IBC Insolvency and Bankruptcy explained: this guide covers what IBC Insolvency and Bankruptcy means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Insolvency and Bankruptcy Code 2016 (IBC) is India's consolidated insolvency law, replacing a fragmented regime (SICA, BIFR, Companies Act winding up, RDDBFI). Enacted in 2016, IBC provides a time-bound, creditor-in-control resolution process for corporate, partnership, and individual insolvency. It is administered by the Insolvency and Bankruptcy Board of India (IBBI).
Applicability
- Corporate Insolvency Resolution Process (CIRP): Companies and LLPs — Sections 7-32
- Personal Insolvency: Individuals and partnership firms — Parts III (Sections 78-187)
- Voluntary Liquidation: Section 59 (solvent companies)
Default Threshold
IBC is triggered when there is a default of Rs. 1 crore or more (enhanced from Rs. 1 lakh in 2020 to protect MSMEs from pandemic-related insolvency). For MSMEs under the Pre-Packaged Insolvency Resolution Process (PPIRP), the threshold is Rs. 10 lakh.
CIRP Timeline
| Stage | Timeline |
|---|---|
| CIRP initiation to completion (normal) | 180 days from admission |
| Extension by NCLT (one-time) | Up to 90 days (total 270 days) |
| Litigation exclusion (excluded period) | Time excluded; total cannot exceed 330 days |
Who Can File?
- Section 7: Financial creditor (banks, NBFCs, debenture holders) — no need to serve demand notice
- Section 9: Operational creditor (suppliers, employees) — must serve 10-day demand notice first
- Section 10: Corporate debtor itself (voluntary)
Moratorium — Section 14
On admission of CIRP application, NCLT declares a moratorium — all suits/proceedings against the corporate debtor are stayed; no transfer/alienation of assets; no enforcement of security interests. This gives breathing space for resolution.
Interim Resolution Professional (IRP) and RP
On CIRP admission, an IRP is appointed by NCLT. Within 30 days, the CoC replaces the IRP with a Resolution Professional (RP). The RP takes over management of the corporate debtor from promoters/directors.
Committee of Creditors (CoC)
- Consists of all financial creditors (operational creditors above threshold have observer status)
- Decisions made by voting share (proportionate to financial debt)
- Resolution plan approved by 66% voting share
- Liquidation ordered if no plan approved in time
Liquidation Waterfall (Priority of Payments)
- CIRP costs (Resolution Professional fees, IRP expenses)
- Workmen dues (24 months preceding liquidation)
- Secured creditors (up to the secured interest; remainder unsecured)
- Employees' dues (12 months preceding liquidation)
- Unsecured creditors
- Government dues
- Remaining debt/dues
- Equity shareholders
Key 2021 Amendments
- Pre-Packaged Insolvency Resolution Process (PPIRP) for MSMEs with default between Rs. 10 lakh and Rs. 1 crore
- Amended definition of financial debt to include home buyers
- Enhanced protections for resolution applicants under Section 32A
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