Here are the notes on the Insolvency and Bankruptcy Code, 2016 (IBC): Initiation of Corporate Insolvency Resolution Process by a Financial Creditor, with MCQs and answers:
Note 1: A financial creditor is a person to whom a financial debt is owed. A financial debt is a debt which is secured or unsecured and includes any debt for money borrowed or debt for any other liability in respect of which interest is payable.
Note 2: The corporate insolvency resolution process (CIRP) is the process by which a corporate debtor (a company or limited liability partnership) that is in financial difficulty can be rescued or its assets can be liquidated.
Note 3: A financial creditor can initiate the CIRP against a corporate debtor if the corporate debtor has committed a default. A default is defined as a failure to repay a financial debt when it is due and payable.
Note 4: The financial creditor can initiate the CIRP by filing an application with the Adjudicating Authority. The Adjudicating Authority is a court that has been designated to hear and decide cases under the IBC.
Note 5: The application for initiating the CIRP must be accompanied by a copy of the default notice that has been served on the corporate debtor. The default notice must be in the prescribed form and must be served at least 21 days before the filing of the application.
Note 6: The Adjudicating Authority will admit the application for the CIRP if it is satisfied that the corporate debtor has committed a default. The Adjudicating Authority will then order the initiation of the CIRP.
Note 7: The CIRP will be conducted by a resolution professional who will be appointed by the Adjudicating Authority. The resolution professional will be responsible for managing the CIRP and for proposing a resolution plan for the corporate debtor.
Note 8: The resolution plan is a plan that proposes a way to restructure the corporate debtor or to sell its assets. The resolution plan must be approved by the Committee of Creditors (CoC), which is a committee of the financial creditors of the corporate debtor.
Note 9: If the CoC approves the resolution plan, the CIRP will be terminated and the resolution plan will be implemented. If the CoC does not approve the resolution plan, the corporate debtor will be liquidated.
MCQs:
- Who can initiate the CIRP against a corporate debtor?
- A financial creditor
- An operational creditor
- A corporate applicant
- Both (a) and (b)
The answer is (a). Only a financial creditor can initiate the CIRP against a corporate debtor.
- What is a default?
- A failure to repay a financial debt when it is due and payable
- A failure to deliver goods or services when they are due and payable
- A failure to comply with a contractual obligation
- All of the above
The answer is (c). A default is a failure to perform any obligation under a contract, including a failure to repay a financial debt when it is due and payable.
- What is the role of the Adjudicating Authority in the CIRP?
- To admit or reject the application for the CIRP
- To appoint the resolution professional
- To supervise the CIRP
- All of the above
The answer is (d). The Adjudicating Authority has all of these roles in the CIRP.
- What is the role of the Committee of Creditors (CoC) in the CIRP?
- To approve the resolution plan
- To remove the resolution professional
- To appoint the liquidator
- All of the above
The answer is (a). The CoC is responsible for approving the resolution plan. It can also remove the resolution professional and appoint the liquidator.
- What happens if the CoC does not approve the resolution plan?
- The CIRP will be terminated
- The corporate debtor will be liquidated
- The financial creditors will have to write off their debts
- All of the above
The answer is (b). If the CoC does not approve the resolution plan, the corporate debtor will be liquidated. The financial creditors will then have to write off their debts.