Recovering Unpaid Invoices Under the IBBI Act in India

The Insolvency and Bankruptcy Code, 2016 (IBC), regulated by the Insolvency and Bankruptcy Board of India (IBBI), provides a legal framework for resolving insolvency issues in India. This framework is particularly useful for businesses seeking to recover unpaid invoices from clients who may be facing financial difficulties. Below is a detailed guide on how to effectively utilize the provisions of the IBC for recovering unpaid invoices.

Overview of the IBBI and IBC

The IBBI was established on October 1, 2016, to oversee the implementation of the IBC, which consolidates laws related to the reorganization and insolvency resolution of corporate entities, partnerships, and individuals. The primary objectives include maximizing asset value, promoting entrepreneurship, and balancing stakeholder interests

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Steps for Recovering Unpaid Invoices

1. Initial Assessment

• Determine the financial status of the debtor. If they are unable to pay their debts, this may warrant initiating insolvency proceedings.

• Before taking formal action, send a legal notice to the debtor. This notice should specify:
  • The amount due.
  • Payment terms.
  • A deadline for payment.
• This step serves as a formal reminder and can sometimes prompt payment without further escalation.

• If the debtor does not respond within the stipulated time frame (usually 15 days), you may file an application with the National Company Law Tribunal (NCLT) if the amount owed exceeds ₹1 crore.
• Your application must include:
  • Proof of default (such as unpaid invoices).
  • A copy of the legal notice sent.
  • Any other relevant documentation supporting your claim.

• Upon receiving your application, NCLT will review it and may admit it if there is sufficient merit. If admitted:
  • An Insolvency Resolution Process (IRP) will commence.
  • An insolvency professional will be appointed to manage the debtor's affairs.

• During the IRP, creditors can propose a resolution plan. If approved by a majority of creditors, this plan will dictate how debts will be settled, including your unpaid invoice.

• If no resolution plan is approved within 180 days (which can be extended), liquidation proceedings may begin. In this case, creditors can recover dues from asset sales according to established priorities under the IBC.

Important Considerations

• Documentation: Maintain thorough records of all transactions and communications with the debtor. This documentation is crucial for substantiating your claims during legal proceedings.
• Time Limits: Be aware of time limits for filing claims under the IBC; typically, claims must be made within three years from the date of default.
• Professional Assistance: It is advisable to engage legal professionals who specialize in insolvency law to enhance your chances of successfully recovering unpaid invoices.

Conclusion

The IBC provides a structured legal framework for recovering unpaid invoices in India through formal processes involving NCLT and insolvency professionals. By understanding your rights and effectively utilizing this framework, you can navigate debt recovery while minimizing losses associated with unpaid invoices. Always consider seeking professional legal advice to ensure compliance with all procedural requirements and maximize recovery outcomes.