Corporate Insolvency Resolution Process: formula sheet

Key formulas

Who may initiate (Section 6)

Default by corporate debtor → financial creditor OR operational creditor OR corporate debtor may initiate CIRP

Default is the trigger for all three routes.

Financial creditor (Section 7)

Application on default + record of default (information utility or other specified evidence) + name of proposed IRP

Default includes default on financial debt owed to any other financial creditor, not only the applicant.

Threshold for specified financial creditors (Section 7, provisos)

Not less than 100 creditors or 10% of the class, whichever is less

Applies to creditors in a class under Section 21(6A)(a) and (b), and to allottees of the same real estate project.

Operational creditor (Section 9)

Demand notice/invoice (Section 8) → wait 10 days from delivery → no payment and no notice of dispute → file

Must attach the invoice or notice and an affidavit that no dispute notice has been received.

Corporate applicant (Section 10)

Default + application + books of account + proposed IRP + special resolution of shareholders (or resolution of at least three-fourths of partners)

Admit if complete and no disciplinary proceeding is pending against the proposed RP.

Time limit for the Adjudicating Authority

Sections 9(5), 10(4) and 54C(4): order within 14 days of receipt. Section 7(4): ascertain default within 14 days

Under Section 7(4), if the AA has not ascertained default and passed its order in that time, it must record its reasons in writing.

Notice to rectify defects

Before rejecting, AA gives notice; applicant has 7 days from receipt of the notice to rectify

Section 7(5): before rejection on any clause (b) ground (default not occurred, incomplete, or pending disciplinary proceeding). Sections 10(4) and 54C(4): before rejecting the application. Section 9: only before rejection for an incomplete application, clause (ii)(a); dispute or payment grounds are not curable by notice.

Communication of order (Section 7(7))

AA communicates the order within 7 days of admission or rejection

Admission is communicated to the financial creditor and the corporate debtor. Rejection is communicated to the financial creditor.

Commencement

CIRP commences from the date of admission

Sections 7(6), 9(6) and 10(5).

Order on admission (section 13)

Admission → moratorium + public announcement + appointment of IRP

All three follow from the same order of the Adjudicating Authority.

Prohibited acts (section 14(1))

(a) suits and execution; (b) transfer of assets; (c) enforcement of security; (d) recovery of property by owner or lessor

Learn the four limbs in order; use them as headings in your answer.

Exceptions (section 14(3))

Section 14(1) does not apply to (a) notified transactions, agreements or arrangements; (b) a surety in a contract of guarantee to the corporate debtor

Notification is by the Central Government in consultation with a financial sector regulator or other authority.

Continuing supplies (section 14(2) and (2A))

Essential goods or services as specified: no termination. Critical supplies per IRP or RP: no termination unless moratorium-period dues unpaid

Licences and similar grants are protected only if current dues are paid.

Duration (section 14(4))

From date of order till completion of CIRP; ceases on approval of plan under section 31(1) or liquidation order under section 33

It ends from the date of that approval or order.

Content of public announcement (section 15(1))

Name and address; registering authority; last date for claims; IRP details; penalties for false claims; closing date = 180th day from admission

Section 15(2): made in the manner specified.

Pre-pack moratorium (section 54E)

Moratorium under section 14(1) read with 14(3), applying mutatis mutandis; runs till the pre-pack process period ends

Contrast with section 14(4).

Constitution of CoC

CoC = all financial creditors (excluding related parties, who have no representation, participation or voting right)

Section 21(1) and (2). The IRP constitutes it after collating claims and determining the financial position.

Ordinary decisions of CoC

Decision passes if votes ≥ 51% of voting share of financial creditors

Section 21(8). This applies save as otherwise provided in the Code.

Appointment or replacement of RP

Resolution by ≥ 66% of voting share of financial creditors

Section 22(2). Taken in the first meeting of the CoC.

First CoC meeting

Within 7 days of constitution of the CoC

Section 22(1).

Voting share in a consortium

Voting share ∝ financial debt owed to each creditor

Section 21(3). Each consortium member is part of the CoC.

