Insolvency & Bankruptcy Resolution Under IBC, 2016

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Insolvency & Bankruptcy Resolution Under IBC, 2016

When liabilities exceed assets and repayment obligations cannot be met, insolvency becomes a critical legal concern. AMG Corporate Avenues LLP offers comprehensive support under India’s Insolvency and Bankruptcy Code (IBC), 2016 to help companies, creditors, and stakeholders find structured, lawful solutions for debt resolution or liquidation.

 

✅ End-to-end guidance under the Insolvency and Bankruptcy Code (IBC), 2016

✅ Support for voluntary and creditor-initiated insolvency proceedings

✅ Strategically manage CIRP, liquidation, and debt restructuring

✅ Work with IBBI-registered insolvency professionals and legal experts

✅ Protect business value, manage risk, and ensure regulatory compliance

What Is Insolvency & Bankruptcy?

Insolvency arises when an individual or business is unable to pay outstanding debts as they fall due. This situation typically arises due to ongoing operational losses, excessive liabilities, or poor liquidity. Bankruptcy can lead to serious financial losses and legal action if not resolved in time. Bankruptcy is the official legal mechanism introduced to resolve such financial trouble. It involves either reorganizing the debtor’s financial affairs or liquidating assets to repay creditors under judicial supervision. In India, the Insolvency and Bankruptcy Code (IBC), 2016 lays down a structured, time-bound framework to manage such cases involving corporates, LLPs, and individuals alike.

When to Consider Insolvency or Bankruptcy

Agreements serve as the groundwork for defining intent, protecting interests, and creating the foundation for future contractual relationships. Here are the primary types of legal agreements we offer:

Consistent Inability to Repay Debts

When a business or individual repeatedly fails to meet repayment obligations, it is a sign of serious financial imbalance.. Chronic defaults can attract legal action and damage creditworthiness. At this stage, initiating insolvency proceedings can offer a structured way to resolve debt and avoid unplanned litigation.

Debt Overload with No Recovery in Sight

If liabilities far exceed assets or revenue, and the situation continues to worsen despite internal cost-cutting or financial support, the business is overleveraged. In such cases, the Insolvency and Bankruptcy Code (IBC) allows debtors to seek relief through reorganization or asset liquidation.

Failed Negotiations with Creditors

When efforts to negotiate with lenders or creditors, such as settling dues, revising terms, or requesting grace periods, do not result in any agreement, formal resolution is the only option. Filing for insolvency or bankruptcy provides a legal framework to manage the conflict fairly and transparently.

Severe Liquidity Crisis

A persistent lack of working capital, inability to pay salaries, rent, or operational costs may signify deeper financial trouble. If basic business functions can’t be maintained, insolvency proceedings can help protect remaining assets and find a resolution path.

Legal Pressure from Creditors

If creditors have served demand notices or initiated legal recovery under IBC or other acts, the situation becomes time-sensitive. Instead of waiting for enforcement actions, voluntary insolvency filing offers a more controlled and possibly favourable route.

Regulatory or Judicial Mandate

There are instances where insolvency or bankruptcy becomes unavoidable due to directions from courts, regulators, or financial institutions. Complying with such orders through formal legal channels ensures protection from penalties and allows access to structured resolution mechanisms.

Types of Business Bankruptcy in India

Voluntary Bankruptcy (Debtor-Initiated Insolvency)

This occurs when the business itself files for bankruptcy after acknowledging its inability to pay debts. It is a proactive step taken by the debtor under Section 10 of the IBC to initiate resolution or liquidation before creditors act.

Involuntary Bankruptcy (Creditor-Initiated Insolvency)

Creditors can initiate insolvency proceedings against a company under Section 7 of the IBC if the outstanding default is ₹1 crore or more. This allows the creditor to recover dues through a court-monitored process, including asset liquidation.

Corporate Insolvency Resolution Process (CIRP)

A structured bankruptcy mechanism where an Insolvency Professional takes control of the company to evaluate options—resolution, sale, or liquidation, within 180–330 days. This is the most common bankruptcy path for companies under IBC.

