Putting a mechanism in place for 'the ease of exiting business' in India, the Ministry of Corporate Affairs today said in Parliament it has laid the ground rules for winding up business for failed ventures, sparing the stakeholders years of mounting losses because of depreciation of assets and a litany of labour disputes.
The Insolvency and Bankruptcy Board of India (IBBI) of the Ministry notified the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 and set out a 90-day limit to sort out non-performing assets (NPAs), stressed assets and bad loans.
The Indian government had passed the insolvency and bankruptcy bill last year, saying the ease of exiting business for failed ventures was an equally important policy complement to the ease of doing business in India for both domestic and overseas entities.
The new regulations provide the process from initiation of insolvency resolution of eligible corporate debtors till its conclusion with approval of the resolution plan by the Adjudicating Authority.
The process in these cases shall be completed within a period of 90 days, as against 180 days in other cases. However, the Adjudicating Authority may, if satisfied, extend the period of 90 days by a further period up to 45 days for completion of the process.
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. The application is admitted and the interim resolution professional (IRP) is appointed. Based on the records of corporate debtor, if the IRP is of the opinion 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.
The Ministry of Corporate Affairs has also notified that fast track process shall apply to the following categories of corporate debtors: a small company, as defined under clause 85 of section 2 of the Companies Act 2013; a startup (other than the partnership firm), as defined in the notification dated 23 May 2017 of the Ministry of Commerce and Industry; and an unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding INR 10 million.
The 21-page notification of June 14 made public today defines rules on eligibility for resolution professional, access to books, extortionate credit transaction, public announcement on appointment of an interim resolution professional, claims by operational creditors, claims by financial creditors, claims by workmen and employees, substantiation of claims, cost of proof proving the debt, submission of proof of claims, verification of claims, and determination of amount of claim in Indian or foreign currency, as the case may be.
The notification also outlines the composition of committee of operational creditors, and filings by the IRP. Protocols of meeting of committee have also been laid which lay out notice for meetings, online service of notice, contents of notice, quorum of the meeting, and rules on use of video conference for participating in meeting.
A registered valuer will be appointed as per rules which spell out transfer of debt due to creditors, sale of assets outside the ordinary course of business, and assistance of local district administration.
Rules have also been laid to work out the fast track process costs, cost of essential supplies, costs of IRP, and the resolution professional. The resolution plan comprises setting liquidation value, working out an information memorandum, mandatory costs of the resolution plan, and its approval.