Fast track insolvency process of corporate person

Anjali Gorsia , Last updated: 17 July 2017
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SECTION 55-58 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016, READ WITH (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017

CHAPTER II, PART II OF THIS CODE (Procedural Manner)
CHAPTER VII, PART II OF THIS CODE (Offences & penalties)

Note: The Insolvency and Bankruptcy Board of India (IBBI) has notified the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 i.e. new norms expediting insolvency resolution for start-ups, small companies and unlisted companies with total assets worth under Rs 1 crore, dated 14thJune, 2017, These Regulations shall apply to the fast track process under Chapter IV of Part II of the Code.

Why Fast Track?

A fast-track corporate insolvency process (FTIP) is for entities with less complex structuring or businesses. The fast-track insolvency process will be required to be completed within a period of 90 days with a one-time extension of 90 days, instead of 180 days required under normal cases.

Criteria for initiation FTIP in respect of specified corporate debtor?

• Assets & Income
• Class of Creditors
• Amounts of Debts

An application for Fast Track Insolvency Process? [Section 58]

MCA has notified that fast track process shall apply to the following categories of corporate debtors:

1. A small company, as defined under clause (85) of section 2 of the Companies Act, 2013; or
Where, 'small company' means a company, other than a public company, -

(i) Paid-up share capital of which does not exceed 50 lakhs rupees or such higher amount as may be prescribed which shall not be more than 5 Crore rupees; or
(ii) Turnover of which as per its last profit and loss account does not exceed 2 crore rupees or such higher amount as may be prescribed which shall not be more than 20 crore rupees:

Provided that nothing in this clause shall apply to -

(A) A holding company or a subsidiary company;
(B) A company registered under section 8; or
(C) A company or body corporate governed by any special Act;

2. A Start-up (other than the partnership firm), as defined in the notification dated 23rd May, 2017 of the Ministry of Commerce and Industry; or

An entity shall be considered as a Start-up:

a) 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

b) 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

c) if its turnover for any of the financial years since incorporation/ registration has not exceeded Rs. 25 cores; and

d) 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 'Start-up'.

Explanation

i. An entity shall cease to be a Start-up on completion of seven years from the date of its incorporation/ registration or if its turnover for any previous year exceeds Rs. 25 cores.

However, in respect of Start-ups in the biotechnology sector, an entity shall cease to be a Start-up on completion of ten years from the date of its incorporation/ registration or if its turnover for any previous year exceeds Rs. 25 crores.

ii. Turnover is as defined under the Companies Act, 2013. It does not include partnership for this Section; Fast Track Insolvency of Partnership firm is defined under PART III of this code.

iii.. an unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding Rs.1 crore

Time Required for Completion of Process? [SECTION 56]

It provides the process from initiation of insolvency resolution of eligible corporate debtors till its conclusion with approval of the resolution plan by the Adjudicating Authority (AA).

i. Application to be completed within a period of 90 days, as against 180 days in other cases.
ii. Further period to be extended up to 45 days for completion of the process, by adjudicating authority, if satisfied.

Key Consideration:

• Application for extension-to be supported by resolution of Committee of Creditors (COC) & vote of 75% of the voting share.
• Extension shall not be granted only ONCE.

In what manner process will be initiated?[SECTION 57]

Application filed by:

• Financial Creditor (FC) or
• Operational Creditor(OC)
• Corporate Debtor (CD)

To be filed along with; the proof of existence of default to AA.

Can Fast Track Insolvency Converted into normal corporate insolvency resolution process?

Yes, it can be done, If IRP (interim resolution process) so appointed after admission of application, is with the opinion on the basis of records, that the fast track process is not applicable to the corporate debtor; he shall file an application before expiry of 21 days from the date of his appointment.

STEPS INVOLVED IN EXECUTION OF FAST TRACK INSOLVECY PROCESS OF CORPORATE PERSON

1.	Application for FTIP
2.	Action of Adjudication Authority (AA) on receipt of Application
3.	Declaration of moratorium Period
4.	Appointment of Interim Resolution Professional Person not eligible to be appointed as IRP? is related party of the corporate debtor; or has not been an employee or proprietor or a partner: of a firm of auditors or company secretaries in practice or cost auditors of the corporate debtor; or of a legal or a consulting firm, which has or had any transaction with the corporate debtor amounting to 10% or more of the gross turnover of such firm, at any time in the preceding 3 years If IRP or Insolvency professional entity (IPE) under restrain order of the Board. If any other partner or Director of IPE, in which he is partner or director representing case of other stakeholder
5.	Public Announcement & meeting submissions of claims Public Announcement on appointment of IRP; Immediately within 3 days of his appointment In FORM A , in newspaper, website of corporate debtor, on website as designated by board, if any, Inviting claims from creditors; Within 10 days of appointment of IRP. The public announcement shall not form part of fast track process costs. To be done by 'Applicant', this will be rectified to the extent by reimbursement.

