When Benjamin Franklin said “Time is Money1” he certainly meant that time is a valuable asset and we must make it count. This statement is worth remembering when dealing with financial debts and their realization and therefore the Insolvency and Bankruptcy Code, 2016 (“the Code“) provides for ‘Fast Track Insolvency Resolution Process’. It aims to expedite the insolvency resolution process of certain categories of corporate debtors with lesser complexities. The fast track process which can be initiated by a creditor or the corporate debtor itself cuts down the time taken to complete an insolvency resolution to almost half as compared to the regular process under the Code. As per MCA Notification dated 14th June, 20172, the Central Government has notified section 55 to 58 under Chapter IV of the Insolvency and Bankruptcy Code and provided that an Application for Fast track corporate insolvency resolution process may be made in respect of the following corporate debtors:
(a) a small company as defined under clause (85) of section 2 of Companies Act, 2013 (18 of 2013)3;
(b) a Startup (other than the partnership firm) as defined in the notification of the Government of India in the Ministry of Commerce and Industry dated the 23rd May, 20174; or
(c) an unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding rupees one crore.
The Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 20175 (“the Regulations“) have laid down important definitions and procedure to carry out the resolution process.
- Regulation 2(1)(j) defines “fast track process period” which means the period of ninety days beginning from the fast track commencement date and ending on the ninetieth day; whereas “fast track commencement date” is defined in regulation 2(1)(l) which means the date of admission of an application by the Adjudicating Authority for initiating the fast track process under Chapter IV of Part II of the Code.
- In order to save time, the Regulations provide for and define “video conferencing or other audio and visual means” as such audio and visual facility which enables the participants in a meeting to communicate concurrently with one another and to participate effectively in the meeting6 Regulation 23 lays down the procedure and rules to be followed by the resolution professional in conducting meeting of committee of creditors through video conference.
- The Public announcement inviting proof of claims is to be made by the interim resolution professional for a fast track insolvency resolution process within 3 days of his appointment and providing time of 10 days from the date of appointment of the interim resolution professional.
- The Regulations provide that financial creditors must submit their proof of claims by electronic means only. However, operational creditors, including workmen and employees may submit their proof of claims in person, by post or through electronic means7.
- Based on the record of corporate debtor and the claims filed, if the interim resolution professional is of the opinion that the fast track process is not applicable to the corporate debtor he can make application to the Adjudicating Authority under the Code to pass an order converting the fast track process to corporate insolvency resolution process8.
- Section 56 of the Code provides a time period of 90 days from the fast track commencement date to complete the insolvency resolution process. The Adjudicating Authority may, not more than once, extend this time period for not more than 45 days on an application filed by the resolution professional. Such extension can be applied for only when the committee of creditors, in a resolution passed and supported by a vote of 75% of the voting share, is of the opinion that the fast track process cannot be completed within the stipulated 90 days.
India is a fast-emerging startup hub9. A fast track insolvency resolution process under the Code is a positive way to encourage upcoming businesses as it will provide easier exit to the creditors in case of failed ventures.
1 ‘Advice to a Young Tradesman’ (1748)
3 Section 2(85) Companies Act, 2013 defines “small company” as a company, other than a public company –
- paid – up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; OR
- turnover of which as per its last profit and loss account does not exceed two crore or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this section shall apply to –
- a holding company or a subsidiary company;
- a company registered under section 8; or
- a company or body corporate governed by any special Act;
4 An entity shall be considered as a ‘Startup’:
- if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India; and
- up to seven years from the date of its incorporation/ registration; however, in the case of Startups in the biotechnology sector, the period shall be up to ten years from the date of its incorporation/ registration; and
- if its turnover for any of the financial years since incorporation/ registration has not exceeded Rs. 25 crores; and
- if it is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘Startup’
6 Regulation 2(1)(r) of the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017
7 Form A of the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017
8 Regulation 17 of the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017
9 According to study conducted by ASSOCHAM India in association with ‘Thought Arbitrage Research Institute’ http://www.assocham.org/newsdetail.php?id=5874
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