Bankruptcy Board Notifies Norms For Fast-track Insolvency Resolution For Start-ups

by Vinaya HS on August 2, 2017

in Finance

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Good news is in store for the start-ups and small companies. Now the insolvency process for small companies and start-ups can be completed within a maximum of 135 days as the Insolvency and Bankruptcy Board of India (IBBI) creates rules for fast track insolvency resolution.

The exact definition of small companies is clearly stated in the Companies Act2013. Also, the definition of startups was stated by the Commerce and Industry ministry via a notification about a month before. The legal news confirms that the small companies or start-ups are those who have a share capital of less than Rs. 50 Lakhs and their annual revenue lower than Rs. 2 Cr and their total borrowings is also less than Rs. 2 Cr. These rules pertaining to fast-tracking insolvency process have been specified and clearly mentioned in the Insolvency and Bankruptcy Code. Along with the startups and small companies, an organization that is unlisted, also called as Limited Liability Partnerships (LLPs) that has a total asset of up to Rs. 1 Cr in the preceding fiscal would also be part of this new rule of fast-track insolvency process.

According to the business news, the fast track insolvency process will be completed within a timeline of 90 days. Normally in the other cases like for the bigger firms, the insolvency tracking process takes about 180 days. But, the arbitrating authority on the approval of National Company Law Tribunal (NCLT) may also give an extension of 45 days to the period of 90 days if he deems it necessary. In that case, the completion of the process will take a total of 135 days.

The Insolvency and Bankruptcy Board of India has also stated the norms for ‘Fast Track Insolvency Resolution Process for Corporate Persons’. The norms include the details like the process which must be followed starting right from the initiation of insolvency resolution of eligible corporate debtors till it reaches the decision along with the approval of the resolution plan by the arbitrating authority. A corporate debtor will have to write an application to the arbitrating authority or NCLT for starting fast track resolution process with the proof of default. After the application is acknowledged, the IRP will be appointed. And if the interim resolution professional (IRP) holds an opinion that in this case, the fast track process does not apply for the applicant, the IRP will have to communicate the same to the adjudicating authority within a maximum of 21 days.

Thereafter, the concerned authority will pass an order to transfer the corporate insolvency resolution process from fast-track to the normal corporate insolvency resolution.

These norms are created to help resolve the bad debt situation in our country. Especially the small firms and start-ups by this rule will be hugely benefitted. The norms of IBBI also comes along with the details on the procedures and deadlines to be followed like appointment of interim resolution professionals (IRPs) and submission of claims of financial dues to help in fast track resolution of insolvency as early as possible.

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