Board Governance Checklist for the First 10 Days After an IBC Filing

Vikrant D. Shetty

Sep 14

14 min read

Updated: Oct 21

Board Governance Checklist for the First 10 Days After an IBC Filing

An application under section 7 or section 9 of the Insolvency and Bankruptcy Code, 2016 (the Code) does nothing to a company on the day it is filed. The moratorium under section 14 arrives only on admission, the board is not displaced until an interim resolution professional takes over under section 17, and until then the directors hold every power they held the week before. That interval decides a great deal and is usually wasted. What follows is a ten day sequence for the board and the in-house team.

What Changes on the Day of Filing, and What Does Not?

Filing is not admission. No provision of the Code attaches a consequence to the mere presentation of an application, so the company may still pay creditors, sell stock in the ordinary course, draw on facilities and negotiate a settlement. The corollary is less comfortable. Nothing protects it either: a secured creditor may proceed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, a decree holder may execute, and a second creditor may file its own application.

The Board Is Not Suspended Until the Tribunal Admits

Suspension of the board's powers happens under section 17, and only once the National Company Law Tribunal admits the application and appoints an interim resolution professional. Sections 7(5) and 9(5) require admission or rejection within fourteen days, and the 2026 Amendment, operative since 26 May 2026, reinforced that period by requiring written reasons where an order is not passed in time. Listings still slip. Plan on the assumption that the board has ten working days of useful time and may have fewer.

Confirming Service, the Case Number and the First Listing

Day one is documentary rather than strategic. Establish what was served, on whom, at which address and on what date, whether the copy carries the full annexures, and what number the filing has been given. Defects in service are worth recording even where they will not defeat the application. For a section 9 matter there is one more document to hunt for: section 9(3)(b) requires the operational creditor to swear an affidavit that no notice of dispute was received. Where the company did reply, that affidavit is the first thing to test.

Days One to Ten: The Board's Action Table

The sequence below assumes service on day one and a bench that could list the matter at any point after that. Owners matter as much as actions. The commonest failure in this window is not that a step was missed but that three people each assumed somebody else was taking it.

Day	Action	Owner	Statutory or contractual hook	Consequence of inaction
Day 1	Confirm service, secure the complete application with annexures, log the case number and bench	Company secretary	Adjudicating Authority Rules, 2016	Deadlines run from a date nobody has fixed
Day 1	Convene the board, place the application before it, appoint a single decision maker	Chair and general counsel	Sections 166 and 179, Companies Act, 2013	No contemporaneous record of the board applying its mind
Day 2	Issue a litigation hold; secure accounting systems, email, the minute book and statutory registers	General counsel	Sections 19 and 66 of the Code	Records lost before handover and an adverse inference later
Day 2	Disclose to the stock exchanges if listed and close the trading window	Compliance officer	Regulation 30 and Schedule III, SEBI LODR Regulations, 2015	Penalty, plus a disclosure failure on record before the tribunal
Day 3	Reconstruct the section 8 trail: notice, form used, date of delivery, reply and proof of despatch	Litigation counsel	Sections 8 and 9(3)(b) of the Code	The strongest available defence goes unpleaded
Day 3	Verify debt, default, computation and limitation independently of the applicant's figures	Chief financial officer	Sections 3(12), 4 and 5(8) of the Code	Admission on a default the company could have disproved
Day 4	Map insolvency and cross-default clauses across every facility, lease and material contract	Treasury and legal	Contractual, not statutory	Acceleration by a lender who learns of it from a cause list
Day 5	Brief lenders, key customers and employees on one approved script	Chief financial officer and business heads	Contractual notice provisions	Counterparties act on rumour
Days 6 to 8	Cost the settlement: quantum, timing, funding source and the applicant's appetite to withdraw	General counsel and chief financial officer	Section 12A of the Code applies only after admission	The cheapest available exit closes
Days 8 to 10	Settle the reply, affidavit and documents; instruct counsel and file	Litigation counsel	Sections 7(5) and 9(5) of the Code	Adjournment sought before a bench working to a statutory clock
Day 10	Minute the whole sequence, with reasoning, advice taken and dissent recorded	Company secretary	Section 66(2) of the Code; section 166(3), Companies Act, 2013	No evidence of care when wrongful trading is alleged

