CS Professional · Corporate Restructuring, Valuation and Insolvency

Insolvency: formula sheet

Full chapter guide

Key formulas

Objectives of the Code: Time-bound resolution + value maximisation + entrepreneurship + credit availability + balance of stakeholder interests; Write these as separate points. Add that the Code consolidates earlier laws on insolvency.
Financial creditor vs operational creditor: Financial debt = money lent for time value of money; Operational debt = goods, services, employment or government dues; The type of debt decides the creditor's category and the route for starting CIRP.
Section 9: when an operational creditor may apply: Apply after 10 days from delivery of the demand notice or invoice if no payment and no notice of dispute is received; The creditor files before the Adjudicating Authority and may propose a resolution professional as interim resolution professional.
Section 9(5): time for decision: Adjudicating Authority must admit or reject within 14 days of receipt of the application; CIRP commences from the date of admission under section 9(6).
Section 9(5)(ii) proviso: defect in application: Notice to rectify an incomplete application within 7 days of receiving the notice, before rejection for incompleteness; This applies only to rejection for incompleteness, not to other grounds.
Section 196(1)(a): Board's registration power: Board registers insolvency professional agencies, insolvency professionals and information utilities; it can renew, withdraw, suspend or cancel; The Board also frames standards, inspects and monitors under the other clauses of section 196(1).
Section 212: governing board of information utility: Board may require every information utility to set up a governing board with specified number of independent members; The number of independent members is fixed by regulations. Say 'may require', not 'must'.
Section 206: bar on unregistered persons: IP services allowed only if: enrolled with an IPA AND registered with the Board; Both conditions are cumulative. Missing either one means the person cannot act as an IP under the Code.
Section 207(1): order of steps: Membership of an IPA first, then registration with the Board; Registration is within the time, manner and fee specified by regulations.
Section 207(2): categories: Board may specify categories of professionals with qualifications and experience in finance, law, management, insolvency or other fields it deems fit; Detailed eligibility (education, experience, examination, fit and proper) is in the Board's regulations. Do not quote section numbers for those unless sure.
Section 196(1)(a): Board registers IPAs, IPs and information utilities; can renew, withdraw, suspend or cancel registration; The Board also specifies minimum eligibility requirements under clause (b).
Section 199: IPAs: No person may act as an IPA and enrol IPs except under a certificate of registration from the Board; The registration of IPAs follows the principles in section 200.
Section 208(2): code of conduct: (a) reasonable care and diligence; (b) comply with IPA bye-laws; (c) allow IPA to inspect records; (d) submit copy of records of every proceeding before the Adjudicating Authority to the Board and the IPA; (e) perform functions as specified; Five duties. Learn them as a list.
Section 208(1): processes covered: Fresh start; IRP (individuals); CIRP; pre-packaged IRP; individual bankruptcy; liquidation of corporate debtor firm; Pre-pack was added as clause (ca), and section 208(1A) covers pre-initiation functions of the proposed resolution professional.
Section 200: five principles: (a) professional development and regulation of IPs; (b) competent IP services; (c) good professional and ethical conduct; (d) protect interests of debtors, creditors and other specified persons; (e) growth of IPAs for effective resolution; The Board must have regard to these while registering IPAs. Remember the sequence: develop, competent, conduct, protect, grow.
Section 199: registration is compulsory: No person may carry on business as an IPA and enrol IPs as members except under a certificate of registration issued by the Board; Applies save as otherwise provided in the Code.
Section 201(1): application: Application in specified form and manner, with specified particulars and fee; acknowledged within 7 days of receipt; The form, manner, particulars and fee are as specified by regulations.
Section 201(2): grant or rejection: Board grants certificate if satisfied that the application conforms to requirements, or rejects by order; no rejection without hearing; order communicated within 15 days; Two safeguards: opportunity of being heard, and communication within fifteen days.
Section 201(3) and (4): terms and renewal: Certificate issued in specified form, manner and terms; Board may renew from time to time on specified fee; Renewal is at the Board's discretion (may), not automatic.
Section 201(5): suspension or cancellation: Grounds: (a) false statement or misrepresentation; (b) non-compliance with Board regulations or IPA bye-laws; (c) contravention of Act, rules or regulations; (d) other specified grounds; Needs a reasonable opportunity of being heard, and the order must be passed by whole-time members of the Board only.
Section 196(1)(b): Board specifies minimum eligibility requirements for registration of IPAs, IPs and information utilities; This is the source for detailed eligibility conditions.
Section 205: bye-laws: Every IPA makes bye-laws, with Board approval, consistent with the model bye-laws under Section 196(2); Model bye-laws cover membership, ethical standards, grievances, discipline and more.
Regulation-making power: Section 203: the Board may make regulations on (a) setting up of governing board, (b) minimum number of independent members, (c) number of IP members on the board; The Code does not state the numbers. They are left to IBBI regulations.
Purpose of the power: To ensure every IPA takes into account the objectives sought to be achieved under the Code; Quote this purpose in answers on why the section exists.
Parallel rule for information utility: Section 212: the Board may require every information utility to set up a governing board with such number of independent members as specified by regulations; Do not mix it up with Section 203. Section 212 deals with information utilities, not IPAs.
Related sections for IPAs: Section 199 (no functioning without registration); Section 200 (principles); Section 201 (registration); Section 204 (functions); Use these to link the governing board to the wider framework.
Processes covered by section 208(1): Fresh start + IRP (individual) + CIRP + pre-pack + individual bankruptcy + liquidation of corporate debtor firm; Clauses (a), (b), (c), (ca), (d), (e). Know the Part and Chapter for each.
Pre-pack stage before initiation: Section 208(1A): IP approved under section 54A(2)(e) acts before the pre-pack process begins; Applies to the IP proposed to be appointed as resolution professional.
Code of conduct, section 208(2): (a) reasonable care and diligence; (b) comply with IPA bye-laws; (c) allow IPA inspection of records; (d) submit copy of records of every proceeding before the Adjudicating Authority to the Board and the IPA; (e) perform functions as specified; Five limbs. Quote them in order.
Standard of conduct in other roles: Sections 93 and 120 (resolution professional) and section 143 (bankruptcy trustee): perform functions in compliance with the section 208 code; Shows section 208 is the common base.
Pre-pack RP duties and powers: Section 54F(2) duties; section 54F(3) powers; Duties include confirming claims and constituting the CoC. Powers include access to books and records.
Board's oversight functions: Section 196(1): register, inspect, investigate, monitor, call for information, redress grievances; Use to link the IP's duties to the IBBI's supervision.
Penalty for contravention: Penalty = higher of (3 × loss caused or likely to be caused) and (3 × unlawful gain); Section 220(3). Applies to an IPA, IP or information utility that contravenes the Code, rules or regulations.
Penalty cap where loss or gain is not quantifiable: Total penalty ≤ ₹1 crore; Proviso to Section 220(3). Use only when loss or unlawful gain cannot be quantified.
Disciplinary committee outcomes: Penalty, or suspension or cancellation of registration; Section 220(2). For an IP, the registration can be suspended or cancelled. For an IPA or information utility too.
Disgorgement: Amount disgorged = unlawful gain made or loss averted; Section 220(4). The Board may direct this in addition to the penalty. Restitution to an identifiable victim is under Section 220(5).
Disciplinary committee composition: Whole-time members of the Board only; Proviso to Section 220(1).
IPA functions on conduct: Lay down standards, monitor, redress grievances, suspend or cancel membership; Section 204(b), (c), (e), (f).

