100 Insolvency & Bankruptcy (IBC) Law FAQs Every Business Owner, Creditor, Startup Founder and Borrower in India Should Know

FAQ 1201

Q. What is the Insolvency and Bankruptcy Code (IBC)?
A. IBC is the law governing insolvency resolution and liquidation of corporate persons, partnership firms and individuals under applicable provisions.

FAQ 1202

Q. What is insolvency?
A. Insolvency is the financial inability of a person or entity to pay debts when they become due.

FAQ 1203

Q. What is bankruptcy?
A. Bankruptcy is the legal status arising from insolvency under applicable law.

FAQ 1204

Q. What is Corporate Insolvency Resolution Process (CIRP)?
A. CIRP is the statutory process for resolving insolvency of a corporate debtor.

FAQ 1205

Q. What is liquidation?
A. Liquidation is the process of winding up a company and distributing its assets.

FAQ 1206

Q. Who is a corporate debtor?
A. A company or corporate entity against whom insolvency proceedings are initiated.

FAQ 1207

Q. Who is a financial creditor?
A. A person or institution to whom financial debt is owed.

FAQ 1208

Q. Who is an operational creditor?
A. A person owed debt arising from supply of goods or services.

FAQ 1209

Q. What is operational debt?
A. Debt arising from operational transactions including supply of goods or services.

FAQ 1210

Q. What is financial debt?
A. Debt involving disbursal of money against consideration for time value of money.

FAQ 1211

Q. What is default under IBC?
A. Failure to pay debt when it becomes due and payable.

FAQ 1212

Q. Who can initiate CIRP?
A. Eligible financial creditors, operational creditors or the corporate debtor itself.

FAQ 1213

Q. Which authority hears corporate insolvency matters?
A. The National Company Law Tribunal (NCLT).

FAQ 1214

Q. What is NCLT?
A. A specialized tribunal dealing with company and insolvency matters.

FAQ 1215

Q. What is NCLAT?
A. The appellate tribunal hearing appeals against NCLT orders.

FAQ 1216

Q. What is an Insolvency Professional (IP)?
A. A licensed professional administering insolvency proceedings.

FAQ 1217

Q. What is an Interim Resolution Professional (IRP)?
A. A professional appointed initially to manage the corporate debtor during CIRP.

FAQ 1218

Q. What is a Resolution Professional (RP)?
A. The professional conducting the insolvency resolution process.

FAQ 1219

Q. What is the Committee of Creditors (CoC)?
A. Committee consisting primarily of financial creditors responsible for key decisions in CIRP.

FAQ 1220

Q. What powers does the CoC have?
A. It evaluates and approves resolution plans in accordance with law.

FAQ 1221

Q. What is a moratorium under IBC?
A. Temporary suspension of specified legal proceedings and recovery actions during CIRP.

FAQ 1222

Q. What happens after a moratorium is imposed?
A. Certain recovery proceedings are stayed subject to statutory exceptions.

FAQ 1223

Q. Can SARFAESI proceedings continue during moratorium?
A. They are generally affected by the statutory moratorium, subject to law.

FAQ 1224

Q. Can civil suits continue during CIRP?
A. Certain proceedings are stayed during the moratorium period.

FAQ 1225

Q. What is a resolution plan?
A. A proposal for revival and restructuring of the corporate debtor.

FAQ 1226

Q. Who can submit a resolution plan?
A. Eligible resolution applicants satisfying statutory conditions.

FAQ 1227

Q. What is liquidation value?
A. Estimated value realizable if the company is liquidated.

FAQ 1228

Q. What is fair value?
A. Estimated realizable value determined according to prescribed methodology.

FAQ 1229

Q. What happens if no resolution plan is approved?
A. The corporate debtor may proceed into liquidation.

FAQ 1230

Q. What is liquidation estate?
A. Pool of assets available for distribution during liquidation.

FAQ 1231

Q. What is waterfall mechanism?
A. Statutory order of priority for distribution of liquidation proceeds.

FAQ 1232

Q. Are secured creditors given priority?
A. Distribution follows the statutory priority prescribed under IBC.

FAQ 1233

Q. Can employees recover unpaid salaries in liquidation?
A. Employee claims are dealt with under the statutory priority framework.

