Insolvency and Bankruptcy - Law and Practice · Introduction to Insolvency and Bankruptcy Code

Overview of Insolvency Resolution and Liquidation under the IBC

Updated 11 October 2026 · Fact-checked

The Insolvency and Bankruptcy Code, 2016 offers different routes for different debtors. Corporate debtors can go through CIRP, fast track CIRP, pre-packaged resolution or liquidation. Individuals and firms go through fresh start, insolvency resolution or bankruptcy under Part III. Resolution tries to save the debtor; liquidation or bankruptcy sells assets to pay creditors.

Understand Overview of Insolvency Resolution and Liquidation Processes

The Code deals with debtors who cannot pay. It has two broad aims: try to rescue the debtor, and if rescue fails, sell the assets and share the money among creditors in the order the law sets.

For corporate debtors, Part II is the main route. The standard process is the corporate insolvency resolution process (CIRP). A resolution professional runs the debtor's affairs, a committee of creditors decides on a resolution plan, and the Adjudicating Authority approves it. If no plan is approved, the debtor generally goes into liquidation, where a liquidator sells assets and distributes proceeds.

Two faster variants sit beside CIRP. Fast track CIRP (Chapter IV, sections 55 to 58) is for classes of corporate debtors the Central Government notifies, such as those with assets and income below a notified level, or with a notified class of creditors or amount of debt. Pre-packaged insolvency resolution process (Chapter III-A, sections 54A onwards) is available to MSME corporate debtors, and to other corporate debtors that meet the conditions in section 54A(2). Here a base resolution plan is prepared and creditors approve it before the application is filed.

For individuals and partnership firms, Part III applies. It has a fresh start process, an insolvency resolution process and a bankruptcy process. Do not mix these up with the corporate route.

A useful way to remember the difference in words: insolvency is the inability to pay debts. Bankruptcy is the legal state and process for individuals and firms that follows when resolution fails or is not possible, where assets vest in an estate and are distributed. For companies, the equivalent end-stage is liquidation.

Key rules to remember

Fast track CIRP period (s. 56(1)): Completion within 90 days from the insolvency commencement date; Extension is possible only once.
Fast track extension (s. 56(2) and (3)): CoC resolution with 75% of voting share → RP applies → Adjudicating Authority may extend by a period not exceeding 45 days; The extension cannot be granted more than once.
Fast track eligibility (s. 55(2)): Notified: (a) assets and income below a level; or (b) class of creditors or amount of debt; or (c) other category of corporate persons; Eligibility depends on Central Government notification.
Fast track application (s. 57): Creditor or corporate debtor files with proof of default from an information utility or other specified means, plus other specified information; The information must show the debtor is eligible.
Pre-pack eligibility (s. 54A(1)): Corporate debtor classified as micro, small or medium enterprise under section 7(1) of the MSMED Act, 2006; Other corporate debtors may apply under s. 54A(2) if they meet its conditions.
Pre-pack conditions (s. 54A(2)): No pre-pack or completed CIRP in the previous 3 years; not in CIRP; no liquidation order under s. 33; eligible under s. 29A; Unrelated financial creditors holding at least 66% by value approve the proposed IP and the filing; the debtor's members pass a special resolution; the declaration gives a filing time of at most 90 days.
Pre-pack termination by CoC (s. 54N(2)): CoC decision approved by not less than 66% of voting shares; RP intimates the Adjudicating Authority, which then passes a termination order under s. 54N(1).
Pre-pack termination order timing (s. 54N(1)): Adjudicating Authority passes the order within 30 days of the RP's application; The corporate debtor bears the pre-pack process costs under s. 54N(3).
Fraud penalty in pre-pack (s. 67A): Penalty not less than ₹1,00,000 and up to ₹1,00,00,000; Imposed on an officer on the RP's application, after the pre-packaged insolvency commencement date.

How to solve Overview of Insolvency Resolution and Liquidation Processes questions

Overview questions test whether you can pick the right process and state its key features. Use the same path each time.

1Identify the debtor: company or LLP (corporate debtor), or individual or partnership firm (Part III).
2Identify the trigger and the class: ordinary default, a notified small debtor (fast track), or an MSME or other eligible debtor wanting a pre-agreed plan (pre-pack).
3Name the process and its Chapter or Part, and the section where you are certain of it.
4State the key conditions: approvals, thresholds (75%, 66%), time limits (90 days, 45-day extension, 90-day filing window).
5Describe who runs the process and who decides: the resolution professional, the committee of creditors, the Adjudicating Authority.
6State the outcome if it fails: liquidation for corporate debtors, bankruptcy for individuals and firms, or termination of the pre-pack.
7Close with a one-line conclusion tied to the facts given.

Quickest way: Debtor-first roadmap

When to use it: Use when the question asks you to compare processes or advise which route fits a given debtor.

Write two columns: corporate debtor and individual or firm.
Under corporate, list CIRP, fast track, pre-pack, liquidation with one feature each.
Under individual or firm, list fresh start, insolvency resolution, bankruptcy.
Add the numbers you must not forget: 90 days, 45 days once, 75%, 66%, 3 years, 30 days.
Match the facts to one box and write the conclusion.

