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Overview of Insolvency Resolution Process
The insolvency resolution process(IRP) is a way by which under IBC, any creditor of the corporate debtor or the corporate debtor itself has to file an application for insolvency resolution. The occurrence of a payment default is the trigger for filing an application.
When anyone fails to pay the debt on its due date, then it is termed as payment default. In case of a company the default amount is INR 1,00,000 whereas, in the case of individual and partnership firms, it is INR 1,000.
Why there is a need for voting?
Whenever there is a financial debt then a financial creditor like a bank or any non-banking financial institution files an application immediately after it finds that there is the occurrence of any kind of default. It is possible to file an application only when there is the applicant who provides some other acceptable proof of non-payment.
Whenever there is a case of operational debt that means the debt which is owed to suppliers, vendors and employees then the operational creditor has to deliver a demand notice to the debtor.
In case the debtor is not able to pay all the unpaid dues or they are not able to prove that there is some kind of dispute on the debt payment within 10 days of the notice demand that has been provided then the operational creditor has to file an application of insolvency resolution in that after the end of that stipulated time period.
Now, IBC starts the insolvency resolution process with limited grace periods which are for the delay in payment in comparison to earlier laws that are dealing with insolvency and recovery of debt. Suppose a company needs fifty percent erosion in the net worth of the company for starting the process then there will be the need of the board of the company for monitoring and reporting the erosion.
There are provisions which are there for early detection and early result in triggering the insolvency resolution. In that situation where any corporate entity has failed to satisfy the debts and liabilities of a company keeping in mind, the type of creditor has the ability to start the insolvency process by voting app.
An IRP comes to an end in 180 days, subject to an extension of 90 days. So, after the end of 180 days, the committee of creditors have to approve the resolution plan for the debtor. If they are not able to do so then the company goes into liquidation.
This approval process can be accomplished using app which makes the voting process of the creditors simple and easy and resolution process faster. The approval of the resolution plan needs the vote of 75% creditors. They must be financial creditors who are secured as well as unsecured.
Sometimes delays are essential especially when it’s about guarding against insolvency resolution as the value of an insolvent debtor estate depreciate with the passage of time. But it is essential that strict stipulated timeline is followed by all the concerned parties so that there is no delay in the process.
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