1. For start-ups, small companies insolvency process slashed from 180 days to 90; Bankruptcy Board notifies provisions

For start-ups, small companies insolvency process slashed from 180 days to 90; Bankruptcy Board notifies provisions

IBBI notifies provisions to expedite resolution in default cases within 90 days, from 180 days earlier.

By: | New Delhi | Published: June 17, 2017 6:27 AM
Corporate insolvency resolution processes, IBC, National Company Law Tribunal Currently, at least 81 corporate insolvency resolution processes are going on under the IBC.

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% 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 companies. 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 the 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, speaking at a function in Kolkata, IBBI chairman MS Sahoo explained the latest provisions will apply to cases of disputes or defaults of small listed companies having paid-up capital of `50 lakh or an annual turnover of `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.

The IBBI move comes at a time when 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. The Insolvency and Bankruptcy Code, aimed at boosting the ease of doing business in the country, is expected to improve India’s rank in the World Bank’s index in the coming years. The IBBI is expected to be the anchor of this critical initiative of the government.

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The code seeks to consolidate and amend laws relating to re-organisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner. However, the IBBI and the National Company Law Tribunal (NCLT) have the power to penalise in case an insolvency process has been triggered in a fraudulent manner, depending on individual cases.

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