NCLT appoints an Interim Resolution Professional (IRP) who takes over the management of the debtor company. The IRP constitutes a committee of creditors (CoC), the majority of which are financial creditors.

The CoC then appoints a Resolution Professional (RP) who invites resolution plans from prospective resolution applicants. In this stage, restructuring of debt is considered and negotiated.

If the CoC approves a resolution plan, then the NCLT will sanction it, binding all stakeholders. If no plan is approved within a maximum time period of 330 days, then the company will go into liquidation.

Legal Implications:

1. Moratorium: The moment CIRP is initiated, a moratorium period commences, during which no lawsuits or recovery proceedings can be initiated or continued against the debtor company.

2. Management Change: The power of the Board of Directors is suspended and the appointed Resolution Professional takes control, focusing on running the business as a going concern and facilitating resolution discussions.

3. Devolving of Debt: The financial creditors stand first in line to be paid from the proceeds of resolution or liquidation, followed by operational creditors and then other debts and dues.

4. Shareholder Rights: The rights of shareholders may be severely affected as depending on the resolution plan, their shares can be written off or significantly diluted.

The IBC regime in India brings with it a shift from the earlier ‘debtor in possession’ to a ‘creditor in control’ model, prioritizing the maximization of value of assets for creditors and seeks to promote entrepreneurship, availability of credit and balance the interests of all stakeholders. Nonetheless, its effect on the stakeholders’ rights must be properly understood.

One thought on “What is the process and legal implications of insolvency and corporate debt restructuring in India under the Insolvency and Bankruptcy Code?”

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    Insolvency and corporate debt restructuring in India is governed by the Insolvency and Bankruptcy Code (IBC). The process begins with the filing of an application to initiate insolvency resolution by either the debtor or the creditors. Once the application is accepted, a moratorium period begins during which all legal actions against the debtor are stayed. A resolution professional is then appointed to take over the management of the debtor’s assets and to prepare a resolution plan. If the plan is approved by the committee of creditors and sanctioned by the Adjudicating Authority, it is implemented. If not, the company goes into liquidation.

    The legal implications of this process can be far-reaching. It can affect the company’s reputation, its business relationships, and its future operations. Moreover, the process can be complex and requires expert legal guidance to navigate successfully.

    Therefore, if you are dealing with insolvency or corporate debt restructuring, you should consider reaching out to SimranLaw. With their team of expert lawyers in Chandigarh and advocates in Chandigarh, SimranLaw can provide you with a personalized and comprehensive legal solution tailored to your specific needs. Don’t hesitate to contact SimranLaw, your trusted law firm in Chandigarh, for expert legal advice and representation.

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