with an information utility, if any; or

(b) other relevant documents, including -

a contract for the supply of goods and services with corporate debtor;
an invoice demanding payment for the goods and services supplied to the corporate debtor;
an order of a court or tribunal that has adjudicated upon the non- payment of a debt, if any; or
Financial accounts.

supported by financial statements as evidence of debt

a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor;

financial statements showing that the debt has not been repaid; or

An order of a court or tribunal that has adjudicated upon the non- payment of a debt, if any

an information utility, if any; or (b) other relevant documents, including -

i. a proof of employment such as contract of employment for the period for which such workman or employee is claiming dues;

ii. evidence of notice demanding payment of unpaid dues and any documentary or other proof that payment has not been made; or

iii. An order of a court or tribunal that has adjudicated upon the non- payment of a dues, if any.

In case creditor failed to submit claim within stipulated time frame?

It may submit proof of such claim to the IRP or the RP, as the case may be, till the approval of a resolution plan by the committee.

Who will bear the cost of proving Debt?

Cost to be borne by CREDITORS

Verification of Determination of Claims

Verify each & every claims
Within 7 days from the last date of receipt of the claim
Maintain list; name of creditors, amount of claim, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it.,

Constitution of Committee of Creditors

Key Consideration

Committee will be constituted by IRP
All decisions will be taken by vote of at least 75% of voting share
Committee of financial creditor shall exclude related parties of corporate debtor
In absence of financial creditor or being related party of corporate debtor, the committee shall be set up in accordance with this Regulation.
Committee shall have power to call information from resolution professional.
Every member of committee shall have voting rights in proportion of the debt due to such creditor or debt represented by such representative, as the case may be, to the total debt.

Filings:

IRP to file report certifying the constitution of the committee to the AA within 21 days of his appointment.
IRP to conduct meeting of COC within 7 days of Constitution.

8.	Issuance of Notice of the Meeting of Committee of Creditors Notice to be served 7 days prior before conduction of meeting By way of hand delivery/post/ electronic means The notice of the meeting shall contain an agenda of the meeting with the following- a list of the matters to be discussed at the meeting; a list of the issues to be voted upon at the meeting; and copies of all documents relevant to the matters to be discussed and the issues to be voted upon at the meeting; and
9.	Holding meeting of Creditors of Committee Quorum of meeting: at least thirty-three per cent of the voting rights are present either in person or by video conferencing or other audio and visual mean The resolution professional shall take due and reasonable care The resolution professional shall make necessary arrangements to ensure uninterrupted and clear video or audio and visual connection.\ The resolution professional shall act as the Chairperson of the meeting of the committee. Minutes of the meetings to be circulated within 48 hours.
10.	Conduct Of The Fast Track Process Appointment of Registered Valuer within 7 days of his appointment. Persons not eligible: a relative of the interim resolution professional; a related party of the corporate debtor; an auditor of the corporate debtor in the five years preceding the fast track commencement date; or a partner or director of the insolvency professional entity
11.	The applicant (AA, in absence of applicant) shall fix the expenses to be incurred on or by the interim resolution professional. Cost to be borne by 'Applicant', this will be rectified to the extent by reimbursement. The amount of expenses ratified by the committee shall be treated as fast track process costs The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute fast track process costs.
12.	Resolution Plan; The registered Valuer appointed shall submit to the IRP or the RP, as the case may be, an estimate of the liquidation value. The resolution professional shall provide the liquidation value to the committee in electronic form. The IRP or RP, as the case may be, shall submit an information memorandum in electronic form to each member of the committee, after receiving an undertaking to the effect that such member or resolution applicant shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements

Mandatory contents of the resolution plan.

(1) A resolution plan shall identify specific sources of funds that will be used to pay the

(a) fast track process costs and provide that the fast track process costs will be paid in priority to any other creditor;

liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and
Liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan.

A resolution plan shall provide:

the term of the plan and its implementation schedule;
the management and control of the business of the corporate debtor during its term; and
adequate means for supervising its implementation

13.

Submission & Approval of resolution Plan.

Resolution Plan to be submitted, 30 days before expiry of time period framed under Sec 56 (i.e. 90 days).
Resolution plan will be subject to approval by COC
After approval by COC , it will submitted to AA
The resolution professional shall, on receiving an instruction from the committee under this Regulation, make an application to the Adjudicating Authority for such extension

DISCLAIMER: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.

READER SHOULD SEEK APPROPRIATE COUNSEL FOR THEIR OWN SITUATION. WE SHALL NOT BE HELD LIABLE FOR ANY OF THE CONSEQUENCES DIRECTLY OR INDIRECTLY.

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