Small Companies to be now put on Fast Track Insolvency, by Barsha Dikshit
Insolvency and Bankruptcy Board of India (‘IBBI’) vide notification number IBBI/2017-18/GN/REG 012 dated 14th June, 2017 [1]has come up with Fast track Insolvency regime for small companies by introducing the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 (‘Fast Track Regulation’) and has appointed 14th June, 2017 as the enforcement date. On the very same day Ministry of Corporate Affairs (‘MCA’) has notified[2] section 55 to 58 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) dealing with Fast Track Resolution Process and a list of eligible corporate debtors that can opt this fast track regime, which is yet to be gazetted. As per the notified list, the mechanism is applicable to start ups as defined under notification dated 23rd May, 2017 [3](excluding partnership firms), small companies as defined under section 2 (85) of the Companies Act, 2013 and on unlisted companies with total assets less than one crore as per the financial statement of preceding financial year. This is another step to resolve bad-debts issue in India.
Why Fast Track?
Part II Chapter IV of the Insolvency and Bankruptcy Code, 2016 provides for the Fast Track Corporate Insolvency Resolution Process. Considering the time frame, the mechanism is being named as Fast Track. Pursuant to the Fast Track Regulation, the resolution process for the start-up companies, Small companies and unlisted companies having total assets less than one Crore (‘Eligible Corporate Debtors’) as per Preceding years balance sheet, shall be completed within a period of 90 days unlike 180 days for larger companies. One time extension of 45 days can be granted by the Adjudicating Authority on receiving of application by the Resolution Professional requesting for such extension.
An overview of the Regulation
The regulations specifies the method of resolution of the process is more or less same as the resolution process specified in IRP rules. The major difference between the two is that of the timeline. The summery of the process to be followed for Fast Track resolution is specified in the table below:
Regulation |
Particular |
Time Frame |
Remarks |
| Select the Insolvency professional out of the list of Insolvency Professional as registered with IBBI | X day | The selected IP shall be eligible to be appointed as IRP as per Regulation 3 of the Fast Track Regulation. | |
| Take Consent letter from the selected IP to act as IRP in form 2 as per AAA Rules, 2016 | X+1 day | ||
| Section 57 of the Code | Financial Creditor/ Operational Creditors/ Corporate debtor himself can file the application for initiating corporate insolvency resolution process against the corporate debtor. The application shall be accompanied by the following:
i) Proof of existence of default; ii) Documents that established the fact that the corporate debtor is eligible for fast track insolvency process; iii) Details of proposed Interim Resolution professional |
X+2 day | |
| Section 7 (4) and (5) of the Code | Adjudicating authority shall, within 14 days of receipt of the application, ascertain the existence of default. Once satisfied, shall admit such application. | X+2+14 days or Y day (hereinafter Y has been referred as date of commencement of Fast Track Resolution) | The Resolution process shall commenced from the date of admission of application |
| Reg. 6 of Fast Track Regulation | Insolvency shall make a public announcement with 3 days from the date of his appointment in Form A in the following:-
i) One English newspaper; ii) One regional language newspaper with wider circulation; iii) Be hosted on the website, if any of the corporate debtor; iv) Be hosted on the designated website of IBBI |
Y+3 day | IRP may make a public announcement to such other place where in his opinion, the corporate debtor conducts material business. Applicant shall bear the cost of public announcement. |
| Reg. 26 of Fast Track Regulation | IRP shall within 7 days of his appointment shall appoint one registered valuer to determine the liquidation value of the corporate debtor in accordance with Reg 34. | Within Y+7 day | Following person shall not be eligible to be appointed as registered valuer:
a) A relative of IRP; b) A related party of corporate debtor; c) An auditor of Corporate Debtor in the 5 years preceding the fast track commencement date; d) A partner or director of the Insolvency Professional Entity |
| Reg. 2 (c), Reg, 7, Reg. 8 and Reg. 9 of the Fast Track Regulation | Submission of proof pf claim to the IRP within 10 days from the appointment of IRP:
By Operational Creditor: In Form B; By Financial Creditor: In Form C; By workmen or employees in Form D and in case of numerous employees in Form E |
Y+10 day | Creditors shall bear the cost of proving the debt due to each creditor |
| Reg. 13(1) of Fast Track Regulation | The interim Resolution Professional shall verify every claim as on Fast Track commencement date within 7 days from the last date of receipt of the claim and thereupon shall maintain a list of creditor containing name of the creditor, amount claimed by them, the amount of their claim admitted and the security interest. | Within Y+10+7 day | |
