FAST-TRACK INSOLVENCY RESOLUTION PROCEDURE: AN EASE TO SMALL CREDITORS
The Insolvency and Bankruptcy Code is a new generation law that provides efficient revival mechanism and also throws challenges in the form of capacity building, harmonization of various laws, creation of insolvency professionals, development of regulatory platform and so on. The aim of the Insolvency and Bankruptcy code is to conclude the procedure within half of the default time period specified under the Code. So, this ensures that the restructuring and insolvency resolutions get easier for corporations, partnerships, and other specified individuals. Chapter IV of the Insolvency and Bankruptcy Code, 2016 deals with the fast track corporate insolvency resolution process.
WHAT IS INSOLVENCY?
Insolvency describes a situation wherein a legal person (including corporate persons) is unable to meet their obligation to pay to its creditors when they become due and payable.
WHO ARE CORPORATE PERSONS?
As per Section 3(7) of Insolvency and Bankruptcy code, 2016 “corporate person” means:
- a Company as defined in clause (20) of Section 2 of the Companies Act, 2013 (18 of 2013),
- a Limited Liability Partnership, as defined in clause (n) of sub-Section (1) of Section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or
- any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;
WHO ARE CORPORATE DEBTORS?
As per Section 3(8) of Insolvency and Bankruptcy Code, 2016, “corporate debtor” means a corporate person who owes a debt to any person;
WHO CAN APPLY FOR FAST TRACK INSOLVENCY RESOLUTION PROCESS?
An application for the fast track insolvency resolution process can be filed by either a creditor (including both financial and operational creditor) or a corporate debtor itself.
INSOLVENCY RESOLUTION PROCESS TO BE FILED AGAINST WHOM?
As per Section 55 of the Insolvency and Bankruptcy Code, 2016, the application of Fast track insolvency resolution process could be made against the following corporate debtors-
- Small Companies– means a Company, other than a public Company,-
- paid up share capital of which does not exceed four crore rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees;
- turnover of which as per profit and loss account for the immediately preceding financial year does not exceed forty crore rupees or such higher amount as may be prescribed but shall not be more than one hundred crore rupees.
Provided that nothing in this clause 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.
- Start-ups– as defined in the Government of India notification on date 23rd May 2017 as issued by the Ministry of Commerce & Industry
- Unlisted Company– whose total assets as reported in the financial statement of immediately preceding financial year, not exceeding rupees 1 crore.
TIME LIMIT FOR FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS:
Section 56 of the Insolvency Bankruptcy Code, 2016 states that:
(1) Subject to the provisions of sub-Section (3), the fast track corporate insolvency resolution process shall be completed within a period of ninety days from the insolvency commencement date.
(2) The resolution professional shall file an application to the Adjudicating Authority* to extend the period of the fast track corporate insolvency resolution process beyond ninety days if instructed to do so by a resolution passed at a meeting of the committee of creditors and supported by a vote of seventy-five per cent of the voting share.
(3) On receipt of an application under sub-Section (2), if the Adjudicating Authority* is satisfied that the subject matter of the case is such that fast track corporate insolvency resolution process cannot be completed within a period of ninety days, it may, by order, extend the duration of such process beyond the said period of ninety days by such further period, as it thinks fit, but not exceeding forty-five days:
Provided that any extension of the fast track corporate insolvency resolution process under this Section shall not be granted more than once.
STEPS OF FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS:
- APPOINTMENT OF RESOLUTION PROFESSIONAL:
An Insolvency Professional can be appointed as a resolution professional, only if he’s not the related party of the concerned corporate debtor.
- PUBLIC ANNOUNCEMENT:
The appointed insolvency professional as “Interim Resolution professional” is bound to make a public announcement of his appointment but not later than 3 days from such an appointment.
- SUBMISSION & VERIFICATION OF CLAIMS:
The operational creditors & financial creditors have to submit their claims with proofs in a prescribed manner within the time period of 10 days to the Interim resolution professional, along with the supplementary documents and clarifications. After receiving the claims, the interim resolution professional has to verify the same within 7 days from the end date of receipt of claims and has to publish the list of the creditors.
- FORMATION OF COMMITTEE OF CREDITORS:
The interim resolution professional has to form a “Committee of Creditors” (CoC).
- MEETING OF COMMITTEE OF CREDITORS:
The interim resolution professional has to conduct the first meeting of the CoC, where either the interim resolution professional is appointed as Resolution professional or the CoC suggest for the Resolution professional. The meeting has to be conducted within 7 days after filing the report. The notice of the meeting should be served 1 week before the date of the meeting.
- APPOINTMENT OF REGISTERED VALUER:
The Resolution Professional has to appoint a registered valuer within 7 days, from his appointment in order to initiate the liquidation of the concerned corporate debtor.
- DRAFTING OF INFORMATION MEMORANDUM:
The resolution professional has to draft the memorandum of information in electronic form and should have conveyed to all the members of the Committee of Creditors.
- FORMATION OF RESOLUTION PLAN:
The resolution plan is drafted by resolution applicant, has to be in accordance with the need of the Committee of creditors, and should consist of all the measures needed to implement.
- APPROVAL OF THE RESOLUTION PLAN:
The plan submitted by resolution applicants is shortlisted by the resolution professional and the appropriate resolution plan is sent to the committee of creditors seeking their approval.
- SUBMISSION OF APPROVAL PLAN TO ADJUDICATING AUTHORITY*:
After the approval of the resolution plan it is sent to the Adjudicating Authority* with required clarifications. On receiving the resolution plan the Adjudicating Authority* may pass an order by approving or rejecting the plan.
*As per Section 5 under Part II of the Insolvency and Bankruptcy Code, 2016, Adjudicating Authority for the purposes of this Part means National Company Law Tribunal (NCLT) constituted under Section 408 of the Companies Act, 2013.