When a person or an entity is not able to meet its overdue debts to the creditors, investors or lenders it is termed as Insolvent and this particular state is called Insolvency. Insolvency can be settled by two ways which are as follows:
- Reworking on the plan of paying back to the creditors as well as investors.
- Trading the assets of the organization and reimbursing to the creditors or investors from the sale proceeds of the assets.
It would be more accurate to understand the Insolvency Resolution Process stagewise in detail as laid out in the code.
Not being able to pay back the amount to its creditors or investors or lenders either on time or for a very long time by any corporate or business entity, makes an organization insolvent and this state is called as insolvency. Under such circumstances, the application of insolvency is submitted to the NCLT (i.e. National Company Law Tribunal) by any one of the Operational Creditor or Financial Creditor or Corporate Debtor himself.
If in case, it is the corporate debtor himself, the operational creditor has to send prior notice of demand for 10 days to the corporate debtor before the commencement of the insolvency resolution process.
The bank, financial institution, any other lender or anyone providing a loan, credit facility or other financial assistance comes under the category of “Financial Creditors”
Anyone who has been extended payment of credit during the course of business is known as an “Operational Creditor”. Both suppliers, as well as service providers, are covered under this provision.
Insolvency Resolution Process by a Financial Creditor
- A financial creditor either jointly or all by himself shall take up the filing of the application before National Company Law Tribunal against the corporate debtor for insolvency proceedings.
- The evidence of default along with the name of the proposed insolvency professional that needs to be delegated shall be presented along with the application.
Insolvency Resolution Process by an Operational Creditor
- An operational creditor will have to serve at least 10 days of prior notice to the corporate debtor asking him to pay back the dues before commencing with insolvency resolution process.
- In the event of the corporate debtor not being able to pay back the required amount in that particular time period and he/she also doesn’t bring any dispute or any arbitration proceeding pending against it to the notice of operational creditor then the operational creditor can simply file an application for insolvency resolution.
Insolvency Resolution by the Corporate Debtor
As per the provisions included in Chapter- II of the Code, where a corporate debtor has failed in the payment of dues to a financial or operational creditor, the corporate debtor or the financial or operational creditor (i.e.any applicant) can file the application for the commencement of the insolvency resolution process along with the financial documents of the business and other books of accounts. Moreover, as per Section 10 (3), (b) the corporate debtor shall also register the name of the suggested resolution professional along with the application.