CIRP is an abbreviation that means Corporation Insolvency Resolution Process. It is a legal procedure which is in the Insolvency and Bankruptcy Code (IBC), 2016 and is initiated when an organization fails to pay debts at the right time.
In less complicated terms, CIRP is a time-based procedure to determine whether a financially crippled company is to be rescued or not.
When Does CIRP Start?
CIRP commences when a company defaults in terms of repayment of loans or dues to banks, financial institutions or other creditors. An application can be submitted before the National Company Law Tribunal (NCLT) by a creditor or the company. CIRP begins with the admission of the case by the NCLT.
What Happens During CIRP?
After CIRP begins:
● The management of the company is in suspension.
● Insolvency Resolution Professional (IRP) assumes control of the firm.
● IRP audits the finances, assets and liabilities of the company.
● Creditors establish a committee to determine the way forward.
● An attempt to salvage the company is invited through a resolution plan.
In case an appropriate plan is accepted, the company is sustained. Otherwise the company will be put under liquidation.
Simple Case Study to Learn about CIRP.
Consider the case of ABC Pvt. Ltd. who borrowed money with a bank but has failed to pay off the loans. NCLT has been made to file an application before the bank. ABC pvt. Ltd. is under CIRP when accepted. Professionals will then determine whether the company can be revived or it has to be closed down.
Why is CIRP Important?
Importance of CIRP is that it secures creditors, provides businesses with an opportunity of recovering, and ensures quicker decision making to financially strained companies.
That is why CIRP is frequently found in the business and insolvency news.
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