Liquidation

If the CIRP fails or no resolution plan is approved, the company moves into liquidation. The liquidator sells off the assets, and proceeds are distributed to creditors based on priority as per Section 53 of the IBC.

Fast Track Insolvency

Applicable to small companies, startups, and unlisted firms with limited assets or turnover. It offers a faster resolution timeline, 90 to 120 days, under Sections 55 to 58 of the IBC.

Pre-Packaged Insolvency

Designed mainly for MSMEs, pre-pack allows a debtor to prepare a resolution plan in advance with creditors and file it with the NCLT for quick approval. This minimises disruption during bankruptcy and preserves business value.

Process of Bankruptcy & Insolvency in India

The resolution process under the Insolvency and Bankruptcy Code (IBC), 2016 is designed to be systematic, time-bound, and fair for both debtors and creditors. The process may differ depending on whether the applicant is a company, LLP or an individual. Here’s a general overview:

 

1. Initiation of Insolvency Application

The process begins when a creditor (financial or operational) or the debtor themselves files an application with the National Company Law Tribunal (NCLT) for initiating insolvency proceedings due to default in repayment.

  • Financial creditors file under Section 7

  • Operational creditors file under Section 9

  • Debtors can voluntarily initiate under Section 10

2. Admission and Moratorium

Once the application is admitted by the NCLT:

  • A moratorium is declared, prohibiting any legal action or recovery against the debtor.

  • The tribunal appoints an Interim Resolution Professional (IRP) to manage the debtor’s affairs and take control of assets.

3. Public Announcement & Claim Submission

The IRP issues a public notice inviting creditors to submit their claims within a stipulated timeframe (usually 14 days). This ensures all liabilities are identified early in the process.

 

4. Formation of Committee of Creditors (CoC)

Based on the claims received, a Committee of Creditors is formed, consisting primarily of financial creditors. The CoC holds decision-making power for approving or rejecting resolution plans.

 

5. Resolution Plan Submission

Prospective resolution applicants (including investors or asset reconstruction companies) submit resolution plans to revive or acquire the insolvent entity. These plans are evaluated based on viability, feasibility, and creditor satisfaction.

 

6. CoC Approval & NCLT Order

After receiving at least 66% approval from the CoC, the resolution plan is submitted to the NCLT for final approval. Upon acceptance, the plan becomes binding on all stakeholders.

 

7. Liquidation (If No Resolution Plan Succeeds)

If no viable plan is approved within 180–270 days, the entity proceeds to liquidation. The liquidator sells assets, settles liabilities, and distributes the proceeds as per the prescribed waterfall mechanism.

 

8. Bankruptcy for Individuals & Partnerships

For individuals and partnership firms:

  • A repayment plan is proposed and approved by the adjudicating authority.

  • If the plan fails or is rejected, the debtor is declared bankrupt, and assets are liquidated by a bankruptcy trustee.

Documents Required for Insolvency Filing

  1. Board Resolution (for corporate applicants)
     A certified copy of the board resolution authorizing the initiation of insolvency proceedings under the IBC framework.
  2. Demand Notice or Debt Details
    Formal notice or supporting documents showing outstanding debt or default by the debtor, including invoices or loan summaries.
  3. Financial Statements and Audit Reports
     Audited balance sheets, profit and loss statements, and other financial reports for the past two to three years to assess solvency.
  4. Proof of Default or NPA Declaration
     Bank letters or records that confirm the borrower has failed to repay the loan within the stipulated period, marking it as non-performing.
  5. Operational/Financial Agreements
    Copies of key agreements like loan contracts, lease deeds, supplier contracts, or service-level agreements tied to the debt.
  6. List of Creditors and Debtors
    A detailed list showing names, amounts payable/receivable, and the nature of the relationship with each creditor and debtor.
  7. Certificate from Bank/Account Statements
    Recent bank statements or a banker’s certificate verifying account balances and transactions to establish financial position.
  8. Identity & Address Proof (for individuals)
    PAN, Aadhaar, passport, or voter ID is needed for KYC and jurisdiction verification.
  9. Copy of Existing Loan Documents
    Original or certified loan agreements, repayment schedules, and security documents related to the debt in question.

