1. Meaning of Insolvency

• Insolvency refers to a situation where a Public Limited Company is unable to pay its debts to creditors, suppliers, lenders, or employees as they fall due.
  
• It indicates that the company’s liabilities exceed its assets, or it cannot generate enough cash to meet obligations.
  
• Insolvency may arise from business losses, poor cash flow, legal claims, or market failure.
  
• If unresolved, it can lead to the company’s restructuring, sale, or liquidation.
  

2. Governing Law: Insolvency and Bankruptcy Code, 2016 (IBC)

• In India, insolvency of Public Limited Companies is governed by the Insolvency and Bankruptcy Code (IBC), 2016.
  
• The law provides a time-bound process for resolving insolvency through either revival or liquidation.
  
• The process is initiated before the National Company Law Tribunal (NCLT).
  
• IBC aims to maximize asset value, ensure fair treatment of creditors, and promote business continuity where possible.
  

3. Initiation of Corporate Insolvency Resolution Process (CIRP)

• CIRP can be triggered by:
  
  • A financial creditor (like a bank) if the default is> ₹1 crore
    
  • An operational creditor (like a vendor or service provider)
    
  • The debtor company itself (voluntary insolvency)
    
• A petition is filed with NCLT, along with evidence of default.
  
• If admitted, NCLT declares a moratorium (suspension of legal proceedings) and appoints an Interim Resolution Professional (IRP).
  
• The Board of Directors is suspended, and management control passes to the IRP.
  

4. Resolution Process and Committee of Creditors (CoC)

• The IRP forms a Committee of Creditors (CoC) comprising all financial creditors.
  
• The CoC evaluates and votes on a Resolution Plan submitted by potential bidders, investors, or promoters.
  
• A plan must be approved by at least 66% of the CoC’s voting share.
  
• If a viable plan is accepted, it is implemented to revive the company.
  
• If no plan is approved within 180 to 330 days, the company goes into liquidation.
  

5. Liquidation and Dissolution

• If insolvency resolution fails, the company is ordered to undergo liquidation.
  
• A Liquidator is appointed to sell assets and distribute proceeds as per the priority order defined in IBC:
  
  • Insolvency resolution costs
    
  • Secured creditors
    
  • Workmen dues
    
  • Unsecured creditors
    
  • Government dues
    
  • Shareholders (if anything remains)
    
• Once the process is complete, the company is dissolved, and its name is struck off the register by the ROC.