Commonly used IBC terms and jargons you should know

Insolvency and Bankruptcy Code is a relatively new law, and many of you, who regularly read our reports on insolvency and bankruptcy cases, may not be aware of the various IBC terms and jargons commonly used in articles, order copies related to IBC.

We bring you some commonly used IBC terms and jargons:

Adjudicating Authority (AA): The authority that decides on insolvency petitions and other matters under the IBC. They are National Company Law Tribunal (NCLT), Debt Recovery Tribunal (DRT) and National Company Law Appellate Tribunal (NCLAT).

Corporate debtor: A company, limited liability partnership, or other legal entity that is undergoing insolvency proceedings under the IBC.

Corporate Insolvency Resolution Process (CIRP): One of the most used IBC terms, CIRP is the process for resolving the insolvency of a corporate debtor.

Committee of Creditors (CoC): The committee of lenders of a corporate debtor, which is responsible for approving the resolution plan.

Debt recovery tribunal (DRT): The tribunal that hears cases related to the recovery of debts under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

Financial Creditor: A financial creditor under the Insolvency and Bankruptcy Code, 2016 (IBC) is a person to whom a financial debt is owed, including a person to whom such debt has been legally assigned or transferred.

Financial debt is defined as a debt along with interest, if any, that is disbursed against the consideration for time worth of money and includes money borrowed against interest payment; money raised by issuing bonds, debentures, or other securities or any amount that is due to a financial institution under a financial contract.

Insolvency and Bankruptcy Board of India (IBBI): The regulator of the insolvency and bankruptcy sector in India.

Insolvency professional: A person who is qualified to provide services under the IBC, such as an insolvency resolution professional or bankruptcy trustee.

Interim resolution professional (IRP): An interim resolution professional (IRP) is a person appointed by the Adjudicating Authority (AA) under the Insolvency and Bankruptcy Code, 2016 (IBC) to manage the affairs of a corporate debtor during the initial stages of the corporate insolvency resolution process (CIRP). The IRP is responsible for collating information pertaining to the operations, assets and finances of the corporate debtor to understand its financial position; gathering all the claims made by the creditors against the corporate debtor and forming the Committee of Creditors (COC), among others

Fast track insolvency resolution process (FTRP): A simplified insolvency resolution process for small and medium enterprises.

Liquidation: Another commonly used IBC terms, it refers to the process of selling the assets of a corporate debtor and distributing the proceeds to the creditors.

Moratorium: A temporary stay on the enforcement of creditors’ rights against a corporate debtor during the CIRP.

One-time settlement (OTS): A mechanism under the IBC for settling debts of a corporate debtor on mutually agreed terms.

Operational creditor: A creditor who has a debt arising from the supply of goods or services to a corporate debtor in the ordinary course of business.

Personal guarantor: A Personal Guarantor is an individual who provides a guarantee to secure the obligations of a borrower, typically a corporate entity, towards a lender. When the borrower defaults on its obligations, the personal guarantor becomes liable to repay the dues on behalf of the borrower.

Prepackaged insolvency resolution: A mechanism under the IBC for resolving the insolvency of a corporate debtor through a pre-packaged plan of arrangement.

Resolution applicant: A person who makes an application for the initiation of CIRP.

Resolution plan: A plan for the revival or liquidation of a corporate debtor that is submitted to the CoC for approval.

Resolution professional: The professional appointed by the AA to oversee the CIRP.

Successful resolution applicant (SRA): An entity or a person whose resolution plan has been approved by the creditors’ committee (CoC) of a corporate debtor as well as by the NCLT. The SRA is responsible for implementing the resolution plan and reviving the corporate debtor.

Secured creditor: A creditor who has a security interest in the assets of a corporate debtor.

Swiss Challenge: It is a bidding process wherein a bidder makes an unsolicited bid to the auctioneer. Once approved, the auctioneer then seeks counter proposals against the original proposal and chooses the best amongst all options (including the original bid). The original bidder in most cases is granted the ‘right to first refusal’. If the original bidder agrees to match its offer to the challenging proposal, the project is awarded to him, else it is awarded to the challenging bidder.

Unsecured creditor: A creditor who does not have a security interest in the assets of a corporate debtor.

Waterfall Mechanism:  The waterfall mechanism under the Insolvency and Bankruptcy Code, 2016 (IBC) is a legal device that determines the order in which creditors are paid when a corporate debtor is liquidated. As per the waterfall mechanism, insolvency and liquidation cost is first paid followed by dues of workmen and secured creditors, employees, unsecured creditors and government.

Also See: IBC Act