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Bankruptcy Board notifies norms for fast-track insolvency resolution for start-ups

LiveMint logoLiveMint 16-06-2017 Jayshree P. Upadhyay

Mumbai: The Insolvency and Bankruptcy Board of India (IBBI) on Friday notified the final norms for fast-track insolvency resolution at small companies.

The resolution process for such firms would be completed within 90 days, against 180 days for large firms. The timeline would be extendable by 45 days if the National Company Law Tribunal (NCLT) approves it.

The fast-track mechanism, in line with the draft norms released on 24 April, is applicable to start-ups, small firms with a share capital of less than Rs50 lakh, annual revenue below Rs2 crore and with total borrowings less than Rs2 crore. Additionally, the fast-track mechanism would be considered for firms that fit the Companies Act 2013 definition of small companies and unlisted firms with total assets, as reported in the preceding fiscal, not exceeding Rs1 crore.

“We were expecting this notification anytime since the draft regulations were released in mid-April. This is another step in the right direction to help resolve the bad debt situation in India. Specifically, it is helpful for small firms and start-ups, giving them a way out as all start-ups don't succeed and then exit becomes an issue,” said Ashish Chhawchharia, partner, Grant Thornton Advisory Pvt. Ltd.

The rules notified by the insolvency regulator explain the procedures and timelines to be followed to help in resolution of insolvency within 90 days such as announcement of the appointment of interim resolution professionals (IRPs) and submission of claims of financial dues. A committee of the 18 largest operational creditors will be appointed if all creditors are related to the debtor and in case there is lack of clarity on financial dues.

A creditor or a debtor company will be required to 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 and the IRP is appointed, if the IRP thinks the fast-track process is not applicable, he can move an application within 21 days with the NCLT to pass an order to convert the fast-track process into a normal corporate insolvency resolution process.

The IRP, within seven days of his appointment, will appoint a registered valuer to determine the liquidation value of the debtor.

“Liquidation value would be computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor,” said the notification.

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