Brief Overview of Fast Track Corporate Insolvency Resolution Process under IBC, 2016

Brief Overview of Fast Track Corporate Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016 (ibc, 2016)

Introduction:

The Ministry of Corporate Affairs vide notification dated 14th June, 2017 notified the provisions of Fast Track Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 (the “Code”) which talks about insolvency resolution of a company on a speedy basis.

Chapter IV of the Code (Section 55 to Section 58) provides for application for Fast Track process along with all the proof of the existence of default as evidenced by records available with an information utility specified by the Insolvency and Bankruptcy Board of India (the “IBBI”) to establish that the company is eligible for fast track corporate insolvency resolution process. The objective of Fast Track is to complete the procedure within half of the default time period specified.

Eligibility:

• a small company as defined under clause (85) of section 2 of Companies Act, 2013;
• a startup (other than the partnership firm) as defined by Ministry of Commerce and Industry;
• an unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding rupees one crore;
• a corporate debtor with assets and income below a level as may be notified by the Central Government;
• a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government;
• such other category of corporate persons as may be notified by the Central Government.

Time Period:

Fast Track CIRP is completed within 90 days as compared to 180 days in the standard procedure. Although, extension can be granted of further 45 days by the National Company Law Tribunal (NCLT) by a vote of 75% of Committee of Creditors.

Eligibility of Resolution Professional:

The Code provides for Insolvency Professionals (IP) to act as intermediary in the insolvency resolution process and they are considered to be a class of regulated but private professionals having minimum standards of professional and ethical conduct. Section 3(19) of the Code defines an “insolvency professional” as a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207.

“Insolvency Professional Entity” means an entity recognised as such under the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.

An IP is eligible to be appointed as Resolution Professional when:

• IP or all partners and directors of the insolvency professional entity of which he is a partner or director are independent of the corporate debtor;
• IP or the insolvency professional entity of which he is a partner or director, is not under a restraint order of the Board.
• IP makes disclosures at the time of his appointment and thereafter in accordance with the Code of Conduct.
• IP is not a director or a partner, or any other partner or director of such insolvency professional entity represents any other stakeholders in the same fast track process.

Claims by Operational Creditors:

An operational creditor shall submit proof of his claim to the interim Resolution Professional in person, by post or by electronic means.

Claims by Financial Creditors:

A financial creditor shall submit proof of claim to the interim Resolution Professional in electronic form.

Claim by Workmen or Employee:

A workman or an employee of the corporate debtor shall submit proof of claim to the interim Resolution Professional in person, by post or by electronic means.

Where there are dues to numerous workmen or employees of the corporate debtor, an Authorized Representative may submit one proof of claim for all such dues on their behalf.

Submission and Verification of Claims:

A creditor shall submit proof of his claim on or before the last date mentioned in the public announcement or to the interim Resolution Professional or Resolution Professional.

The Resolution Professional shall verify every claim within seven days and maintain a list of creditors containing names of creditors, amount claimed, number of claims admitted and the security interest, if any, in respect of such claims, and update it.

Conduct, Quorum and Voting in the meeting of Committee of Creditors:

The Resolution Professional shall act as the Chairperson of the meeting of the Committee and is responsible to circulate the minutes of the meeting to all participants by electronic means within forty-eight hours of the said meeting.

The quorum for meeting of Committee of Creditors shall be members representing at least thirty- three percent of the voting rights either in person or by video conferencing or other audio and visual means. Where a meeting of the committee could not be held for want of quorum, unless the committee has previously decided otherwise, the meeting shall automatically stand adjourned at the same time and place on the next day. In the event a meeting of the committee is adjourned, the adjourned meeting shall be quorate with the members of the committee attending the meeting.

The Resolution Professional shall within twenty four hours of the conclusion of the voting, or forty eight hours of the conclusion of the meeting if no electronic vote is required to be sought under this regulation, circulate by electronic means the decision of the committee on agenda items along with the names of the members of the committee who voted for or against the decision, or abstained from voting.

Appointment of Registered Valuer:

The Resolution Professional shall within seven days of his appointment, appoint one Registered Valuer to determine the fair value and the liquidation value of the corporate debtor in accordance with regulation 34.

Invitation of Resolution Plan:

The Resolution Professional shall issue an invitation, including evaluation matrix, to the prospective resolution applicants to submit resolution plans at least fifteen days before the last date of submission of resolution plans.

The Resolution Professional may modify the invitation, the evaluation matrix or both with the approval of the committee. The Resolution Professional shall publish brief particulars of the invitation on the website, if any, of the company and on the website, if any, designated by IBBI for the purpose.

Resolution Plan:

A resolution plan shall provide for the measures for maximization of value of its assets, including:

• transfer of all or part of assets of the corporate debtor to one or more persons;
• sale of all or part of the assets whether subject to any security interest or not;
• the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons;
• satisfaction or modification of any security interest;
• curing or waiving of any breach of the terms of any debt due from the corporate debtor;
• reduction in the amount payable to the creditors;
• extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;
• amendment of the constitutional documents of the corporate debtor;
• issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose;
• change in portfolio of goods or services produced or rendered by the corporate debtor;
• change in technology used by the corporate debtor and
• obtaining necessary approvals from the Central and State Governments and other authorities.

Approval of Resolution Plan:

• A resolution applicant shall submit resolution plan prepared in accordance with the Code and these regulations to the Resolution Professional.
• The Resolution Professional shall submit to the committee all resolution plans which comply with the requirements of the Code and regulations made thereunder.
• The committee may approve any resolution plan with such modifications as it deems fit.
• The Resolution Professional shall submit the resolution plan approved by the committee to the NCLT at least fifteen days before the expiry of the maximum period permitted.
• The Resolution Professional shall send a copy of the order of the NCLT approving or rejecting a resolution plan to the participants and the resolution applicant.
• No proceedings shall be initiated against the Resolution Professional, as the case may be, for any actions of the corporate debtor, prior to the fast track commencement date.
• A person in charge of the management or control of the business and operations of the corporate debtor after a resolution plan is approved by the adjudicating authority, may make an application to the adjudicating authority for an order seeking the assistance of the local district administration in implementing the terms of a resolution plan.