track corporate insolvency resolution process: A swift drive for small
Meaning of insolvency
Insolvency describes a situation wherein
a legal person (including corporate persons) is unable to meet their obligation
to pay to its creditors. It’s a situation wherein a legal person is unable to
pay its debts when they become due and payable. Various insolvency laws all
over the world allow the creditors of a particular debtor (who is insolvent) to
realize the debt due to them by seizing off the assets of the debtor and
selling them off.
Corporate insolvency may involve several
concerned parties. These include creditors, shareholders, group subsidiaries,
directors, and managers of the company, employees, suppliers, and customers. A
host of professional advisers will also have a role to play and these may
include financial and management consultants, lawyers, bankers, and
In India, the Insolvency and Bankruptcy
Code, 2016 is the legislation that powers the creditors to recover their money
due from debtors.
What is corporate insolvency resolution process
The Insolvency and Bankruptcy Code, 2016
is uniform legislation brought in by the Parliament to deal with various
insolvencies. The law prescribes a set procedure to be undertaken by the
creditors & even the corporate debtor itself in case insolvency arises.
This procedure is known as the Corporate Insolvency Resolution Process.
The Act consolidates and amends the laws relating to reorganization and
insolvency resolution of corporate persons, partnership firms, and individuals
in a time-bound manner for maximization of value of
assets of these persons, to promote entrepreneurship, availability of
credit and balance the interests of all the stakeholders.
It is the creation of credit that gives
rise to the debtor-creditor relationship and makes insolvency possible in the
These proceedings per se start once an
application for initiation of proceedings is filed by the financial or an
operational creditor. The adjudicating authority appoints an interim resolution
professional and makes a public announcement for the initiation of the
insolvency proceedings. The interim resolution professional is obliged to
constitute a committee of creditors which thereafter appoints the resolution
professional who is responsible for the execution of the entire insolvency
For the initiation of a CIRP petition,
there must be an undisputed debt before the initiation of the corporate
insolvency resolution process. The Hon’ble Supreme Court has held that the
adjudicating authority has the power to reject the application at the stage of
admission itself if it is of the view that there is a dispute concerning the
existence of a debt.[ii]
Corporate insolvency laws aim to
accomplish the following tasks[iii]:
1.To lay down rules governing the
distribution of the assets of an insolvent company, including rules protecting
the pool of assets available to creditors.
2.To provide for management of companies
in times of crisis.
3.To facilitate the recovery of companies
in times of financial crisis and to stimulate the rehabilitation of insolvent
companies and businesses as going concerns.
4.To balance the interests of different
groupings and to protect the interests of the public and of employees in the
face of financial failures or management malpractices.
5.To encourage good management of
companies by imposing sanctions on directors who are responsible for financial
collapses where there has been malpractice and by providing for the
investigation of the causes of corporate failure.
6.To dissolve companies when necessary.
Meaning of fast track corporate insolvency resolution
The main purpose behind the inclusion of
the concept of fast track CIRP under the insolvency law was to improve the ease
of business ranking of our country. Fast track CIRP proceedings aim to
eliminate the excess delay which is caused due to the insolvency process of a
It is to be noted that under the IBC,
2016, the maximum no of days required to complete the resolution process is 270
days.[iv] This timeframe has affected the
small-scale companies which do not require such no of days for winding up. The
time limits prescribed were not appropriate from the point of view of the
small-scale enterprises since these cases were less complex in nature.
Therefore, Sections 55 to 58 were incorporated under the Code of 2016[v] to address the problem of excessive
delay faced during the insolvency proceedings of small-scale companies.
As the title to Chapter 4 of the IBC,
2016 rightly suggests, this process involves less no. of days required for
completion of the insolvency proceedings of a legal company therefore it is a
faster and more efficient way of winding up the insolvency procedure of a
small-scale bankrupt company.
Fast track CIRP proceedings – A brief overview
The procedure pertaining to the fast
track insolvency of small-scale enterprises is enshrined under Ss. 55 to 58 of
the Insolvency and Bankruptcy Code, 2016 & the Insolvency and Bankruptcy
Board of India (Fast track Insolvency Resolution Process for Corporate Persons)
Regulations, 2017. The provisions of the Code specified under Part II. (Chapter
Before taking into consideration the
procedure specified for the Insolvency Resolution process there are a few
aspects which we need to understand.
is corporate debtor vis a vis FTCIRP?
Section 55 of the Code of 2016[vi] (through notification)[vii] states that an application for
initiation of Corporate Insolvency Process can be made only against these
below-mentioned corporate debtors:
1.Small-sized Companies (As defined under
the Companies Act, 2013).
2.Start-up Company other than a
3.An Unlisted Company with total assets
less than one crore rupees (as reported in the books of the preceding financial
of initiating the insolvency resolution process
An application for the fast track
insolvency resolution process can be filed by either a creditor (including both
financial and operational creditor) or a corporate debtor itself.[viii]
Further, to support their claim, the
creditor or the corporate debtor has to attach some documents as mentioned
1.Proof of the existence of default
substantiated through records available with the information utility.
2.Such other information specified by the
Insolvency and Bankruptcy Board.
