Corporate Debtor Under IBC

A corporate debtor under the Insolvency and Bankruptcy Code2016 (IBC) is a corporate person who owes a debt to any person. Corporate person shall be specified as u/s 3(7) of IBC, which shall include

• Companies defined under Companies Act
• LLP defined under LLP Act
• Any other person incorporated with limited liability

Nevertheless, it does not include financial services providers, i.e. banks or NBFCs.

IBC for Corporate Debtors

As per Sections 7 and 9 of the IBC, it is not mandatory to offer the chance to be heard by the corporate debtor until the IBC application is admitted by Adjucating Authority and as per section 14, when an IBC application has been admitted, the key managerial personnel of the corporate debtor will report to the IRP proposed by the applicant. As a result, there is a high chance that even a small default could trigger the Insolvency proceeding of the corporate debtor.

The new law of IBC 2016 is also having threat of misuse by creditors & lenders by creating undue pressure on the corporate debtor to recover their dues, if any, which might be fraudulent / bogus claims.

How to Trace Fraudulent Claims

Timely addressing demand notice of default within the stipulating time as specified in the notice and as per provision of IBC 2016, if possible, on the receipt of demand Notice, corporate debtor must create dispute against the same along with proper justification and evidences after detailed scrutiny of claims raised by the Financial or Operation Creditor. Most importantly, Corporate Debtor must defend the insolvency petition filed by the Financial or Operation Creditor.

Defenses Available Against Insolvency Petition

As per the provision of IBC 2016, every Financial & Operational Creditor must follow certain mechanism to file claim for initiation of the insolvency resolution process. Unless the whole process is not duly performed, the corporate debtor always has an opportunity to create dispute, dispose-off the claim by settling with financial or operational creditor. Moreover, Hon'ble Supreme Court in the matter of B.K. Educational Services Pvt. Ltd. has described the applicability & conditions of the Limitation Act on initiation of any insolvency petition under the provision of the IBC 2016.

Defenses Available Against Financial Creditor

If any insolvency petition under the provision of the IBC 2016 filed by the financial creditor, the corporate debtor should:

• Check whether the financial creditor followed all the mechanism or steps of filling the claim for initiation of the insolvency resolution process or not?
  • The default must exist prior to initiation of the insolvency resolution process.
  • Default notice must served to Corporate debtor in accordance with the provisions of IBC 2016
  • Check whether any dispute or discrepancies exist in the claim raised by the financial creditor and
  • If any dispute or discrepancies exist in the claim raised by the financial creditor than Corporate debtor must sent the reply against the default the notice within the stipulated time as mentioned in the default notice or as per the provision of IBC 2016
  • If any, dispute or discrepancies exist in the claims raised or financial creditor did not follow the proper process as defined under IBC 2016, than the claim for initiation of the insolvency resolution process would automatically dismissed by the Adjucating Authority.
• Check whether the claim raised by the Financial Creditor is correct or not?
  The corporate debtor must carefully review the books of accounts, communications, agreements and other documents exchanged with Financial Creditor and verify the same. In the case of any dispute or discrepancies exist in the claims raised by Financial creditor, the Corporate Debtor must revert the same against the default notice within the stipulated time as prescribed in the Default Notice or as per the provision of IBC 2016.

Defenses Available Against Operational Creditor

If any insolvency petition under the provision of the IBC 2016 filed by the Operational Creditor, the corporate debtor should check:

