File Section 7 IBC Applications

Filing Section 7 Applications for Financial Creditors Under IBC

Who is a Financial Creditor Under IBC?

A financial creditor is defined under Section 5(7) of the IBC as any person to whom a financial debt is owed, including a person to whom such debt has been legally assigned or transferred. Financial debt, as per Section 5(8), includes any debt disbursed against the consideration for the time value of money, such as:

• Loans or borrowings with interest.
• Bonds, debentures, or other financial instruments.
• Lease or hire purchase agreements classified as finance leases.
• Guarantees or indemnities for financial debts.
• Receivables sold or discounted (except on a non-recourse basis).
• Amounts raised from allottees in real estate projects.

Why File a Section 7 Application?

Section 7 of the IBC provides financial creditors with a statutory right to initiate insolvency proceedings against a corporate debtor. The key benefits include:

1. Time-Bound Resolution: CIRP must be completed within 180 days (extendable by 90 days), ensuring swift recovery.
2. Moratorium Period: Once the application is admitted, a moratorium is declared, halting all recovery actions and legal proceedings against the corporate debtor.
3. Control Over Resolution: Financial creditors play a pivotal role in the Committee of Creditors (CoC), influencing the resolution plan.
4. Recovery of Dues: The process ensures that creditors recover their dues through a structured resolution or liquidation.

Step-by-Step Process for Filing a Section 7 Application

Step 1: Establishing Default The first step is to establish that the corporate debtor has defaulted on a financial debt of ₹1 crore or more. Evidence of default can include:

• Records from an Information Utility.
• Bank statements or loan agreements.
• Court orders or arbitral awards confirming the debt.

Step 2: Drafting the Application (Form 1) The application must be filed in Form 1 as prescribed under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The application includes:

• Details of the financial creditor (name, address, incorporation details).
• Details of the corporate debtor (name, registered office, share capital).
• Particulars of the financial debt (amount, date of disbursement, date of default).
• Name and consent of the proposed Interim Resolution Professional (IRP).

Step 3: Supporting Documents The application must be accompanied by:

• Evidence of default (e.g., loan agreements, bank statements, Information Utility records).
• Written consent from the proposed IRP (Form 2).
• A verifying affidavit (Form NCLT-6).
• A demand draft of ₹25,000 payable to the Ministry of Corporate Affairs.

Step 5: NCLT Adjudication The NCLT will review the application and decide whether to admit or reject it within 14 days. The application will be admitted if:

• A default has occurred.
• The application is complete.
• There are no disciplinary proceedings against the proposed IRP.

Role of the Interim Resolution Professional (IRP)

Once the application is admitted, the NCLT appoints the proposed IRP to take charge of the corporate debtor. The IRP’s responsibilities include:

• Taking control of the corporate debtor’s assets and operations.
• Constituting the Committee of Creditors (CoC).
• Inviting resolution plans from prospective bidders.

Common Challenges in Section 7 Applications

While Section 7 is a powerful tool, financial creditors often face challenges such as:

• Incomplete Documentation: Missing or incorrect documents can lead to rejection.
• Disputes Over Default: Corporate debtors may dispute the existence of a default.
• Delays in Admission: Procedural delays can hinder the timely admission of applications.

How AMLEGALS can Help on Section 7 Applications?

• Expertise in IBC: Our team has extensive experience in handling Section 7 applications and CIRP matters.
• Pan-India Presence: With offices in major cities, we provide seamless representation before all NCLT benches.
• Strategic Approach: We craft tailored strategies to maximize your chances of success.
• Proven Track Record: We have successfully represented financial creditors in high-stakes insolvency cases.

Frequently Asked Questions (FAQs)