FAQ 1234

Q. Can government dues rank above secured creditors?
A. Distribution follows the priority established by law.

FAQ 1235

Q. What is preferential transaction?
A. Transaction unfairly favoring one creditor before insolvency.

FAQ 1236

Q. What is undervalued transaction?
A. Transfer of assets for significantly less than fair value.

FAQ 1237

Q. What is fraudulent trading?
A. Business conducted with intent to defraud creditors.

FAQ 1238

Q. What is extortionate credit transaction?
A. Credit transaction involving grossly unfair terms.

FAQ 1239

Q. Can suspicious transactions be reversed?
A. Yes, subject to statutory provisions.

FAQ 1240

Q. What is avoidance application?
A. Application seeking reversal of specified transactions under IBC.

FAQ 1241

Q. Can directors be investigated during CIRP?
A. Yes.

FAQ 1242

Q. Do directors lose management powers after CIRP admission?
A. Management generally vests with the Resolution Professional.

FAQ 1243

Q. Can shareholders control the company during CIRP?
A. Control is significantly affected by the insolvency process.

FAQ 1244

Q. What is information memorandum?
A. Document containing financial and operational details of the corporate debtor.

FAQ 1245

Q. What is expression of interest (EOI)?
A. Invitation to eligible applicants to participate in the resolution process.

FAQ 1246

Q. What is a resolution applicant?
A. Person submitting a resolution plan under IBC.

FAQ 1247

Q. Can promoters submit resolution plans?
A. Eligibility depends upon statutory provisions.

FAQ 1248

Q. What is MSME insolvency relief?
A. Certain special provisions may apply to eligible MSMEs.

FAQ 1249

Q. Can startups undergo insolvency proceedings?
A. Yes.

FAQ 1250

Q. What is pre-pack insolvency?
A. A pre-negotiated insolvency resolution mechanism available under applicable law.

FAQ 1251

Q. What is voluntary liquidation?
A. Liquidation initiated voluntarily in accordance with law.

FAQ 1252

Q. Can solvent companies opt for voluntary liquidation?
A. Yes, subject to statutory requirements.

FAQ 1253

Q. What is cross-border insolvency?
A. Insolvency involving assets or parties across multiple jurisdictions.

FAQ 1254

Q. What is insolvency resolution timeline?
A. Resolution is intended to be completed within the period prescribed by law.

FAQ 1255

Q. Can CIRP timelines be extended?
A. Yes, in circumstances permitted by law.

FAQ 1256

Q. Can operational creditors vote in CoC?
A. Voting rights depend upon statutory provisions.

FAQ 1257

Q. Can homebuyers be treated as financial creditors?
A. Homebuyers have been recognized under specified legal provisions.

FAQ 1258

Q. Can allottees participate in insolvency proceedings?
A. Yes, subject to applicable law.

FAQ 1259

Q. What is insolvency claim filing?
A. Submission of debt claims before the Resolution Professional.

FAQ 1260

Q. Can late claims be admitted?
A. Subject to law and judicial discretion.

FAQ 1261

Q. What evidence supports a creditor's claim?
A. Agreements, invoices, bank statements and supporting documents.

FAQ 1262

Q. Can disputed debts trigger insolvency?
A. Genuine pre-existing disputes may have legal significance.

FAQ 1263

Q. What is demand notice by an operational creditor?
A. Statutory notice issued before initiating insolvency proceedings where required.

FAQ 1264

Q. Should demand notices be ignored?
A. No.

FAQ 1265

Q. Can insolvency proceedings recover business debts?
A. IBC provides a statutory recovery and resolution framework.

FAQ 1266

Q. Is IBC a debt recovery law?
A. Its primary objective is insolvency resolution rather than mere recovery.

FAQ 1267

Q. Can arbitration continue after CIRP admission?
A. The impact depends upon the moratorium and applicable law.

FAQ 1268

Q. Can cheque bounce proceedings continue during CIRP?
A. Their treatment depends upon statutory provisions and judicial interpretation.