Procedure followed during FTCIRP
of Interim Resolution professional
After the filing of an application for
initiation of the insolvency resolution process, an interim resolution
professional is appointed by the adjudicating authority. He shall be appointed
as an interim resolution professional only if he doesn’t possess any relation
with the corporate debtor.[ix] Moreover, he is entitled to make
disclosures regarding the same at the time of his appointment as an interim
The interim resolution professional is
obliged to make a public announcement vis a vis his appointment within three
(3) days of his nomination. The announcement shall be made in two languages
i.e. in English & a regional language. The public announcement shall
provide the last date for submission of claims by the applicant which shall not
be more than ten (10) days from the appointment of the interim resolution
professional.[x] Moreover, the announcement is to be
posted on the website, if any, of the corporate debtor.
All the expenses regarding the same are
to be borne by the applicant itself and later he can get reimbursement for the
same from the committee of creditors.
of the Claims and the veracity check
As already stated, the interim
resolution professional is obliged to provide a period of ten (10) days for the
submission of claims. All claims by operational creditors, financial creditors
workmen & employees and other creditors are to be submitted before the
resolution professional within the time period prescribed along with additional
documents in support of the claim.
These documents include records available
with the information utility and other relevant documents including the
contract for the supply of goods, books of accounts, contract of employment, or
any other document which substantiates the claim.
The resolution professional or the
interim professional thereafter makes verification of all the claims submitted
before him within seven (7) days of submission of the last claim before it[xi] and prepares a list of creditors
and amount due to them, amount admitted and security interest if any payable to
them. Also, if the amount claimed is not precise or cannot be determined due to
any contingencies, the resolution professional or the interim resolution
professional shall estimate the amount based on information available with him.
of Committee of Creditors (CoC) & its meetings
The resolution professional is obliged
by the law to form a committee of creditors consisting of financial and
operational creditors of the corporate debtor. In the absence of a financial
creditor or where the financial creditors are not independent of a corporate
debtor, in that case, only the operational creditor shall be included in the
committee of the creditors.[xii]
In case the committee comprises of only
the operational creditor, then the members should include the following:
1.Eighteen largest operational creditors;
provided if the no is less than eighteen then all should be included in the
2.One chosen representative on behalf of
workmen other than those included in subclause (1);
3.One chosen representative on behalf of
all the employees other than those included in subclause (1).
The voting rights of these members shall
be determined proportionately following the debt due to such members and the
The interim resolution professional is
mandated to file a report warranting the constitution of the committee before
the adjudicating authority within 21 days from the date of his appointment.[xiii] Furthermore, if the professional
believes that the applicability of the fast track process is unwarranted, he
may apply to the adjudicating authority for the conversion of the process to
the corporate insolvency resolution process.[xiv]
In the end, the first meeting of the
committee is held within seven (7) days of the filing of the report by the
resolution professional. The meeting can be conducted by the resolution
professional who shall act as chairman of the meeting of the committee. A seven
(7) day prior notice is to be given to the creditors.
period for completion of the process
The fast track corporate insolvency
process aims to eliminate the delay which is caused in the corporate insolvency
resolution process under Part II (Chapter II) of the Insolvency and Bankruptcy
Code of 2016.
The time period for the completion of
the fast track insolvency as incorporated under the provisions of the Code of
2016 is ninety (90) days. This time period can be further extended for a period
of forty-five (45) days. This extension can be granted only once.[xv]
of registered valuer
A registered valuer is a person who is
entrusted with the responsibility of carrying out the valuation of the assets
of the corporate debtor under different classes and to determine the fair value
and liquidation value for the same. A registered valuer is appointed by the
resolution professional within seven (7) days of his appointment. The
registered valuer so designated will present expected liquidation esteem after
specifically confirming the stock and fixed resources of corporate indebted
individuals. Moreover, the following persons cannot be appointed as the
1.A relative of the resolution
2.A related party;
3.An auditor of the Corporate debtor
within five (5) preceding years;
4.A partner or director of the insolvency
The registered valuer thereafter makes a
fair estimate of the fair value and the liquidation value of the corporate
debtor following the international valuation standards. The figures of this
valuation is sent to the committee members. An information memorandum is also
prepared by the resolution professional and is sent to all the members of the
committee in an electronic form.
plan: Its formation and submission
Under section 35-A, the resolution
professional invites the resolution plan from all the resolution applicants
which is to be submitted at least 15 days prior its submission before the
adjudicating authority.[xvi] Resolution plan specifies all the
sources of funds that are to be used for payment of the costs incurred &
value due to the creditors.
It is to be noted that after submission
of the resolution plan by the resolution applicant to the resolution
professional, it is to be further submitted for approval of the committee. The
resolution professional then submits it before the adjudicating authority at
least 15 days before the expiry of the time permitted for the process.
In the end, it would not be wrong to say
that the Fast Track Corporate Insolvency Resolution Process is an all-around
made procedure intended to focus on a particular segment of corporate debtors
against whom bankruptcy procedures can be started by the lenders or corporate
borrower himself. Time limits are likewise endorsed in such a way that less
unpredictable cases can be finished inside a constrained opportunity to give
rapid disposal of issues which will eventually create more opportunity for the
adjudicating authorities to concentrate on complex issues and which require a
lot of time.