Creditor who is both financial and operational

Financial creditor to the extent of financial debt; operational creditor to the extent of operational debt

Section 21(4). Voting share is proportionate to financial debt only.

Financial information requisition

RP to provide within 7 days of CoC's requisition

Section 21(9) and (10).

Board confirmation of proposed RP

If Board does not confirm within 10 days, IRP continues as RP until confirmation

Section 22(5). The Adjudicating Authority directs this by order.

Submission and affidavit

Resolution applicant → plan + affidavit of eligibility under s.29A → RP (s.30(1))

The plan is prepared on the basis of the information memorandum.

RP's checklist (s.30(2))

(a) CIRP costs paid in priority; (b) operational creditors and dissenting financial creditors protected; (c) management after approval; (d) implementation and supervision; (e) no contravention of law; (f) other Board requirements

The RP must confirm each plan meets all these conditions before placing it before the CoC.

Minimum payment to operational creditors

Payment ≥ higher of (i) liquidation value under s.53, and (ii) amount if plan money were distributed per s.53(1) priority

Section 30(2)(b). The higher of the two is the floor.

Dissenting financial creditors

Payment ≥ amount they would get under s.53(1) in liquidation

Applies to financial creditors who do not vote in favour of the plan. Distribution must be fair and equitable (Explanation 1).

CoC approval

Vote ≥ 66% of voting share of financial creditors (s.30(4))

Earlier it was 75%, reduced to 66% in 2018. The CoC considers feasibility, viability and manner of distribution.

Voting right of applicant

Applicant may attend CoC meeting; votes only if also a financial creditor (s.30(5))

Attendance is not the same as voting.

Route to Adjudicating Authority

RP submits CoC-approved plan to Adjudicating Authority (s.30(6))

The Adjudicating Authority's approval follows under section 31.

Eligible debtors (Section 55(2))

Assets and income below notified level OR notified class of creditors / amount of debt OR other notified category

All three limbs depend on a Central Government notification. The Code gives no figures.

Basic time limit (Section 56(1))

Completion within 90 days from the insolvency commencement date

This is subject to the extension in Section 56(3).

Extension request (Section 56(2))

CoC resolution with 75% of voting share → RP applies to Adjudicating Authority

The RP applies only when instructed by the CoC resolution.

Maximum extension (Section 56(3))

Further period as the Adjudicating Authority thinks fit, not exceeding 45 days, granted only once

Outer limit is 90 + 45 = 135 days from the insolvency commencement date.

Application (Section 57)

Creditor or corporate debtor + proof of default (information utility or other specified means) + information on eligibility

The Board specifies the other means and information.

Eligibility (s 54A(1))

Corporate debtor classified as MSME under s 7(1) of MSMED Act, 2006

Section 54A(2), without prejudice to this, allows an application for a debtor that commits a default under section 4, subject to the seven conditions (a) to (g).

Conditions under s 54A(2)(a) to (d)

No pre-pack or completed CIRP in the preceding 3 years; not in CIRP; no liquidation order under s 33; eligible under s 29A

These are the four eligibility-type conditions. Conditions (e) to (g) are the creditor approval, director declaration and member resolution, shown below. All seven must hold for a defaulting debtor. The 3-year bar looks back from the initiation date.

Creditor approval of IP and of filing

Unrelated financial creditors ≥ 66% in value of financial debt due to such creditors

Related parties are excluded. If there are no unrelated financial creditors, specified persons give the approval.

Member approval

Special resolution of members; or ≥ 3/4 of total partners for a partnership

Approves filing of the application.

Director declaration

Majority of directors or partners; filing within a definite period ≤ 90 days

Must also state the process is not to defraud any person and name the proposed IP.

Admission timeline (s 54C(4))

NCLT decides within 14 days of receipt; defect cure notice gives 7 days

Process commences on the date of admission.

Switch to CIRP (s 54-O)

CoC vote ≥ 66% of voting shares; NCLT order within 30 days of intimation

Allowed after the pre-pack commencement date and before plan approval.

