Important FAQ’s on IBC:

AccordioInsolvency precedes Bankruptcy which further leads to Liquidation. In common parlance, Insolvency is a state wherein the financial upheavals of a Company are such that it is unable to carry on its operations at the current pace. This eventually leads to Bankruptcy wherein the Company is legally declared as incapable of repaying its dues and thus the operations of the Company are wound up as per the governing statute and the Company goes into liquidation.n Sample Description
A. Following laws as enumerated below governed insolvency before enactment of IBC, 2016, namely:
  • The Presidency Towns Insolvency Act, 1909
  • The Provincial Insolvency Act, 1920
  • Companies Act, 1956/2013
  • LLP Act, 2008 for closure of LLPs
  • SARFAESI Act, 2002
  • Recovery of debts due to Banks and Financial Institutions Act, 1993
  • Sick Industries Companies (Special Provisions) Act, 1985 Sample Description
A. A Corporate Person who owes debt to any person.
A. A person to whom a financial debt is owed against consideration for time value of money. Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or debt security.
A. A person to whom an operational debt is owed on account of goods or services including workman and govt. dues/. Operational creditors are those whose liability from the entity comes from a transaction on operations.
A. CIRP may be initiated where the minimum amount of default i.e. failure to pay whole or any part of installment of the debt or interest due is Rs. 1,00,000/- or such higher amount as may be notified by the Central Govt. not exceeding Rs. 1 Cr.
A. It may be initiated by the:
  • Financial Creditors (singly or jointly with other creditors);
  • Operational Creditors (including Government and Employees/Workmen);
  • Corporate Debtor

A. A Corporate Debtor:

  • already undergoing CIRP; or
  • who has completed CIRP during 12 months preceding the date of making application; or
  • who has violated any of the terms of a resolution plan which was approved 12 months before the date of making an application; or
  • in respect of whom a liquidation order has been made.
    And a Financial Creditor:
  • who has violated any of the terms of a resolution plan which was approved 12 months before the date of making an application

A. Yes, an Applicant may withdraw application for insolvency process by making a request to the Adjudicating Authority. However, such a withdrawal may not be made after the application has been admitted by the adjudicating authority.

A. Since there is no specific exemption for Government Companies, the Code shall apply to Government Companies as well.

A. IP can only exercise control over the assets of the Borrower and not over its Subsidiary. In such a case it can only act as a Shareholder.

A. Moratorium shall prohibit:

    Institution of Suits;

  • Transfer of Assets;
  • Foreclosure, recovery or enforcement under SARFAESI;
  • Recovery of Assets

A. No, the supply of essential goods/services shall not be terminated or suspended or interrupted during moratorium period.

A. During the moratorium period, all legal proceedings and execution of awards against the Corporate Debtor shall be stayed.

A. A Creditor who failed to submit proof of claim within stipulated time may submit such proof to Interim Resolution Professional before the Resolution Plan is approved by the Committee of Creditors.

A. A Related Party to whom a Corporate Debtor owes a financial debt shall not have any right of Representation, Participation or Voting in a meeting of the Committee of Creditors.

A. The voting share is determined based on the value of the debt of the creditor in proportion to the total debt.

A. The quorum shall be valid if members of the committee of creditors representing at least thirty three percent of the voting rights are present either in person or by video/audio means.

A. Yes, a member of CoC may attend the meeting by video conferencing or other audio and visual means.

A. The resolution plan shall be approved by the CoC by a vote of not less than seventy five percent of voting share of the financial creditors.

A. Yes, NCLT has powers to reject Resolution plans approved by the CoC.

A. Yes, the period during which moratorium is in place shall be excluded in computing the period of limitation specified for any suit or application by or against a Corporate Debtor for which an order of moratorium has been made.

A. No, insolvency proceeding against the Corporate Guarantor is barred on account of moratorium against Principal Borrower.

A. No, as NCLT may only approve (or reject) the Resolution Plan approved by CoC with 75% majority.

A. No, Insolvency Resolution Process is not merely a recovery proceeding to recover the dues of the creditors. In such a case the Adjudicating Authority without waiting for 180 days of resolution process, may approve resolution plan, if any, after recording its satisfaction that all creditors have been paid/ satisfied & close the Insolvency Resolution Process.

A. Yes, If a debt is time barred as per the provision of the Limitation Act 1963, the application will be rejected.

A. A Creditor who acts in the capacity of both the Financial Creditor as well as Operational Creditor for the Corporate Debtor will be treated as a Financial Creditor for those contracts in which financial debt is owed by the Corporate Debtor and an Operational Creditor for such transactions in which operational debt is owed by the Corporate Debtor.

A. The existing judicial proceedings under the Companies Act will be transferred from CLB to NCLT for all cases and from High Court to NCLT in specific cases. Further, on declaration of moratorium, all actions under the SARFAESI Act will be prohibited until the insolvency resolution process is completed.

A. The Code does not make a distinction between Domestic and Foreign Creditors. Any Creditor, Operational or Financial, could exercise the rights available under the Code so far as the application for insolvency is made within India and under the provisions of the Code.

A. Any liability that is not due on the insolvency commencement date may not be included in the claims. Thus it would entirely depend upon the contractual arrangement between the customer and the Debtor.