India: Fast Track Insolvency- Is It Really Fast?

The very purpose of introducing Fast Track Regulation (hereinafter referred as "regulation") is to lower the burden on small companies from following the cumbersome procedure of Resolution Process as specified under the Insolvency and Bankruptcy Code (hereinafter referred as "code") for larger companies. The regulation came in force on June 14, 2017 and applies to small companies¹⁴ , start-ups ¹⁵(which should be a private company, partnership or LLP and its turnover since incorporation shouldn't exceed 25cr.) and to unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding Rs.1 cr.¹⁶.

The regulation stipulates a period of 90 days for the resolution process¹⁷, in case of small companies, though if 75% of the creditors apply to the adjudicating authority through the resolution professional, the adjudicating authority may extend the duration for a maximum period of forty-five days.¹⁸ Whereas under the code, the resolution process has to completed within a period of 180 days which can be further extended for a maximum period of one-eighty days¹⁹. The moratorium period under the regulation has also been reduced to 90 days as the code specifies that further no proceedings can be initiated against the interim resolution professional or the resolution professional for the actions of the corporate debtor, prior to the fast track commencement date²⁰ , though there is no divergence between the resolution process and penalties under the regulation and the code.²¹

The quorum required for committee of creditors under the IBC code is 75% of the financial creditors whereas under the regulation the quorum required is 33% of the total members, which has been further given the right to modify the percentage required for quorum in respect of any future meetings of the committee.²²

A creditor or a corporate debtor may file an application, along with the proof of existence of default, to the Adjudicating Authority for initiating fast track resolution process. After the application is admitted and the interim resolution professional ("IRP") is appointed, if the IRP is of the opinion, based on the records of corporate debtor, 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, to Adjudicating Authority to pass an order to convert the fast track process into a normal corporate insolvency resolution process.²³

In fast track solvency, when an interim resolution professional verifies a claim, he is not constrained to give a reason in writing to the creditor, thereby his claims may be prejudiced at times and has 7 days to verify the claims from the last date of receipt of claims²⁴, the intent of the legislature can be seen that it wants the fast track resolution to be conducted in a brisk manner.

The resolution professional shall endeavor to submit a resolution plan, prepared in accordance with the Code and these Regulations, to the Committee of Creditors, thirty days before expiry of the maximum period²⁵.

Conclusion

The fast track regulation affirms its name as the time frame is reduced to half as compared to the code, and the regulation process is also less intricate and more flexible as compared to the code. Though, the 90-days time limit is a burden imposed on the resolution professional to ensure that they respond in a time bound manner.

Footnotes

14 2(85) Companies Act, 2013

15 Meaning of start up, Ministry of commerce and industry, 23 May 2017, http://egazette.nic.in/ WriteReadData/2017/176201.pdf

16  http://ibbi.gov.in/notification_before_publication.pdf , accessed on July 4, 2017

17 Section 56(1), The Insolvency and Bankruptcy Code, 2016

18  Section 56(2), ibid

19 Section 12 , ibid

20 Regulation 38(7), Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017

21 Section 58, The Insolvency and Bankruptcy Code, 2016

22 Regulation 22(1), Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017

23 Regulation 17(2), ibid

24 Regulation 13(1), ibid

25 Regulation 38(1),ibid

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.