—Guide
Insolvency and Bankruptcy Code Explained: CIRP, Liquidation and Pre-pack
A plain-English guide to India's Insolvency and Bankruptcy Code — how a corporate insolvency process starts and runs, liquidation, the MSME pre-pack, and personal guarantors.
The Insolvency and Bankruptcy Code, 2016 (IBC) created a time-bound process to resolve insolvent companies, replacing a slow, fragmented system. This guide explains how it works.
Starting a CIRP
A corporate insolvency resolution process (CIRP) can start when a company defaults on a debt of ₹1 crore or more. Applications can be made by:
- Financial creditors, such as banks, under Section 7.
- Operational creditors, such as suppliers, under Section 9, after a demand notice.
- The company itself, under Section 10.
Admission and Moratorium
When the NCLT admits an application, it declares a moratorium that stops suits, recovery actions, and transfers of assets. An interim resolution professional takes over management, and the board's powers are suspended.
Resolution
- Creditors file claims.
- Financial creditors form the committee of creditors (CoC).
- The resolution professional invites resolution plans.
- The CoC approves a plan by at least 66% of voting share.
- The NCLT approves the plan, which binds all stakeholders.
The process should be completed within 330 days including litigation, though many cases take longer.
Liquidation
If no plan is approved, the company is liquidated. Assets are sold and proceeds distributed in the statutory order: insolvency costs, secured creditors and workmen's dues, employees, unsecured creditors, government dues, and so on.
MSME Pre-pack
The pre-packaged insolvency process lets MSME companies with defaults initiate a faster process, where the debtor stays in control and proposes a base resolution plan, with creditor approval.
Personal Guarantors
Personal guarantors to corporate debtors can face insolvency proceedings before the NCLT. The Supreme Court has upheld these provisions.
Reforms
An amendment bill introduced in 2025 proposed further changes, including a creditor-initiated out-of-court process and group insolvency. Check the current status.
Getting Help
Think Filing advises creditors, companies and guarantors on the IBC.