FAQ 1269

Q. What is liquidation commencement date?
A. Date from which liquidation legally begins.

FAQ 1270

Q. What is dissolution of a company?
A. Formal legal end of the company's existence after completion of liquidation.

FAQ 1271

Q. Can personal guarantors face insolvency proceedings?
A. Yes, subject to applicable provisions.

FAQ 1272

Q. Can banks proceed against guarantors separately?
A. Rights against guarantors are governed by applicable law.

FAQ 1273

Q. What is stressed asset resolution?
A. Process of resolving financially distressed assets.

FAQ 1274

Q. Can creditors negotiate settlements outside IBC?
A. Yes.

FAQ 1275

Q. What is debt restructuring?
A. Reorganization of debt obligations.

FAQ 1276

Q. Can insolvency affect ongoing contracts?
A. Yes, depending on contractual terms and law.

FAQ 1277

Q. Can pending litigation impact CIRP?
A. Yes.

FAQ 1278

Q. What happens to employees during CIRP?
A. Their rights are governed by applicable insolvency and labour laws.

FAQ 1279

Q. Can assets be sold during CIRP?
A. Subject to statutory provisions and approvals.

FAQ 1280

Q. Can creditors challenge resolution plans?
A. Legal remedies may be available.

FAQ 1281

Q. Why is insolvency due diligence important?
A. It helps identify financial and legal risks.

FAQ 1282

Q. Should lenders monitor borrower defaults promptly?
A. Yes.

FAQ 1283

Q. Can delayed legal action reduce recovery prospects?
A. In some situations, yes.

FAQ 1284

Q. Why should businesses maintain financial records?
A. Proper records support insolvency and recovery proceedings.

FAQ 1285

Q. Should creditors preserve documentary evidence?
A. Yes.

FAQ 1286

Q. Can settlement occur during CIRP?
A. Certain settlements may be permissible subject to law.

FAQ 1287

Q. Can mediation assist in financial disputes?
A. Yes, before or outside formal insolvency proceedings where appropriate.

FAQ 1288

Q. What is forensic audit in insolvency?
A. Investigation into financial transactions to identify irregularities.

FAQ 1289

Q. Can fraudulent directors face legal action?
A. Yes.

FAQ 1290

Q. Can promoters lose control permanently?
A. Depending upon the outcome of the resolution process, yes.

FAQ 1291

Q. Why should startups monitor financial health?
A. Early intervention may prevent insolvency.

FAQ 1292

Q. Can insolvency impact creditworthiness?
A. Yes.

FAQ 1293

Q. Should investors conduct insolvency due diligence?
A. Absolutely.

FAQ 1294

Q. Can insolvency proceedings affect mergers and acquisitions?
A. Yes.

FAQ 1295

Q. Why should operational creditors maintain invoices and contracts?
A. They are essential evidence for debt claims.

FAQ 1296

Q. Should financial institutions obtain legal opinions before enforcement?
A. Yes.

FAQ 1297

Q. When should creditors consult an IBC lawyer?
A. Immediately upon significant payment default or receipt of insolvency notices.

FAQ 1298

Q. When should companies seek insolvency advice?
A. At the earliest signs of financial distress.

FAQ 1299

Q. When should promoters obtain legal representation?
A. Before initiation or during insolvency proceedings affecting the company.

FAQ 1300

Q. What is the best strategy to avoid insolvency litigation?
A. Maintain financial discipline, monitor liabilities, negotiate early and obtain timely legal and financial advice.

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100 Insolvency & Bankruptcy (IBC) FAQs in India | CIRP, NCLT & Corporate Insolvency Guide

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Read 100 FAQs on the Insolvency and Bankruptcy Code covering CIRP, NCLT, liquidation, financial creditors, operational creditors, resolution plans, moratorium and corporate restructuring in India.

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