How IBC Works...
Financial creditor or group of creditors (Section 7 of IBC), operational creditor or group of creditors (Section 9) and promoter of a defaulting company (Section 10) can file an application for bankruptcy proceedings with NCLT. Bankruptcy proceedings can be initiated if a company commits a default of a minimum loan value of Rs 1 crore. The NCLT takes up the bankruptcy application for consideration. It may reject or approve the application for adjudication. Once the application is approved, there is a moratorium on the defaulting company not to sell off any of its assets without the permission of its lenders, which are called Committee of Creditors (COC). The NCLT appoints a Resolution Professional (RP), who will take charge of the defaulting company, look into its book of accounts, assets and liabilities and assist the COC in running the bankruptcy process. The RP prepares a detailed report on the assets and liabilities of the defaulting company and calls for bids to acquire the company. Various bids, which are essentially bankruptcy resolution plans, are put before the COC for approval. Once the COC selects the successful bidder, the RP files the bidder’s resolution plan with the NCLT for its approval. After the NCLT’S approval, the winning bidder is permitted to acquire the company and pay the amount to the COC. The difference between the loan claimed by creditors and the amount received by them from the bidder is the haircut. Bidders who do not get their resolution plans approved or creditors who are not happy with the approved resolution plan have the right to appeal against the plan with the NCLAT. If no bidder is approved by the COC, the NCLT will order the company to go in for liquidation, resulting in selling off all its assets through auctions. The proceeds of the auctions go to the creditors as repayment of their outstanding loan dues. All the CIRPS are mandated to be completed within 270 days, and the new, extended deadline is 330 days.