Government proposes to fast-track insolvency resolution for startups

The government plans to put in place a fast-track resolution process for startups and small companies under the Insolvency and Bankruptcy Code.

Looking to provide a faster exit mechanism for certain class of entities, the Insolvency and Bankruptcy Board of India (IBBI) has come out with draft norms in this regard.

The proposal is to fast-track the insolvency resolution process for three classes of entities — startups, small companies and companies or Limited Liability Partnerships (LLPs).

Comments have been sought from the public till May 8 on the draft IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017.

IBBI comes under the corporate affairs ministry. The draft regulations were prepared by a working group that was constituted by the ministry.

Small companies will be those fulfilling the criteria as laid down in the Companies Act, 2013, while startups are defined by the Department of Industrial Policy and Promotion (DIPP).

As per the draft norms, a company or LLP which has not borrowed more than Rs 2 crore in any manner will be eligible for the process fast-track.

While the draft norms do not spell out the timeframe for a fast-track process under the Code, it is expected to be 90 days.

"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 Chairperson M S Sahoo told PTI earlier this month.

The Code provides for completing insolvency resolution process within 180 days and the timeframe starts from the insolvency commencement date.

It 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.