Sometimes a company's directors reach a hard conclusion: the debts cannot be paid, lenders are taking piecemeal action, and every month of delay is destroying value. In that situation, the Insolvency and Bankruptcy Code allows the company itself to apply to the NCLT to start a corporate insolvency resolution process. This is a Section 10 application, and the company filing it is called the "corporate applicant".
Filing your own insolvency is not an admission of wrongdoing. Done at the right time, it can protect the business from a scramble by creditors, give it the shelter of a moratorium and allow a buyer or investor to take it over as a going concern. Done carelessly, or as a tactic to dodge one creditor, it can backfire. This page explains when it makes sense and how it works.
हिंदी में सारांश
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Is this your situation?
- Your company has defaulted on debts of Rs 1 crore or more
- Several creditors are filing suits, SARFAESI actions or recovery cases at the same time
- The business has value as a going concern, but not under the current debt load
- A restructuring with lenders has failed or is not possible
- Directors are worried about personal liability for continuing to trade
- You expect a creditor to file a petition and would rather start the process in an orderly way
What a Section 10 filing does
Starts a moratorium
Once admitted, suits, recovery actions and enforcement of security against the company are paused. This stops a race among creditors.
Hands management to a professional
The board's powers are suspended and an interim resolution professional runs the company. Promoters must accept this before filing.
Opens the company to resolution plans
A committee of financial creditors decides on a resolution plan, which may come from a new investor. Promoters can bid only if they are eligible under Section 29A.
Protects directors
Directors who act promptly once they know insolvency cannot be avoided are better placed against claims of wrongful trading under Section 66.
Requires a default
A company cannot file merely because it expects trouble. A default of at least Rs 1 crore must already have occurred.
Cannot be used to defeat creditors
Filing with the intent to defraud creditors or manage assets for promoters' benefit is penalised under Section 65.
How a Section 10 application is made
Honest financial review
We go through the debts, the defaults and the company's prospects with the directors and the auditor. If an out-of-court restructuring or a pre-pack for MSMEs is realistic, we consider that first.
Board resolution and shareholders' special resolution
The board resolves to file, and shareholders approve the filing by special resolution. For an LLP, three-fourths of the partners must approve.
Prepare books and information
The application must include the company's books of account and the information required by the rules, such as a list of creditors and the amounts owed. Accurate records help the process later.
File in Form 6
The application is filed before the NCLT bench covering the company's registered office, with the filing fee set by the tribunal's rules. The NCLT is expected to decide within 14 days and must record reasons for any delay.
Admission and handover
On admission, an interim resolution professional is appointed and takes over management. Directors must hand over records, assets and access, and cooperate fully.
Resolution or liquidation
A resolution plan is sought within the statutory timeline of 180 days, extendable to 330 days in all. If no plan is approved, the company may go into liquidation.
Directors' duties when insolvency looms
Section 66(2) of the Code lets a resolution professional or liquidator ask the NCLT to hold directors personally liable to contribute to the company's assets if, before the insolvency began, they knew or ought to have known that there was no reasonable prospect of avoiding insolvency and did not exercise due diligence to minimise losses to creditors.
In practical terms, once the board sees that the company cannot recover:
- stop taking fresh credit from suppliers or lenders that cannot realistically be repaid;
- avoid paying some creditors in preference to others, especially related parties;
- do not sell assets below value or move them to group companies;
- record board discussions and the advice taken;
- consider a Section 10 filing or a structured process promptly.
Transactions in the run-up to insolvency can be examined and reversed. See recovering money siphoned before insolvency. Under the 2026 amendment, the look-back periods for such transactions now run from the date the insolvency application is first filed.
Time and typical cost
Our fees are agreed in writing for each stage and do not depend on the outcome.
| Stage | Usual time | What it involves |
|---|---|---|
| Financial review and advice | 1 to 2 weeks | Meetings with directors and auditors |
| Board and shareholder approvals | 2 to 3 weeks (notice periods) | EGM or postal ballot for special resolution |
| Preparing and filing Form 6 | 1 to 2 weeks | Books, creditor lists, filing fee |
| Admission | Due within 14 days of filing | Hearing |
| Insolvency process | 180 days, extendable; outer limit 330 days | Run by the resolution professional |
Documents you will need
Approvals
- Board resolution authorising the application
- Special resolution of shareholders
- Authority letter for the person signing
Financial records
- Books of account and audited financial statements
- List of financial and operational creditors with amounts
- List of assets, charges and encumbrances
Default evidence
- Loan statements and default notices
- Recovery actions, suits or SARFAESI notices received
Company records
- Certificate of incorporation, MOA and AOA
- Register of members and directors
- Pending litigation list
A manufacturer that filed before the lenders did
Here's a made-up example. A Noida plastics manufacturer lost two export contracts and defaulted on loans of Rs 18 crore. One bank issued a SARFAESI notice, another filed in DRT, and suppliers began filing suits. The plant still had value and a competitor was interested in buying it.
The directors met us and their auditor. A restructuring was not possible because the lenders could not agree among themselves. The board and shareholders approved a Section 10 filing, which was made before NCLT Allahabad. On admission the moratorium halted the separate recovery actions. The resolution professional ran the plant, and the competitor's resolution plan, which kept most employees, was approved by the committee of creditors.