Benefits of Insolvency & Bankruptcy Resolution

Time-Bound Recovery

The Insolvency and Bankruptcy Code (IBC) provides a systematic and time-sensitive mechanism for resolving insolvency cases, which are generally settled within a period of 180 to 270 days. This minimizes prolonged litigation and ensures quicker recovery of dues compared to traditional court procedures.

Creditor Protection

IBC prioritizes the interests of financial and operational creditors. Through a fair and transparent bidding process, creditors can recover the maximum possible value from the debtor's assets or business, often under the supervision of the National Company Law Tribunal (NCLT).

Business Continuity (Where Applicable)

Corporate Insolvency Resolution Process (CIRP) offers an opportunity to revive a distressed business. If a viable resolution plan is approved, the company can continue operations under new ownership or restructured management, preserving jobs and stakeholder value.

Fresh Start for Individuals

For individuals or proprietors facing overwhelming debt, personal insolvency resolution under IBC allows for a structured repayment plan. Once completed, they can receive a discharge from remaining debt, offering a legal fresh start and financial reset.

Transparency & Accountability

IBC mandates strict timelines, public disclosures, and procedural compliance at every stage. The involvement of licensed insolvency professionals and tribunal oversight ensures that the process remains fair, accountable, and resistant to abuse.

Our Insolvency & Bankruptcy Services

✅ Advisory on Financial Distress & Risk Assessment
 We evaluate your company’s financial health, debt profile, and legal exposure to recommend suitable resolution or liquidation options.

✅ Representation Before NCLT & DRT
 Our legal experts represent both debtors and creditors in tribunals to file applications, defend claims, and pursue structured resolutions.

✅ Resolution Professional (RP) Coordination
We help appoint and liaise with IBBI-registered RPs and support them with claim verification, committee coordination, and compliance filings.

✅ Drafting & Filing of Insolvency Petitions
From drafting Section 7, 9, or 10 petitions to supporting documentation, we manage the entire filing process in accordance with IBC timelines.

✅ Resolution Plan Structuring
We assist in preparing investor-friendly, compliant resolution plans that can be approved by creditors and tribunals.

✅ Claim Filing & Creditor Representation
Operational and financial creditors rely on us to file accurate claims, participate in CoC meetings, and protect their interests.

✅ Liquidation & Dissolution Support
We manage the post-resolution liquidation process, helping companies wind up through IBBI and ROC protocols.

Why Choose AMG Corporate Avenues LLP?

  • Full-Spectrum IBC Expertise
    We handle insolvency, resolution, liquidation, and NCLT litigation across sectors and scales.
  • Creditor & Debtor Representation
    We represent both sides with equal legal precision, ensuring fair recovery or defence.
  • NCLT/NCLAT Experience
    Our legal team has deep experience in handling tribunal proceedings and appeals with strategic precision.
  • RP & Liquidator Network
    We coordinate with licensed professionals to ensure smooth, legally compliant administration.
  • Customized Strategies
    From MSMEs to large enterprises, we tailor resolution strategies aligned with your financial goals and risk appetite.

Frequently Asked Questions (FAQs)

Yes, under Section 10 of the IBC, a company can initiate insolvency if it foresees default and is unable to meet its obligations.

The company proceeds to liquidation, and assets are sold to repay creditors as per the waterfall mechanism.

Yes, Individuals who have guaranteed company loans can be pursued for repayment under IBC provisions.

In creditor-initiated cases, the CoC selects the RP. In voluntary cases, the company nominates one from the IBBI panel.

Costs vary based on the company’s size, number of claims, and litigation involved. They include tribunal fees, RP fees, legal expenses, and public notices.

No, Insolvency is a financial condition; liquidation is one potential outcome if resolution efforts fail.

Non-compliance with RBI regulations may result in penalties, suspension of license, or cancellation of NBFC registration. Timely filings and adherence to prudential norms are critical.