A Section 9 Filing: The Demand Notice Trail Decides Most of These Cases

Form 3, Form 4 and the Ten Day Reply Window

Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 requires an operational creditor to serve a demand notice in Form 3, or the invoice with a notice in Form 4, before it can approach the tribunal at all. Section 8(2) gives the corporate debtor ten days from receipt to bring to the creditor's notice a pre-existing dispute, including a suit or arbitration commenced before the notice was received, or to prove payment. Section 9(5)(ii)(d) obliges the tribunal to reject the application where a notice of dispute has been received or a record of dispute sits in an information utility.

In Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. [(2018) 1 SCC 353] the Supreme Court held that a section 9 application must be rejected where the debtor raises a plausible contention requiring further investigation, provided the defence is not a patently feeble legal argument or an assertion of fact unsupported by evidence, and that the dispute must exist in fact rather than be spurious, hypothetical or illusory. The governance point is short: a reply setting out a genuine pre-existing dispute with the documents attached is the most valuable thing the company can produce in this window, and it costs almost nothing.

When the Ten Days Have Already Run

Boards often see the application before they see the demand notice, because the notice went to an unattended mailbox or a director who has since resigned. A closed reply window is a problem, not the end of the defence. What matters is that the dispute existed before the notice was received, not that it was communicated within ten days, and earlier correspondence, debit notes, quality rejections or a pending arbitration can establish it. Assemble that trail before the reply to the application is drafted.

A Section 7 Filing: Debt, Default and the Field That Closed on 26 May 2026

For a financial creditor the enquiry is narrow: a financial debt within section 5(8), a default within section 3(12), and an amount above the one crore rupee threshold fixed under section 4. The 2026 Amendment added an explanation to section 7 providing that once debt and default are established, no other intervening or attendant circumstance may be taken into account. It commenced on 26 May 2026 under Ministry of Corporate Affairs notification S.O. 2625(E), and displaces the discretion recognised in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [(2022) 8 SCC 352]. An information utility record filed by a financial institution now suffices to ascertain default.

Counsel should tell the board plainly what that removes. Balance sheet solvency, an award or receivable about to be realised, a cyclical downturn, the going concern value admission would destroy, a promoter willing to infuse funds: each was argued after Vidarbha and none survives. Ten days spent building a solvency narrative are ten days spent on the wrong document.

What Arguments Still Answer a Section 7 Application?

The surviving answers are factual and documentary, which is why they have to be identified in week one. That the sum is not a financial debt. That it falls below the threshold when correctly computed. That no default occurred because the amount was paid, waived, restructured, or the due date deferred by a binding instrument. That the claim is time barred. That the application is incomplete or a disciplinary proceeding is pending against the proposed resolution professional. Section 65 remains available where initiation is fraudulent or malicious, and section 183A, in force since 26 May 2026, penalises frivolous or vexatious proceedings.

Why the Settlement Window Narrows Sharply at Admission

Before admission the application belongs to the applicant, who can withdraw it, and no other creditor has a vote. Admission changes that. Section 12A as replaced by the 2026 Amendment permits withdrawal only after the committee of creditors is constituted and before the first invitation for resolution plans is issued, on approval of ninety per cent of the committee's voting share. The applicant's dues stop being the price: every financial creditor with a vote has to be paid or persuaded, the interim resolution professional's costs accrue, and the public announcement under section 15 brings in claims nobody had counted.

Records, Disclosure and the Financing Stack in the Same Ten Days

Custody of Books and Records Before Control Moves

On admission the interim resolution professional takes custody, and section 19 obliges the personnel of the corporate debtor to extend all assistance, with a direction available under section 19(2) if they do not. Worth doing now: a litigation hold suspending routine deletion, and a documented inventory of the accounting system, bank statements, board and committee minutes, statutory and related party registers, and the credentials for each. The purpose is defensive. Avoidance applications under sections 43, 45 and 50 and misfeasance proceedings under section 66 are proved out of the company's own records.

