Section 5 of IBC : Section 5: Definitions

Explanation using Example

Example Application of Section 5 of The Insolvency and Bankruptcy Code, 2016:

Imagine a scenario where a manufacturing company, XYZ Pvt. Ltd., is facing financial difficulties and is unable to repay its debts. The company's management decides to initiate an insolvency resolution process. Here's how Section 5 of the Insolvency and Bankruptcy Code, 2016 would apply:

• The Adjudicating Authority, in this case, would be the National Company Law Tribunal (NCLT), which has the jurisdiction to oversee the insolvency proceedings of corporate entities.
• The company's auditor, a chartered accountant, may be required to provide financial statements and other relevant documents to assist in the process.
• XYZ Pvt. Ltd. will have to submit a "base resolution plan" that outlines how it intends to resolve its insolvency and pay off creditors.
• The corporate applicant initiating the process could be the company itself (corporate debtor) or an authorized member or partner of the company.
• If XYZ Pvt. Ltd. had guaranteed a loan for another company, it would be considered a corporate guarantor.
• In case there is a dispute with creditors about the debt amount or quality of goods provided, this would need to be resolved as part of the insolvency process.
• The banks that lent money to XYZ Pvt. Ltd. would be considered financial creditors as they have provided financial debt to the company.