Fast Track Corporate Insolvency Resolution Process Under IBC 2016: A Swift Path to Corporate Restructuring Insolvency arises when a company or person is unable to pay the debts before becoming due. Corporate insolvency involves multiple interested parties. Before IBC 2016 , a huge number of corporate insolvencies existed in the economic structure. Companies, Creditors, and Debtors faced several problems because of the frequent insolvency disputes.
It even led to instability in the economy. In 2017, the Fast Track Corporate Insolvency Resolution Process began to exist. The main aim of it was to eliminate the excess delay in the process. Based on the complexity, some can be resolved earlier but some cannot be. This process happens within 90 days with a 45 days extension in special cases. In the blog, we will understand the process and its advantages.
Understanding the Corporate Insolvency Resolution Process The IBC 2016 was introduced in Parliament to resolve various insolvency cases. It highlights the step procedure that creditors and debtors should undertake during insolvency. The set procedure is defined as the Corporate Insolvency Resolution Process. It can help establish credit and maintain relationships with the debtors. This process can also facilitate insolvency resolution. A corporate, financial, or operational creditor initiates this process. During initiation, a check is carried out to find whether the company can repay the debt. Restructuring or Liquidation happens when the company cannot repay it. Understanding the Fast Track Insolvency Resolution Process The IBC specifies a maximum of 180 days for corporate debtors to complete the insolvency resolution process. However, it is extended for 90-days in special cases. The Fast Track Insolvency Resolution Process was introduced to reduce the time for the process completion. The main aim of this fast-track process is to complete the proceedings effectively within the time. Sections 55 to 58 of Chapter 4, Part II in IBC 2016 and IBBI Regulations 2017 have the legal frameworks required to carry out the process. Fast Track Insolvency Resolution Process Eligibility Criteria IBC 2016 specifies that the
1. Corporate Debtors with Income and Assets lower than the limit notified by the Central Government.
2. Corporate Debtors with a huge amount of debt or class of creditors as notified by the Central Government.
3. Other categories of corporate persons as notified by the Central government are eligible to initiate the process.
The Fast Track Insolvency Resolution Process applies to
1. Small Companies as per the Companies Act 2013 ,
2. Startup companies excluding partnership firms,
3. An unlisted company with assets less than one crore as in the books of the previous financial year.
Step-by-step procedure in Fast Track Insolvency Resolution Process Step1 - Initiation As per Section 57, the creditor or debtor can initiate the process. They should submit the records showing proof of the default's existence or other information specified by IBBI.
Step 2 - Interim Resolution Professional Appointment The NCLT appoints an Interim Resolution Professional. The person should not be connected to the corporate debtor. During the appointment, Interim Resolution Professional has to disclose that he is not related.
Step 3 - Public Announcement They should make a public announcement within three days of appointing an Interim Resolution Professional. The public announcement should be made in a minimum of 2 newspapers. One should be in the Regional Language newspaper and the other in the English newspaper. Corporate debtors can also publish it on their website if he has any.
Step 4 - Submission of Claims A maximum of 10 days will be given to the corporate debtors to submit their documents after public announcement. Within 7 days from the last date of submission, the IRP should verify the claims and prepare the creditor's list.
Step 5 - Formation of Committee of Creditors Within 21 days of his appointment, the IRP should submit a report certifying the committee of creditors. The IRP can convert the Fast Track Insolvency Resolution Process into non-fast when the company does not meet the qualifications. Within 7 days of the submission of the preliminary report by IRP, the first committee meeting should take place.
Step 6 - Meeting with the Committee of Creditors Chapters VI and VII of the Fast Regulations highlight the process by which the meeting with the Committee of Creditors shall take place. To start the meeting, you should give a seven-day prior notice to the creditors.
Step 7 - Appointment of Registered Valuer The resolution professional should appoint a registered valuer within seven days of his appointment. To get appointed as a Registered Valuer, the person should not any be the following.
a. Resolution Professional relative.
b. A related party
c. Corporate Debtor’s Auditor within 5 preceding years
d. Insolvency Resolution Entity partner or director
A fair estimate and liquidation value are prepared by the Registered Valuer and sent to committee members.
Step 8 - Due Diligence by Resolution Professionals The resolution plans can be framed by the resolution professionals according to the regulations and submitted to the Committee of Creditors. He can also include his opinion regarding fraudulent, preferential, undervalued, and extortionate credit transactions. He must also submit copies of orders issued by the adjudicating authority along with the plan.
Step 9 - Information Memorandum and Resolution Plan Invitation The Resolution Professional should prepare the Information memorandum and submit it to committee members within 2 weeks of appointment. He should publish the resolution plan invitation.
Unlike the Standard Corporate Insolvency Resolution Process, there is no stage to invite Expression of Interest from the resolution applicants before the Request for Resolution Plans.
Step 10 - Resolution Plan Formation and Submission The Resolution Professional must submit the Resolution Plan within 15 days of Form G Publication. The Resolution Plan highlights the source of funds you can use for payments for the incurred cost and creditor's value due.
Extension of Timelines in the Fast Track Insolvency Resolution Process According to Section 56, the timeline provided to complete this process is 90 days. However, it can be extended for 45 days additional time. To extend the time, the Resolution Professional should apply for an extension from the Adjudicating Authority.
He should also get approval from the Committee of Creditors with 75% of the majority votes. The timeline may be extended if the Adjudicating Authority finds that the time of 90 days is not enough to complete it.
Fast Track Insolvency Resolution Process-Advantages The advantages of the Fast Track Insolvency Resolution Process are given below.
Quick Resolution This process can help businesses resolve their uncertainty within a specified time. You can plan for your future either by revival or liquidation accordingly. Creditors can recover from their dues quickly when compared to the standard process.
Cost Effective It is a cost-effective and beneficial process for small businesses.
Focus on Business Continuity It helps the business continue with its process rather than existing in financial distress.
Minimal Disruption The core process of businesses is not much affected during the resolution process.
Transparency and Accountability You can ensure transparency and accountability because a licensed insolvency professional carries out this process.
Enhanced Creditor Rights The creditors have the great right to control the Insolvency Resolution process. It assists creditors in choosing company restructuring or liquidation.
Conclusion The Fast Track Corporate Insolvency Resolution Process launch was a game changer. It is a time-bound, cost-effective, and professional method to resolve insolvency. This process helps business owners to restructure or liquidate their business efficiently. Creditors gain confidence in this process due to quick recoveries and increased transparency. It reflects the government's dedication to the ease of doing business. This process is a lifeline for small and micro companies that face financial distress.
FAQs 1. Define IBC 2016. IBC 2016 is a uniform legislation introduced by the parliament to deal with insolvencies.
2. How many days are allotted to complete this process? This process should be completed in 90 days.
3. How many days can this process be extended in special cases? This process can be extended for 45 days in special cases.
4. What is the eligibility of corporate debtors required to initiate this process? The corporate debtors eligible for this process include:
a. Small Companies as per the Companies Act 2013,
b. Startup companies excluding partnership firms,
c. An unlisted company with assets less than one crore as in the books of the previous financial year.
5. Can an Interim Resolution Professional be related to the corporate debtor? The Interim Resolution professional should not be related to the corporate debtor.
6. What is the eligibility for the person to be appointed as a registered valuer? To get appointed as a Registered Valuer, the person should not be the following:
a. Resolution Professional relative.
b. A related party
c. Corporate Debtor’s Auditor within 5 preceding years
d. Insolvency Resolution Entity partner or director.
7. What is a major advantage of this process? The major advantage of this process is quick resolution.
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