Disclosure If the Company Is Listed

Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, read with clause 16 of Para A of Part A of Schedule III, covers events relating to the corporate insolvency resolution process and treats the filing of an application as disclosable in its own right. The outer limit for information emanating from outside the entity is twenty four hours. Boards routinely hold disclosure back until they know whether admission will follow, and they are wrong to. Treat the filing as unpublished price sensitive information and close the trading window at the same time.

Cross-Default Clauses Across the Financing Stack

Most facility agreements, debenture trust deeds, external commercial borrowings and equipment leases carry an insolvency event of default triggered by the filing of a petition rather than its admission, sometimes with a carve out for applications dismissed or stayed within a stated number of days. Day four is for a clause level map: which documents trigger on filing, which on admission, which allow a cure period, which impose a notification obligation, and which permit acceleration or set off. Where notice is owed, giving it before the lender finds the matter on a cause list is worth more than the delay saves.

The Single Script for Employees and Customers

Nothing has to be said to staff on day one. Something has to be ready by day three, because filings are visible and trade press moves faster than tribunals do. One approved script, one spokesperson, no prediction of outcome, and an internal instruction that nobody discusses the matter with counterparties. Customers holding termination on insolvency rights should hear it from their relationship owner rather than from a competitor.

The Directors' Own Position and Why the Minute Book Will Be Read Later

Directors are not respondents to a section 7 or section 9 application. Their exposure arrives later and is assessed backwards, from documents created now. The 2026 Amendment inserted definitions of avoidance transaction and fraudulent or wrongful trading, extended section 66 so that a liquidator as well as a resolution professional may bring misfeasance proceedings, and provided that such proceedings survive the conclusion of the resolution process or the liquidation. All of it has been operative since 26 May 2026.

Section 66(2) is what bites in this window. It turns on what a director knew or ought to have known before the insolvency commencement date about the prospect of avoiding a resolution process, and on whether due diligence was exercised to minimise loss to creditors. An application filed and served is close to conclusive notice of that state of affairs. Everything the board does from that date is measured against a standard it can no longer say it did not know applied.

The operational instruction is to keep transactions ordinary. No payment out of turn to a related party, no security created for an existing unsecured debt, no transfer at undervalue, no discharge of a director's personal guarantee with company money. Sections 43 and 46 give a look back of two years for related parties and one year for others, and related party payments in this period are the first place an avoidance application looks. Where a payment genuinely has to be made to keep the business running, minute the commercial reason on the day it is decided.

Minutes from these ten days are read in a way ordinary minutes are not. A resolution recording that the board noted the application is worse than useless. What assists is the reasoning: what the board was told about liquidity and by whom, what advice it took, what alternatives it weighed, and who dissented. Section 166(3) of the Companies Act, 2013 requires a director to exercise independent judgment with reasonable care, skill and diligence, and the minute is usually the only contemporaneous evidence that this happened.

Frequently Asked Questions

Does the section 14 moratorium start when the application is filed?

No. The moratorium is declared in the admission order, not on filing. Until admission the company may pay creditors and enforce contracts, and may equally be sued, have a decree executed against it, or face enforcement by a secured creditor.

The company missed the ten day reply window under section 8. Is the dispute defence gone?

It is harder, not gone. The question is whether a dispute existed before the demand notice was received, not whether a reply was sent within ten days. Earlier correspondence, debit notes, a pending suit or an arbitration reference can still establish it. The reply is the cleanest proof, not the only one.

Can the board still settle after the application is filed?

Yes, and before admission this is by far the least expensive exit, because the applicant can simply withdraw and no committee of creditors exists to consult. After admission section 12A applies and withdrawal requires ninety per cent of the committee's voting share within a defined window.

Are the directors suspended once an application is filed against the company?

No. Board powers are suspended under section 17 only on admission, when they vest in the interim resolution professional. Until then directors carry full authority and full responsibility, including their duties under sections 166 and 179 of the Companies Act, 2013.

Must a listed company disclose the application before it is admitted?

Yes. Regulation 30 read with clause 16 of Para A of Part A of Schedule III of the SEBI Listing Obligations and Disclosure Requirements Regulations covers the filing of an insolvency application, not only its admission, with an outer limit of twenty four hours.