Termination (s 54N)

Either CoC decision by ≥ 66% of voting shares (s 54N(2)), or RP application under the proviso to s 54K(12) or s 54D(3) (s 54N(1)); NCLT order within 30 days of the application

Corporate debtor bears the pre-pack costs on termination. If a section 54J(2) order exists, liquidation follows.

Quick revision

• After admission under Section 7, 9 or 10, the Adjudicating Authority declares a moratorium, causes a public announcement and appoints an IRP (Section 13).
• The public announcement is made immediately after the IRP is appointed.
• In a pre-pack, the moratorium runs from the order until the pre-pack period ends (Section 54E).
• Pre-pack is open to MSME corporate debtors, and to others who meet the stated conditions of Section 54A(2).
• A corporate debtor cannot use pre-pack if it went through pre-pack or completed CIRP in the preceding three years.
• Pre-pack needs approval of unrelated financial creditors holding at least 66% in value of financial debt, plus a special resolution of members.
• The directors' declaration must state that the application will be filed within a definite period not exceeding ninety days.
• The CoC can resolve to start CIRP during a pre-pack by at least 66% of voting shares (Section 54-O).
• Fast track CIRP must finish within ninety days; extension needs 75% CoC vote and AA approval, up to forty-five days, only once (Section 56).
• Fast track applies to debtors notified by the Central Government on assets, income, class of creditors or debt (Section 55).
• A fast track application needs proof of default from an information utility or other specified means (Section 57).
• Pre-pack costs become part of CIRP costs if the process converts to CIRP.

Common mistakes

• Letting an operational creditor file directly without a demand notice. Fix: Remember Section 9(1): a Section 8 notice or invoice, then ten days from delivery, then file.
• Admitting a Section 9 application despite a pre-existing dispute. Fix: Under Section 9(5)(ii)(d), a notice of dispute received or a record of dispute in the information utility means rejection.
• Saying the moratorium also bars action against a guarantor of the corporate debtor. Fix: Section 14(3)(b) excludes a surety in a contract of guarantee to the corporate debtor from section 14(1). The creditor may proceed against the surety.
• Claiming a regulator can cancel a licence because the company is insolvent. Fix: Licences and similar grants cannot be suspended or terminated on grounds of insolvency, provided current dues during the moratorium are paid.
• Including operational creditors as CoC members. Fix: Section 21(2) says the CoC comprises all financial creditors. An operational creditor gets no seat, even if its dues are large.
• Counting related-party financial creditors in the voting base. Fix: A related party financial creditor has no right of representation, participation or voting. Remove its debt before computing percentages.
• Stating the CoC approval threshold as 75%. Fix: Write 'not less than sixty-six per cent of voting share of the financial creditors' under section 30(4).
• Letting the resolution applicant vote at the CoC meeting. Fix: The applicant may attend but votes only if he is also a financial creditor (section 30(5)).
• Stating fixed asset or turnover limits as written in the Code. Fix: Say eligibility is as notified by the Central Government. Quote figures only if the question supplies them.
• Writing 180 days plus 90 days, as in regular CIRP. Fix: Fast track is 90 days, plus one extension of up to 45 days under Section 56.

Exam tips

• Always write the section number with the route: Section 7, 9 or 10. Examiners look for the correct pairing.
• In Section 9 problems, check dates carefully and count the ten-day period from delivery of the notice.
• Use the three-part answer format: provision, analysis of the facts, conclusion.
• Keep the time limits separate. Sections 9, 10 and 54C require an order within fourteen days. Under Section 7 the AA ascertains default within fourteen days and records reasons if it is late. The seven-day rectification notice comes before rejection: under Section 7 on any clause (b) ground, under Sections 10 and 54C generally, and under Section 9 only for an incomplete application.
• For a Section 10 question, check whether the special resolution or three-fourths partner resolution is attached.
• Structure answers as provision, facts, conclusion. Name section 14(1) and the specific limb before applying it.
• Always check the guarantor point. It is a favourite trap, and section 14(3)(b) is the answer.
• In questions on the announcement, list the section 15(1) contents and mention that it is made immediately after the IRP's appointment.