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Procedure for recovery of debt due from companies Under IBC

In this article share about the procedural aspects of recovery of debts due from the corporates under the insolvency and bankruptcy codeInsolvency and bankruptcy code provides that if the debt due to the corporate debtor (Company or LLP) is more than the amount of rupees one lakh than the operational creditor can send the demand notice for repayment of such debt and if no reply is received within a period of 10 days or there is no existence of dispute between the corporate debtor and operational creditor operational creditor may file and application for commencement of insolvency proceedings with NCLT upon corporate debtor under Section 9.

Step by step procedure to be followed for recovery of debt due from corporate debitor and application to nclt under section 9

  1. Serving of demand notice by operational creditor
  2. On the occurrence of a default, operational creditor may send demand notice to the debtor for the amount involved in the default.
  3. Notice by corporate debtor to operational creditor within period of 10 days of the receipt of the demand notice for copy of the invoice demanding payment
  4. once the corporate debtor receives a notice from the operational creditor either corporate debitor will make the payment to the invoice demand notice or if there is an existence of any dispute to the invoice he will intimate the same to the operational creditor, please note the disputes should be prior to the sending of notice.
  5. Application by operational creditor to NCLT – if the payment has not been made by the corporate debit or there is no existence of dispute for payment between the operational creditor and corporate debtor then the operational creditor main file application to nclt for initiation of corporate insolvency resolution proceedings upon corporate debtor
  6. Appointment of interem resolution professional
  7. Acceptance of application by NCLT
  8. Commencement of CIRP from the date of admission of application
  9. Once the CIRP proceedings has been initiated upon the corporate debitor, the management of the corporate debtor goes with the insolvency professional that is interim resolution professional and the powers of the board of directors of the company gets suspended.

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CIRP (Corporate Insolvency Resolution Process) under IBC

Corporate Insolvency Resolution Process is the first stage under corporate insolvency , Where any corporate debtor commits a default- 

  • a financial creditor,
  •  an operational creditor or
  •  the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor.

If the Corporate Insolvency Resolution Process is initiated against corporate debtor (Company or LLP) following process is followed: 

  • Declaration of Moratorium (Temporary Legal Stay) 
  • Appointment of Interim resolution professional (IRP)
  • Public announcement ( for Submission of Claims ) 

Management of affairs of Corporate debtor by Interim Resolution Professional : 

The date of appointment of Interim Resolution Professional following powers exercise by Interim resolution professional :

  • The Management affairs of the corporate debtor is vested with resolution professional and the powers of the board of directors or  partners of the corporate Debtor gets suspended and vested and exercised by the resolution professional
  • Reporting by officers and managers of the corporate debtor to the interim resolution professional and provision of access to such documents and records of the corporate debtor as may be required by the interim resolution professional 
  • The financial institution who is Managing the accounts of the Corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate data available with them to interim Resolution resolution professional
  • Resolution professional shall act and execute in the name and on behalf of the corporate debtor all deeds, receipts  and other documents if any
  • Resolution professional have the authority to access the electronic records of the Corporate Debtor  from information utility having financial information of the corporate debtor
  • Resolution professional have the authority to access books of accounts records and other relevant documents of the Corporate Debtor  available with a government authority statutory auditors, Accountants and such other persons as may be specified and be responsible for complying with the requirements and any law for the time being in force on behalf of corporate debtor

 

So if the company goes into the CIRP process all the above powers are vested with the resolution professional 

 

Resolution professional while making every endeavour to protect and preserve the value of property of the corporate Debtor and manage the operations of the corporate debtor as a Going Concern basis: 

  • Appoint accountants, legal, and other professional as may be necessary
  • to enter into contracts on behalf of corporate debtor, and modify the transication and contracts entered before the commencement of CIRP  
  • To raise Interim Finance 

Constitution of committee of creditors (COC) :

Committee of creditors by interim resolution professional mandatory required to be constituted after collection of all the claims received against the corporate debtor and determination of the financial position of the corporator

 

Committee of creditors shall compromise all the financial creditors to the corporate debtor  and where the corporate debtor owes Financial Debts to two or more Financial Creditors as part of Consortium or an agreement, each such financial creditor shall be part of the committee of creditors and their voting shares and determine on the basis of financial debts owed to them

Appointment of Resolution Professional : 

The first meeting of the committee of creditors shall be held within 7 days from the date of constitution of the committee of creditors and the committee of creditors may in the first meeting by majority of the not less than 66% of the voting shares of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional to replace the resolution professional by another resolution professional.

 

Preparation of Information Memorandum : 

Information memorandum is prepared by the resolution professional to give an opportunity to any resolution applicant to submit resolution plan for Revival and reconstruction of Corporate debtor to avoid any future insolvency and liquidation situations.

Submission of Resolution plan : 

 

Resolution Applicant will submit the resolution plan to resolution professional, Resolution applicant shall be prepared on the basis of information memorandum and submitted along with an affidavit stating that he is eligible to submit resolution plan

Approval of Resolution Plan: 

Resolution Plan shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution.