What should the board avoid doing in these ten days?

Anything unusual. Preferential payments to related parties, fresh security for old unsecured debt, transfers at undervalue, discharge of personal guarantees with company funds, and disposals outside the ordinary course. Sections 43 and 46 allow a look back of two years for related parties and one year for others.

What is the difference between a section 7 and a section 9 application?

A section 7 application is filed by a financial creditor and requires only proof of a financial debt within section 5(8) and a default within section 3(12) of the Insolvency and Bankruptcy Code, 2016. A section 9 application is filed by an operational creditor and additionally requires a demand notice in Form 3 or Form 4 under Rule 5 of the Adjudicating Authority Rules, 2016, followed by a ten day window under section 8 for the corporate debtor to raise a pre-existing dispute or prove payment. The operational creditor route carries a defence, a genuine dispute, that the financial creditor route does not.

What is the minimum amount of default needed to file an application under the Code?

Section 4 of the Insolvency and Bankruptcy Code, 2016 fixes the minimum default threshold at one crore rupees for both section 7 and section 9 applications. An application filed for a default below this amount is liable to be rejected at the threshold, regardless of how the debt arose. Boards reviewing a newly filed application should independently verify that the amount claimed genuinely crosses this threshold, since an inflated or miscalculated claim is one of the factual defences available under section 7, alongside disputing that the sum qualifies as a financial debt at all.

Can an applicant creditor withdraw the application before it is admitted?

Yes. Before the National Company Law Tribunal admits a section 7 or section 9 application, it belongs entirely to the applicant, who may withdraw it without needing anyone else's consent, since no committee of creditors yet exists to be consulted. This makes the pre-admission period the cheapest point at which a company can negotiate a settlement, because only the applicant's dues need to be addressed. Once the application is admitted, section 12A applies instead, and withdrawal requires approval of ninety per cent of the committee of creditors' voting share.

Who decides whether a section 8 dispute is genuine enough to defeat a section 9 application?

The National Company Law Tribunal makes this determination at the admission stage, applying the standard set out in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. The application must be rejected where the corporate debtor raises a plausible contention requiring further investigation, so long as the defence is not a patently feeble legal argument or an unsupported assertion of fact. The tribunal does not need to be satisfied that the dispute will succeed, only that it exists in fact and is not spurious, hypothetical, or illusory.

What should the company preserve as soon as it learns of the application?

The company should issue an internal litigation hold suspending routine deletion, and prepare a documented inventory of its accounting system, bank statements, board and committee minutes, and statutory and related party registers, along with the credentials needed to access each. This is a defensive step. Avoidance applications under sections 43, 45, and 50 of the Insolvency and Bankruptcy Code, 2016, and misfeasance proceedings under section 66, are proved principally from the company's own records, so records lost or altered before a possible handover to an interim resolution professional work against the company later.

Can the board make related party payments after an application is filed?

Boards should avoid any payment out of the ordinary course to a related party once an application has been filed. Sections 43 and 46 of the Insolvency and Bankruptcy Code, 2016 give a look back period of two years for related party transactions and one year for other transactions, so a preferential or undervalued payment made in this window is one of the first places an avoidance application will look if the matter is later admitted. Where a payment genuinely must be made to keep the business running, the commercial reason should be minuted on the day it is decided.

What happens to a company's ongoing civil suits and arbitrations before admission?

Filing a section 7 or section 9 application does not by itself stay any proceeding against the company. Until the National Company Law Tribunal admits the application and the moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 takes effect, a decree holder may continue to execute a decree, a secured creditor may proceed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and another creditor may file its own application. The moratorium only bars new and continuing proceedings once admission occurs.

What powers does an interim resolution professional take over on admission?

On admission, section 17 of the Insolvency and Bankruptcy Code, 2016 suspends the powers of the board of directors, which vest instead in the interim resolution professional, who manages the company's operations as a going concern. Section 19 requires the personnel of the corporate debtor to extend all assistance and cooperation to the interim resolution professional, with a direction from the tribunal available under section 19(2) if they do not. Directors lose day-to-day control at this point but continue to be assessed on their conduct in the period before admission.