Government Fast Tracks Insolvency Resolution Process For Indian Startups

insolvent

The Insolvency and Bankruptcy Board of India (IBBI) has introduced the fast track insolvency resolution process for small companies. The new norms provide the process of initiating the insolvency resolution till its conclusion by the adjudicating authority.

The fast track insolvency resolution regulations came into force on June 14, 2017.

As stated by the Ministry of Corporate Affairs in an official statement, the fast track process for insolvency resolution shall apply to the following categories of corporate debtors:

  1. Small firms with a share capital of less than $77.56K (INR 50 Lakh), annual revenue below $310K (INR 2 Cr) and with total borrowings less than $310K (INR 2 Cr).
  2. An unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding INR 1 Cr.
  3. Startups as defined under the latest DIPP definition.
    Here, an entity is identified as a startup:

a) Up to seven years from the date of its incorporation/registration (10 in the case of biotech startups).

b) If its turnover for any of the financial years has not exceeded $3.6 Mn (INR 25 Cr).

c) If it is working towards innovation, development, deployment, or commercialisation of new products, processes or services driven by technology or intellectual property.

The process in such cases will be completed within a period of 90 days, as against 180 days in other cases. Also, the adjudicating authority will have the power to extend the period up to 45 days for completion of the process.

The Insolvency Resolution Process For Indian Startups: Key Norm
Any creditor or a corporate debtor can file the application.
The applicant must attach a proof of the existence of the default.
After the application is submitted, an interim resolution professional (IRP) will be appointed.
The IRP, within seven days of his appointment, will have to appoint a registered valuer to determine the liquidation value of the debtor.
If the IRP finds that the application is not applicable for fast track process, he shall file an application within 21 days from the date of his appointmen to the adjudicating authority.
The adjudicating authority will then pass an order to convert the fast track process into a normal corporate insolvency resolution process.
As mentioned in the official document released by the ministry, “The claims denominated in foreign currency shall be valued in Indian currency at the official exchange rate as on the fast track commencement date.”

It further stated, “An estimate of the liquidation value would be computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor.”

To date, the Indian government has come up with several steps in direction of promoting the Startup and entrepreneurship culture in the country. The latest norms issued for insolvency/exit of the companies will further boost the ecosystem.

Apart from fast-tracking the insolvency resolution process for Indian startups, the government is also enthusiastically working on setting up proper processes to fast track other startup-registration related activities. For instance, as per the most recent status report issued on June 16, 2017, a panel of 423 facilitators for patent and design applications and 596 facilitators for Trademarks applications has been constituted for assistance in filing Intellectual Property (IP) applications and to fast track the process of patent filing and acquisition.

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