Mistakes boards make before a Section 10 filing
- Waiting until assets are gone: the longer the board waits, the less value remains for any resolution, and the greater the risk of wrongful trading claims.
- Paying favoured creditors first: repaying related parties or friendly lenders shortly before filing can be reversed as a preferential transaction.
- Moving assets to group companies: transfers at undervalue before insolvency are a red flag for the resolution professional and the NCLT.
- Incomplete creditor lists: leaving out creditors misleads the process and can be treated seriously.
- Filing to dodge one creditor: using Section 10 tactically to stall a particular case, while the company is solvent, can lead to rejection and penalties.
- Not preparing staff: employees, customers and suppliers should hear about the process from the company in a measured way, not from rumours.
Section 10 compared with other options
| Option | Who controls the company | Who decides the outcome | Best suited for |
|---|---|---|---|
| Section 10 voluntary insolvency | Resolution professional | Committee of financial creditors | Companies in default needing a new owner or orderly resolution |
| Pre-pack for MSMEs | Board, supervised | Committee, on a base plan | MSMEs with lender support |
| Section 230 scheme | Board | Creditors by class, sanctioned by NCLT | Viable companies with broad creditor support |
| Bilateral restructuring with lenders | Board | Lenders individually | Short-term cash flow problems |
| Voluntary liquidation | Liquidator | Shareholders (solvent companies only) | Companies able to pay all debts in full |
What happens to employees
Employees continue to work for the company during the insolvency process unless the resolution professional decides otherwise. Their salaries for the period of the process are generally paid as insolvency resolution process costs, which rank first. Unpaid dues before the commencement date are claims, filed in Form D. If the process ends in liquidation, workmen's dues for 24 months rank high in the waterfall. Boards should explain this clearly to staff at the time of filing, because a stable workforce preserves the value of the business for any resolution plan.
Checklist before the board decides
- Get a realistic cash-flow forecast for the next six months
- List all financial and operational creditors with amounts and security
- Identify personal guarantees given by directors or promoters
- Collect audited accounts for the last two years and provisional accounts for the current year
- Check whether any creditor has already filed under Section 7 or 9
- Prepare the special resolution, or shareholder approval of three-fourths in value
- Choose an interim resolution professional and get the written consent
- Take advice on whether pre-pack under Section 54A is available instead
What directors should do in the weeks before filing
Directors who see insolvency coming have duties that go beyond the company. Section 66(2) of the Code makes a director personally liable to contribute to the company's assets if, before the insolvency started, the director knew or ought to have known there was no reasonable prospect of avoiding insolvency and did not exercise due diligence to minimise losses to creditors.
In practice, this means avoiding new credit the company cannot repay, not preferring one creditor (especially a related party) over others, keeping accurate books, and taking professional advice early. Payments to related parties in the two years before filing, and to others in the year before, can later be reversed as preferential transactions. A well-documented decision to file under Section 10, taken in time, is one of the best protections a director has. After filing, the board is suspended, but directors must still cooperate with the IRP (see rights of suspended directors).
A supplier squeezed by one large customer
Here's a made-up example. A Noida auto-parts maker supplied almost all its output to one buyer. When that buyer stopped paying, the company fell behind on its bank loans and had several months of unpaid supplier bills. The promoters had personally guaranteed the bank loans.
The board considered a pre-pack, but the bank would not agree to a base plan. The promoters chose to file under Section 10 before NCLT New Delhi, with an IRP of their choice. The application disclosed all debts and the pending dispute with the buyer. During the CIRP, the resolution professional pursued recovery from the buyer, which raised the value of the company, and an investor's resolution plan was approved. The promoters' guarantees remained a separate question, which they then negotiated with the bank.
Frequently Asked Questions
Can a company file insolvency against itself?
Yes, under Section 10, if it has defaulted on debts of at least Rs 1 crore and its shareholders approve by special resolution.
Will the promoters lose control?
Yes. On admission, the board's powers are suspended and a resolution professional runs the company. Promoters can bid for the company only if eligible under Section 29A.
Can we file if a creditor's petition is already pending against us?
The law allows a company to file under Section 10 even if a creditor's petition is pending. The NCLT may consider both together.
Does filing protect directors from personal liability?
Acting promptly helps, because liability for wrongful trading depends on what directors did once they knew insolvency could not be avoided. It does not cure earlier misconduct.
What if the company's business is still viable?
A resolution plan, possibly from a new investor, can keep it running. Section 10 is not liquidation.
Is an MSME better off with a pre-pack?
Often yes, if lenders are supportive, because promoters keep control in a pre-pack. See pre-pack for MSMEs.
Can the NCLT reject our application?
Yes, if the application is incomplete, there is no default, or the filing is not bona fide. Filing to defraud creditors is penalised.
How are your fees decided?
By the size of the company and the work involved, agreed in writing for each stage. They do not depend on the result.
Considering a Voluntary Filing?
Talk to us before the board decides. We will look at the numbers with you and explain every option, including those outside insolvency.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Need help with Company Filing Its Own Insolvency?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