Quick revision

The Board registers insolvency professional agencies, insolvency professionals and information utilities under section 196(1)(a).
No person may run an agency or enrol IPs without a certificate of registration from the Board (section 199).
Section 200 sets five principles for registering agencies, including promoting competent IPs, ethical conduct and protecting debtors and creditors.
An IP must first obtain membership of an agency and then register with the Board (section 207(1)).
The Board may specify categories of professionals with qualifications in finance, law, management, insolvency or another field (section 207(2)).
Section 203 lets the Board make regulations on the governing board, the minimum independent members and the number of IP members on it.
Section 204 lists the agency functions: membership, conduct standards, monitoring, safeguarding rights, suspension or cancellation, grievances and publishing information.
Section 208(1) covers fresh start, individual insolvency resolution, corporate insolvency resolution, pre-packaged resolution, individual bankruptcy and liquidation.
Code of conduct under section 208(2): reasonable care and diligence, comply with bye-laws, allow records inspection, submit proceeding records to the Board and agency, and perform as specified.
The Board may make model bye-laws for agencies to adopt under section 196(2). They can cover penalties (clause h), grievance redressal (clause i), expulsion (clause j) and disciplinary proceedings (clause p).
The Board has civil court powers for discovery, summoning, inspection and commissions (section 196(3)).
Until the Board exists, the Central Government exercises its powers (section 244(1)).

Common mistakes

Treating every unpaid creditor as a financial creditor. Fix: Ask what the debt is for. If it arises from goods, services, employment or government dues, it is an operational debt. A loan or similar financing is a financial debt.
Saying the Board decides whether a company enters CIRP. Fix: The Adjudicating Authority admits or rejects applications. The Board registers and regulates insolvency professionals, their agencies and information utilities.
Treating an insolvency professional and a resolution professional as the same thing. Fix: Say that IP is the registered status, and RP, IRP, liquidator or trustee are roles held by an IP in a process.
Saying registration with the Board alone is enough. Fix: Always state both: enrolment as a member of an IPA and registration with the Board (section 206).
Treating Section 200 as a list of registration conditions or documents. Fix: Say Section 200 gives principles the Board has regard to. Detailed eligibility and form come from Board regulations (Sections 196 and 201).
Missing or misstating one of the five principles. Fix: Use the hook Develop, Competent, Conduct, Protect, Grow, and separate (b) services from (c) conduct.
Stating fixed numbers of independent members as if they are in Section 203. Fix: Say that Section 203 only empowers the Board to specify the numbers by regulations. Give figures only if the question supplies the regulation.
Confusing Section 203 with Section 212. Fix: Section 203 is for insolvency professional agencies. Section 212 is for information utilities.
Listing only CIRP and liquidation as the processes under section 208(1). Fix: Remember all six: fresh start, individual insolvency resolution, CIRP, pre-pack, individual bankruptcy and liquidation of a corporate debtor firm.
Saying the IP submits records of every proceeding only to the IPA. Fix: Section 208(2)(d) requires a copy to the Board as well as to the IPA of which he is a member.

Exam tips

Learn the objectives as five short points. They fit into almost any theory answer on the Code.
Keep a one-line definition ready for financial creditor, operational creditor, corporate debtor and default. Add one example of each debt type.
When a case question names a creditor, classify the debt first. Everything else follows from that.
For institution questions, write who does what: the Adjudicating Authority decides, the Board regulates, the insolvency professional conducts, the information utility records.
Quote time limits exactly: ten days, fourteen days and seven days in section 9. Wrong numbers cost marks.
Open every answer with the two-condition rule of section 206. It scores quickly and sets up the analysis.
Write section 208(2) as five numbered points. Examiners look for the complete list.
Show the three-layer structure (Board, IPA, IP) in one line if a question asks about the regulatory framework.