• Whether the Operational Creditor followed all the mechanism or steps of filling the claim for initiation of the insolvency resolution process or not?
  • The default must exist prior to initiation of the insolvency resolution process.
  • Default notice must served to Corporate debtor in accordance with the provisions of IBC 2016
  • Whether any dispute or discrepancies exist in the claim raised by the Operational Creditor and
  • If any dispute or discrepancies exist in the claim raised by the Operational Creditor than Corporate debtor must sent the reply against the default the notice within the stipulated time as mentioned in the default notice or as per the provision of IBC 2016
  • If any, dispute or discrepancies exist in the claims raised or Operational Creditor did not follow the proper process as defined under IBC 2016, than the claim for initiation of the insolvency resolution process would automatically dismissed by the Adjucating Authority.
• Check whether the claim raised by the Operational Creditor is correct or not?
  The corporate debtor must carefully review the books of accounts, communications, agreements and other documents exchanged with Operational Creditor and verify the same. In the case of any dispute or discrepancies exist in the claims raised by Operational Creditor, the Corporate Debtor must revert the same against the default notice within the stipulated time as prescribed in the Default Notice or as per the provision of IBC 2016.
• Whether, any proceedings are already pending between the operating creditor and the corporate debtor.

If any of the aforementioned conditions exist, than corporate debtor shall have good rights to protect the complaint or restrict the process of initiation of Insolvency provision.

Voluntary Insolvency

No one can always enjoy the prosperity. There are several phases of difficulties, such as the financial recession, the economic crisis, management dispute etc. which may result in delaying in discharging the responsibility of Corporate Debtor towards to the Creditors.

If the corporate debtor is unable in discharging its liabilities and does not have sufficient resources to discharge those liabilities, such as Financial Liquidity etc, than as a last resort, the corporate debtor may voluntarily file an insolvency petition under the Corporate Insolvency Resolution Process, and if Adjucating Authority feels that the petition filed was not to defraud the creditors, than Adjucating Authority may admit the Voluntary Insolvency petition filed by Corporate Debtor.

If any Corporate Entity or Corporate debtor initiate the process of Insolvency to liquidate itself as voluntary liquidation than the whole process would named as “Liquidation” and Resolution Professional appointed by Adjucating Authority for the purpose of the voluntary liquidation of a corporate person would name as "Liquidator".

Assist the appointed Resolution Professional in the management & administration of Corporate Debtor during the course of CIRP.

Immediately after admission petition under the IBC 2016, Adjucating Authority appointed the Interim Resolution Professional ('IRP'), and whole management and administrative of business of corporate debtor would assigned to the IRP. As professional, we always support the appointed IRP in the management, administration & operation of the corporate debtor till the time of CIRP concluded.

Representing Financial or Operation Creditor in the Committee of Creditors

We can jointly represent one or more creditors or corporate debtors in the Committee and will prepare report or guide them on the developments taken place during the CIRP of Corporate debtor.

Why Rajput Jain & Associates in IBC?

We are having well qualified & experienced team of Insolvency Professionals, Chartered accountants, Company Secretary, advocates and various experts of versatile experience and having experience of representing various clients before NCLT & NCALT at PAN India level. Our specialised services includes following;

• Execution of structured trial or tribunal process.
• The Insolvency & Bankruptcy Code, 2016, & privatization & insolvency process envisaged therein.
• Structuring, legal & regulatory strategies, future costs of restructuring etc.
• Drawing up, drafting, finalizing related legal papers, including contracts, requests and resolutions.
• Structuring & executing the escape plan for creditors from troubled investments, including strategic selling, redemption, recession selling and auctions.
• Structure of a divestment and withdrawal plan.
• Planning, drafting and finalizing the necessary contract papers.
• Guiding Directors & key management personnel on their liabilities, obligations arising from restructuring & formal, informal insolvency processes.
• Liquidation process provided to Corporate Debtors under the legal, legislative and policy system, including the Business Act 2013 and the Insolvency and Bankruptcy Code 2016.
• Represent clients before various courts, Forum, Tribunals legal & quasi-judicial bodies.
• Formulating & structuring disputes and dispute resolution approaches.
• Strategy, drafting, negotiating and finalizing of contentious and dispute resolution documents, including applications, petitions, settlements and compromises.
• Development of a turnaround plan (resolution plan)
• Development of Resolution Matrix etc.

Our specialists are also doing the preliminary work & giving full added benefit. Please email us at singh@carajput.com or call our specialist at 9555555480.