Faster insolvency: New process in place for start-ups, small cos

Currently, the Insolvency and Bankruptcy Code (IBC), under which the IBBI was set up, provides for wrapping up the resolution process in 180 days from the date of the admission of an application by the adjudicating authority.

By: ENS Economic Bureau | New Delhi | Published:June 17, 2017 3:03 am

The Insolvency and Bankruptcy Board of India (IBBI) has notified provisions to expedite the resolution process of default cases of small companies and start-ups within 90 days, according to an official statement. Currently, the Insolvency and Bankruptcy Code (IBC), under which the IBBI was set up, provides for wrapping up the resolution process in 180 days from the date of the admission of an application by the adjudicating authority. However, the Fast Track Insolvency Resolution Process for Corporate Persons Regulations, 2017, also states that the adjudicating authority may, if satisfied, extend the period of 90 days by 45 days for the completion of the resolution process.

But the Reserve Bank of India’s selection this week of 12 accounts totaling 25 per cent of non-performing assets to be referred for resolution under the IBC don’t meet these criteria, as they are large accounts. However, the National Company Law Tribunal (NCLT) may, on its own, decide to expedite those NPA cases.Faster resolution will attract investors to start-ups, most of which don’t survive long, as well as small firms. This was one of the reasons why the government, as part of its Start-up India initiative, wanted to give start-ups an easy option to exit within 90 days. Currently, at least 81 corporate insolvency resolution processes are going on under IBC.

Faster resolution will attract investors to start-ups, most of which don’t survive long, as well as small firms. This was one of the reasons why the government, as part of its Start-up India initiative, wanted to give start-ups an easy option to exit within 90 days. Currently, at least 81 corporate insolvency resolution processes are going on under IBC.

The fast-track process will apply to small companies, or a start-up (other than the partnership firm) and an unlisted company with total assets, as reported in the financial statement of the immediately preceding fiscal, not exceeding Rs 1 crore. However, the insolvency resolution professional, appointed by the adjudicating authority once a case is admitted by it, will have a key role in deciding whether resolution in case of that particular debtor deserves to be expedited.

Separately, IBBI chairman MS Sahoo explained the latest provisions will apply to cases of disputes or defaults of small listed firms having paid-up capital of Rs 50 lakh or an annual turnover of Rs 2 crore. He said the NCLT, the adjudicatory authority, has so far admitted 110 cases, within one year of the IBC coming into being.

The usual process goes like this. A creditor or a corporate debtor may file an application, along with the proof of existence of default, to the NCLT for initiating the fast-track resolution process. After the application is admitted, an interim resolution professional (IRP) is appointed.

However, if, based on the records of the corporate debtor, the IRP is of the opinion that the fast track process is not applicable to that debtor, he will file an application before the expiry of 21 days from the date of his appointment, to the NCLT to pass an order to convert the fast-track process into a normal corporate insolvency resolution process.
India’s rank in resolving insolvency in the World Bank’s ease of doing business index 2017 is as low as 136, worse than its overall rank of 130th of 190 nations.

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