In recent times due to coronavirus, we are seeing financial institutes tumbling, major economic factors turning red, and global recession looming. During the lockdown period, when economic activities around the world have stopped, stock exchanges have crashed, and investors are pulling out money. Many companies that had zero inventory policy are seeing the supply chain shock. Cash reserves have depleted, people losing jobs and contraction of the economy at large. Economists and world leaders have drawn a parallel with the time of world war two, where businesses went bankrupt, and people were not able to repay their loans. Hence, we hope that the economy would recover the recession better and faster trough the packages offered by the Reserve Bank of India and announced by our finance minister with deferment on payments by three months. But there is catch you can defer the amount, but interest on the debt for the period would still be there. Hence, in the long run, you would have to pay more. Now, Companies that have low cash reserves during the period of lockdown, which was already struggling like the airline industry, we might see them going for insolvency proceedings as they will be unable to pay their dues.
Now, we touch on what insolvency is and how it is different from Bankruptcy. In India, insolvency, and Bankruptcy defined by the Insolvency and Bankruptcy Code, passed in 2016. According to which company or individual declared insolvent when its liabilities are more significant than assets and are unable to pay the loans back to the creditor on time.
There Are Two Ways A Company Is Declared Insolvent
- Cash Flow Insolvency – Where the debtor is unable to give back its loan amount as it suffers from the lack of financial liquidities.
- Balance Sheet Insolvency – The debtor has not acquired enough assets to pay off their debts.
Once the creditor or debtor has filled for Insolvency at NCLT (National Company Law Tribunal), the company enters the CIRP, which stands for the corporate insolvency resolution process. It is a method through which a person or company which has defaulted on payments by creditors to determine whether the debtor is capable of repayment or not. CIRP is a tool used so that the value of the firm or organization is not lost and to maximize returns to creditors through collective payment processes.
Our Article would like to go through the different steps of the corporate insolvency resolution process. After the application at NCLT accepted, the company said to be under a moratorium for a period of 180 days extended up to 90 days if required. Where it is not allowed to transfer its assets, file a case against the debtor, and discontinue any of its services, i.e., the management loses control of the firm and managed by an independent insolvency Resolution Professional. The Resolution Professional would verify and submit an analysis of the claim made by the creditor. It is within the time frame that the creditors and the lenders need to identify a resolution plan, with the mode of payment.
The company and its creditors can choose for any compromise or arrangement and provide for the restructuring of debt, reduction or preponement of debt, conversion of debt into other instruments, etc.
Additionally, the debtor can provide for the issuance of additional shares, reorganization of capital, merger, demergers, etc. The resolution or the arrangement needs to be approved by the seventy-five percent of the creditors for it to be approved. If the decision not found between the two parties within the stipulated period, NCLT would have the company, along with its assets, dissolved the sale from its assets equitably divided among the creditors.
The entire CIRP process is managed by the insolvency Resolution Professional which is appointed by the Insolvency and Bankruptcy Board (IBBI) of India as an Insolvency Professional. Hence his job is very crucial, which includes managing processes like Claims, Records, Bids, Auction, Voting. There are multiple stakeholders involved; it is just not between debtor or creditor but also employees, customers, and suppliers, etc. which it needs to manage.
There can be thousands of Claims and Expression of Interests (EOI) as per IBBI approved forms via online claim & EOI submission, review, approval, and communications to handle all between the stakeholders. All this information needs to report to the IBBI monthly. Hence, the need for CIRP management software like Solvemint, which are playing a significant role as many Insolvency and Resolution professionals are switching to software solutions to save time and deliver faster results. Solvemint is a software solution ensured to help the organizations/individuals to manage the Insolvency resolution process as per IBS-2016.
Provides the solutions considering the stakeholders like Creditors (secured and unsecured), Stockholders, Employees, Auditors, etc., from their perspectives to attain the best possible solution in a crisis. Through its interface, Solvemint offers a very simple process for the claims of creditors and employees, which makes their job easier.
Through its asset management interface, it is effortless to track the information regarding the sale of the assets, auctions. It organizes and also provides a platform for the bidding of the assets, auction, facilitates the information to buyers and auctioneers.
All these decisions were taken through an organized E-boarding process to help the decision making the process easier for creditors and stockholders through a blockchain-based application.
It also has other advantages like Automatic Notice Generator, which provides all the required legal notices with a click. Solvemint always focuses on providing the best platform to its customers and is the pioneer in bringing the updated features, which makes it best in the Cooperate Insolvency Management.
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