Insolvency and Bankruptcy Code: The operational creditors perspective

Source: The Hitavada      Date: 10 Apr 2018 10:47:05


By CA Swapnil Agrawal,

In continuation to my earlier awareness write up, this guest column contains - what's in for operational creditor? Since the sections related to individual and partnership insolvency are still not notified, our entire discussion will be with reference to corporate insolvency only. Creditors can be classified into two major categories - Financial Creditors and Operation Creditors.

Q. Who is Operational Creditor?
A. Operational Creditor refers to the person to whom operation debt is owed. Operational debt means a claim in respect of provision of goods or service including employment. Operation Creditor can be an individual, partnership firm or corporate entity as well.

Q. What is the minimum amount for which claim can be made?
A. This code shall be applicable on corporate persons where minimum amount of default is Rs 1 lakh. So any person having undisputed claim of Rs 1 lakh or more from corporate debtor can apply under this law. This minimum amount may be increased by Central Government vide notification if it deems fit to it. However, in some cases NCLT has rejected very small cases considering the overall business and claim from the Operational Creditor. Case laws to be referred by user.

Q. What is the process for initiating insolvency process by the Operational Creditor?
A. As per Section 8(1), on the occurrence of default, the operational creditor shall first send a demand notice and a copy of an invoice to the corporate debtor demanding payment of amount involved. Also now the Operational Creditor is required to file the default with National E-Governance Services Limited, which is an information utility under the IBC.
On receipt of above mentioned notice the corporate debtor shall within a period of 10 days notify the Operational Creditor of the existence of a dispute if any, and record of the pendency of the suit or arbitration proceedings, as this process is based on undisputed claims only. Or in case the debt has or is being paid he shall also provide the details of the repayment of unpaid operational debt.

Q. What if the corporate debtors doesn’t pay within the stipulated time?
A. The operational creditor after expiry of the period of 10 days from the date of delivery of the notice or invoice demanding payment, shall make an application under section 9 of the code, accompanied with documents, fee and records required as specified under the regulations.

Q. What are the documents to be furnished for filing claim with NCLT ?
A. The Operational Creditor along with the application shall furnish - a copy of the invoice demanding payment or demand notice delivered to the operational debtor.
An affidavit to the effect that their is no notice given by the corporate debtor relating to a dispute of the unpaid
operational debt.
A copy of the certificate from the financial institutions maintaining accounts of the Operational Creditor confirming that their is no payment of an unpaid operational debt. Statement of record as obtained from information utility.

Q. What will be the consequence if the demand is
A. If the demand is disputed and if such disputed has been raised before the issuance of the notice, application shall not be admitted as the Adjudicating Authority is not empowered to go into the dispute. Thus,
application can be admitted only if demand of the debt
is undisputed.

Q. Why Insolvency Professional is required?
A. Operational Creditor while filing the claim documents with the Adjudicating Authority may propose the name of resolution professional to act as Interim Resolution Professional.
Once the same is accepted by the Adjudicating Authoritiy the Insolvency Professional takes charge of the management of the corporate debtor and makes best effort to recover the dues of the creditor. He is vested with various duties, responsibilities and authorities under the IB code.

Q. Is there a time limit to complete the resolution process?
A. Yes, there is time line set for entire process under this code. Application for initiation of Insolvency process has to be either accepted or rejected by Adjudicating Authority within 14 days of its receipt.
If accepted the entire process of resolution has to be completed within a period of 180 days from the commencement, with a maximum one time extension of 90 days with the permission of Adjudicating Authority.
Hence once the application is accepted, the resolution has to be made within maximum period of 270 days.
This content is for the sole purpose of creating awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or
Readers are advised to do their own research and / or seek proper professional advice if they intends to take any action or decision in the matters covered in this content.

(The author is practising Chartered Accountant, former Chairman of ICAI, Nagpur Branch and also an Insolvency Professional. He can be reached at [email protected])