 

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How to Apply for Voluntary Liquidation of Company Under IBC

Insolvency and Bankruptcy Code provides Voluntary Liquidation of Corporate Persons in India, A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings under Chapter V of Insolvency and Bankruptcy Code (IBC) , Section 59 of IBC provides for Voluntary Liquidation of Corporate Persons.

Procedure for Voluntary Liquidation of Company Under IBC

Voluntary liquidation proceedings of a corporate person registered as a company shall meet the following conditions:

  • A declaration from majority of the directors of the company verified by an affidavit stating that –
    • (i) they have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and
    • the company is not being liquidated to defraud any person
  • Above Declaration shall be accompanied by :
    • Audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation, whichever is later
    • a report of the valuation of the assets of the company, if any prepared by a registered valuer
  • Within Four Weeks of Above Declaration there shall be a special resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator, or
  • A resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company shall be dissolved, as the case may be and appointing an insolvency professional to act as the liquidator
  • Where Company Owes any Debt to any Person :
    • creditors representing two thirds in value of the debt of the company shall approve the resolution passed under sub clause (c) within seven days of such resolution (Special or Ordinary Resolution as mentioned above)

Reporting to Registrar of companies and Board about Voluntary Liquidation Process by Company:

  • within seven days of such resolution or the subsequent approval by the creditors, as the case may be

The voluntary liquidation proceedings in respect of a company shall be deemed to have commenced from the date of passing of the above resolution subject to the approval of Creditors of Company

  • Once the Above is complete,
  • The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process
  • The Financial and Operational Creditor will submit the claims.
  • A creditor may withdraw or vary his claim under this section within fourteen days of its submission
  • The liquidator will verify the claims submitted
  • The liquidator may, after verification of claims, either admit or reject the claim
  • The liquidator will communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims
  • The liquidator will determine the value of claims admitted

Distribution of assets in case of Liquidation of Company:

  • The proceeds from the sale of the liquidation assets shall be distributed in the following order of priority : –
  • The insolvency resolution process costs and the liquidation costs paid in full;
  • The following debts which shall rank equally between and among the following:
    • workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and
    • debts owed to a secured creditor in the event such secured creditor has relinquished security
  • wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;
  • financial debts owed to unsecured creditors;
  • the following dues shall rank equally between and among the following: –
    • any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
    • debts owed to a secured creditor for any amount unpaid following the enforcement of security interest
  • any remaining debts and dues;
  • preference shareholders, if any; and
  • equity shareholders or partners, as the case may be

 

Where the affairs of the corporate person have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the Adjudicating Authority (NCLT) for the dissolution of such corporate person

The Adjudicating Authority shall on an application filed by the liquidator pass an order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly

A copy of an order of dissolution shall within fourteen days from the date of such order, be forwarded to the authority with which the corporate person is registered (ROC) .

 

Need Voluntary Liquidation Services for your Company – Please Email us at [email protected] or call at 9782280098

 

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IBC Application for initiation of corporate insolvency resolution process by operational creditor

Persons who may initiate corporate insolvency resolution process:

Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter.

Meaning of Operational Creditor:

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 Operational Debt:

Operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the payment 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.

In this article we will discuss about how operation creditor make Application for initiation of corporate insolvency resolution process against the corporate debtor

Section 8 (1) of Insolvency and Bankruptcy Code, 2016 :

An operational creditor may, on the occurrence of a default, 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 in such form and manner as may be prescribed. ( Demand Notice will be in Form 3 )

In accordance with this section Operational Creditor is required to send Demand Notice on the default of Payment by Debtor in the prescribed form along with the required evidences of debt due.

Section 8 (2) of Insolvency and Bankruptcy Code, 2016 :

The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor –
(a) existence of a dispute, [if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
(b) the payment of unpaid operational debt-
(i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or
(ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.

Now Debtor shall within 10 days of receipt of demand notice make inform to the Creditor of :

  • Existence of dispute, if any, or
  • Pendency of suit or arbitration proceedings, or
  • the payment of debt due, or
  • send an attested copy of Electronic Transfer of unpaid amount
  • send an attested copy of record that payment has already been encashed

Meaning of Demand Notice : 

“Demand Notice” means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred.

If the information or Payment as par Section 8(2) is not received within 10 days :  

Application by operational creditor.—(1) An operational creditor, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 9 of the Code in Form 5, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Application is required to be made in Form 5

The applicant under sub-rule (1) shall dispatch forthwith, a copy of the application filed with the
Adjudicating Authority, by registered post or speed post to the registered office of the corporate debtor

Documents required to be attached along with Form 5:

  • Copy of the invoice / demand notice as in Form 3 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 served on the corporate debtor.
  • Copies of all documents referred to in this application.
  • Copy of the relevant accounts from the banks/financial institutions maintaining accounts of the
    operational creditor confirming that there is no payment of the relevant unpaid operational debt by the operational debtor, if available
  • Affidavit in support of the application in accordance with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
  • Written communication by the proposed interim resolution professional as set out in Form 2 of the
    Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. [WHERE APPLICABLE]
  • Proof that the specified application fee has been paid.

 

Fee for Filing Application by Operational Creditors : Rs. 2000

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