| Reg. 13 (2) of Fast Track Regulation | The list of creditors shall be displayed on the website of the Company, shall be filed with the Adjudicating Authority and shall be presented at the first meeting of committee | Say y+10+7+1 | |
| Reg, 17 (1) of the Fast Track Regulation | IRP shall after collation of the claims create a committee of creditors within 21 days from the date of his appointment and shall file a report certifying the constitution of committee to the Adjudicating Authority | Within Y+21 | |
| Reg. 19 of Fast Track Regulation | Drafting and Sending Notice of Committee Meeting by IRP to every participants (7 days before the meeting) by hand delivery or by registered post and by electronic means | Y+21+1 | Committee may reduce the period from 7 days to 24 hrs. |
| Reg. 35 of the Fast Track Regulation | The RP shall prepare Information memorandum (IM) in such Form as may be prescribed and submit the same at the first meeting of committee of creditors | The IM shall contain the details specified in Reg. 35 (2) of the Fast Track Regulations, such as, assets and liabilities as on Fast Track Commencement date, latest annual financial statement, list of creditors, particulars of debt dues etc. | |
| Reg. 17 (4) of Fast Track Regulation | Interim Resolution Professional shall convene first meeting of the Committee within 7 days of filing of report Committee may, by majority vote, appoint the IRP as RP or replace the IRP by another RP | Y+21+1+7 or Y+29 day | Quorum of the meeting shall be 33.33% of the voting rights. However, presence of all members is not required if the quorum is present at the meeting. |
| The Committee shall communicate its decision to the IRP, Corporate Debtor and to the Adjudicating authority. | Requisite time | ||
| Reg. 24 (7) of the Fast Track Regulation | RP shall circulate the minutes of the Meeting to all the participants by electronic means within 48 hrs of the meeting. | ||
| Reg. 34 (3) and Reg. 35 (1) (b) of Fast Track Regulation | The Resolution professional shall finalise the liquidation value and submit the same to the Committee. (within 14 days from the first meeting of committee of creditors) | Y+ 29+14 day | |
| Reg. 38 of Fast Track Regulation | A resolution applicant shall submit Resolution plan to the RP prepared on the basis of IM. (within 30 days before the expiry of maximum period permitted to complete corporate insolvency resolution process) | withinY+29+14+17 day | |
| Send notice to the members of the committee for calling of next meeting of committee of creditors | Say on Y+60 days | The meeting can be called at the shorter notice with the consent of the committee members | |
| Reg, 38 (2) of Fast Track Regulation | Convene the Meeting. RP to present the resolution plan to the Committee for its consideration | Y+60+7 days | |
| Reg. 38 of the Fast Track Regulation | RP to submit the Resolution Plan approved by the Committee with the following certification:
a) The contents of the resolution plan meet all the requirement of the code; b) The resolution plan has been approved by the Committee |
||
| Reg. 38 (5) of the Fast Track Regulation | After satisfying with the content of resolution plan the Adjudicating Authority shall approve the resolution plan | The Order shall be binding on the corporate debtor and its employees, members, creditors,
guarantors and other stakeholders involved in the resolution plan. |
|
| In case the Adjudicating Authority rejects the Resolution Plan | |||
| The adjudicating authority shall pass the order requiring the Corporate Debtor to be liquidated in the manner as prescribed in Chapter III of the Code | |||
Conclusion
The very purpose of introducing Fast Track Regulation is to lower down the burden of small companies from following the cumbersome procedure of Resolution Process as specified under the Code for larger companies. However, as reflected from the Regulation, the process is almost same as that of the resolution process of larger companies, only the moratorium period has been reduced to 90 days and some other procedural time frame has been reduced. Thus, it would be fair to say that 90 days time limit imposed a burden on the Resolution professional to ensure that they respond in a time bound manner. The object of Fast Track Resolution would have been achieved if the procedural compliances were reduced for the Eligible Corporate Debtors. The Fast Track Regulation should make it easier for the Creditors proposing resolution for smaller companies.
[1] http://www.ibbi.gov.in/Insolvency_and_Bankruptcy_Board_of_India_Fast_TrackInsolvency_Resolution_Process_for_Corporate_Persons_Regulations_2017.pdf
[2] http://www.ibbi.gov.in/notification_before_publication.pdf
[3] http://www.egazette.nic.in/WriteReadData/2017/176201.pdf
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by Barsha Dikshit (barsha@vinodkothari.com)
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