Common mistakes in Overview of Insolvency Resolution and Liquidation Processes

Saying fast track CIRP is open to every corporate debtor.
Students remember the short timeline but not the eligibility test.
Fix: State that eligibility depends on classes notified by the Central Government under section 55(2).
Writing that fast track can be extended repeatedly.
Confusion with extension rules in ordinary CIRP.
Fix: Under section 56, the extension is by the Adjudicating Authority, up to 45 days, and only once, after a 75% CoC vote.
Mixing the 66% and 75% thresholds.
Both appear in the faster processes.
Fix: Link 75% to fast track extension and 66% to pre-pack approvals and termination by the CoC.
Treating pre-pack as only for MSMEs.
Section 54A(1) names MSMEs first.
Fix: Mention that section 54A(2) also allows other corporate debtors that meet its conditions.
Using 'bankruptcy' for a company in liquidation.
Everyday language blurs the terms.
Fix: Use liquidation for corporate debtors and bankruptcy for individuals and partnership firms under Part III.
Ignoring who bears costs and what happens when a pre-pack ends.
Students stop at approval of the plan.
Fix: Add that on termination the corporate debtor bears the pre-pack costs, and that in the case covered by section 54N(4) liquidation follows with those costs included in liquidation costs.

Worked examples

Example 1

Asha Components Pvt Ltd is a notified-class corporate debtor in fast track CIRP. On day 90 the resolution professional finds the process cannot be completed. The CoC passes a resolution supported by 80% of voting share to seek more time. Advise on what can be done and how long the process may run.

Show the solution

Fast track CIRP must be completed within 90 days of the insolvency commencement date (section 56(1)).
An extension needs a CoC resolution supported by 75% of the voting share (section 56(2)). Here 80% meets that requirement.
The resolution professional files an application with the Adjudicating Authority.
If satisfied that the case cannot be completed in 90 days, the Adjudicating Authority may extend by a further period it thinks fit, not exceeding 45 days (section 56(3)).
The extension can be granted only once.
Maximum total period: 90 + 45 = 135 days.

Answer: The RP may apply for an extension, which the Adjudicating Authority may grant once for up to 45 days, so the process can run for at most 135 days from the insolvency commencement date.

Example 2

Mehta Textiles Pvt Ltd, an MSME, has a base resolution plan agreed with its lenders. Explain the key conditions for starting a pre-packaged insolvency resolution process and how it can later be terminated.

Show the solution

Eligibility: an MSME corporate debtor can apply under section 54A(1). Other debtors in default must meet the section 54A(2) conditions.
Conditions include: no pre-pack or completed CIRP in the previous 3 years, not currently in CIRP, no liquidation order under section 33, and eligibility under section 29A.
Unrelated financial creditors holding not less than 66% by value must approve the proposed resolution professional and the filing.
A majority of directors or partners must make a declaration, including that the application will be filed within a stated period not exceeding 90 days and that the process is not to defraud anyone.
The members must pass a special resolution approving the application.
The base resolution plan must be provided to creditors before approval.
Termination: the CoC may decide, by not less than 66% of voting shares, to terminate. The RP intimates the Adjudicating Authority, which must pass the termination order within 30 days of the application (section 54N).
On termination, the corporate debtor bears the pre-pack process costs.

Answer: Mehta Textiles can start the pre-pack by meeting the section 54A conditions and securing 66% creditor approval and a members' special resolution. It can be terminated by a CoC decision of at least 66%, with the Adjudicating Authority passing the order within 30 days, and the debtor bearing the costs.

Exam tips

Write the process name, the Part or Chapter, and one defining feature in the first two lines of any comparison answer.
Memorise the numbers: 90 days, 45 days once, 75%, 66%, 3 years, 30 days, ₹1,00,000 to ₹1,00,00,000.
Always end with a conclusion tied to the facts, as the paper is case-based: provision, analysis, conclusion.
Quote section numbers only where you are sure; otherwise describe the rule in plain words.
Keep corporate and individual routes visibly separate in your answer layout.

Practice questions from Introduction to Insolvency and Bankruptcy Code

Overview of Insolvency Resolution and Liquidation Processes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA FinalLiquidation Process and Distribution of Assets

Overview of Insolvency Resolution and Liquidation Processes: frequently asked questions

What is the difference between insolvency and bankruptcy under the IBC?

Insolvency is the inability to pay debts. Bankruptcy is the legal process under Part III for individuals and partnership firms, where assets form an estate that is distributed to creditors. For companies, the corresponding end-stage is liquidation.

How is fast track CIRP different from ordinary CIRP?

It is open only to corporate debtors in classes notified by the Central Government. It must be completed within 90 days, extendable once by up to 45 days with a 75% CoC vote and the Adjudicating Authority's order.

Who can start a pre-packaged insolvency resolution process?

An MSME corporate debtor can apply under section 54A(1). Other corporate debtors in default can apply if they meet the conditions in section 54A(2), including creditor approval of at least 66% by value and a special resolution of members.

What happens if a pre-pack is terminated?

The Adjudicating Authority passes a termination order, and the corporate debtor bears the process costs. In the situation covered by section 54N(4), it orders liquidation and the pre-pack costs are treated as part of liquidation costs.

Does liquidation always follow a failed CIRP?

Liquidation generally follows when no resolution plan is approved, but you should state the specific ground from the section on liquidation. Check the facts of the question before concluding.