IBBI plans fast-track closure for start-ups within 90 days

IBBI plans fast-track closure for start-ups within 90 days

Posted by P. Charitha on April 18th 2017

Successful entrepreneurs aren't afraid to fail. Unfortunately, that leaves a lot of other small start-ups without a plan for how to close down the company in such an event. The hard truth is that even though most start-ups do indeed fail; with some reports claiming a 75% fail rate and others suggesting it is closer to 90%. So to make the closure faster, The Insolvency and Bankruptcy Board  of India plans to fast-track the resolution process for “smaller cases”, including for start-ups, and complete them within 90 days.
The Board has been set up under the Insolvency and Bankruptcy Code, which came into force from December 1, 2016. While a final decision is yet to be taken, the Insolvency and Bankruptcy Board of India (IBBI) is looking at the possibility of fast-tracking resolution process for smaller cases and those having fewer complications.
 
The IBBI is currently chaired by M.S. Sahoo. The government recently appointed three whole time members to the bankruptcy board—Mukulita Vijaywargiya, additional secretary in the ministry of law and justice, Navrang Saini, director general in the ministry of corporate affairs and Suman Saxena, former deputy comptroller and auditor general of India.
 
“An idea is being discussed wherein smaller cases could have slightly different procedures in terms of insolvency resolution. There could be differential treatment in terms of time”,. “Fast-track is a process which has to close in 90 days and these are likely to be applied to cases with less complications… The example could be startups,” IBBI Chairman M S Sahoo said.
The Code provides for completing insolvency resolution process within 180 days and the time-frame starts from the insolvency commencement date.
Now, the idea of bringing it down to 90 days for smaller cases is being looked into.
The Code seeks to consolidate and amend laws relating to reorganisation as well as insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.
 
Among various provisions, the Code provides penal powers to the IBBI in case an insolvency process has been triggered in a fraudulent manner. For such matters, there would be penalties by the IBBI as well as the National Company Law Tribunal (NCLT) depending on which entity has done a fraudulent act. Presently, at least 35 corporate insolvency resolution transactions are going on. The final set of regulations is expected to be notified before end-March. Once finalized, the regulations for fast-track insolvency resolution and voluntary liquidation will complete the set of rules for corporate insolvency.

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