Understanding the Fast-Track Insolvency Resolution Procedure

Earlier, the insolvency or liquidation procedures were lengthy and time-consuming procedures, but with the introduction of the Insolvency and Bankruptcy Code 2016, the procedure or insolvency or liquidation has been made easier. The objective behind the enactment was to ensure restructuring and to make insolvency resolutions easier for corporations, partnerships etc. In this article, we shall discuss the fast-track insolvency resolution process.

Meaning of Insolvency

It is a state of a legal person who is unable to meet their obligation to pay its creditors. In this situation, the legal person fails to pay off his debts when they become due and payable. Different insolvency laws in the world permit the creditors of a debtor to realize the debt due to them by seizing the assets of the debtor and selling them off.

Introduction to fast-track insolvency resolution process

The IBC was enacted by the Bankruptcy Law Reforms Committee, and it contained a special provision which expedites the insolvency procedures for small businesses, start-ups and unlisted firms with a total asset value of lower than 1 crore rupees was covered.

The special provision of fast rack insolvency was covered under Part II- Chapter 4 under Section 55, 56, 57, 58, which includes specific provisions for the procedure. The code permits only the designated people to submit application to commence the process, and time duration involved in the said procedure is lesser than other laws to resolve disputes.

The fast track process was introduced to improve the insolvency resolution process for MSMEs. The fast track process is a method that lowers the time duration to make general insolvency law more suitable for MSMEs.

As the title of the chapter 4, IBC 2016 suggests, the fast track process involves less number of days for completing the insolvency proceedings of a legal company hence it is a quicker and efficient way of winding up the insolvency procedure of a small scale bankrupt company.

Who can commence the fast-track insolvency resolution process?

An application for the initiation of fast track insolvency resolution process can be filed with the NCLT by a creditor/Corporate debtor with the following particulars:

• Proof of existence of default evidenced by records available with an information utility or other means specified by the IBBI^[1];
• Such other information specified by the IBBI to establish that the corporate debtor is eligible for fast track corporate insolvency resolution process.

How is Fast-track Insolvency Resolution Process Executed?

In a fast track resolution process, the following procedure is adopted:

• Firstly a resolution professional is appointed by the adjudicating authority. He is appointed as an interim resolution professional if he doesn’t have any relation with the corporate debtor;
• Then the RP makes a public announcement in 3 days of his appointment. Such announcement will be made in 2 languages that is a regional language and English;
• The parties to the claim i.e., creditor and financial creditor, submit the claim along with the authorized proofs in a prescribed manner in 10 days to the interim resolution professional and also attach supporting documents and clarifications. These documents include records available with information utility and other documents that are relevant like the contract for supply of goods, books of accounts, employment contract or a document that substantiate the claim;
• After receiving the claims, the interim resolution expert is required to verify them within 7 days of the end date of receipt and publish the creditors’ list and the amount due to them, admitted amount and security interest. In case the amount claimed is not precise, or it cannot be determined due to contingencies, then the resolution professional/interim resolution professional will estimate the amount based upon the information available to them;
• An expert committee is made by the interim resolution professional. The interim resolution professional is responsible for leading the meeting of committee of creditors. Such meeting should be scheduled within 7 days from report submission, and the notice of the meeting must be served one week before the meeting date;
• The professional is also required to appoint a registered valuer in 7 days time to commence the liquidation of the corporate debtor. The registered valuer shall perform the valuation of assets of the corporate debtor under various classes and determine the value and liquidation value of the same. Then the resolution professional shall create an electronic memorandum of information and should distribute it to all members of the committee of creditors, and the information should be as per the need of creditors;
•  Afterwards, the resolution plan is submitted for approval, and finally, the approval or rejection of the plan should be made by the adjudicating authority.

The fast track method is a system that makes it easier for small businesses to do business.

Conclusion

The fast-track insolvency resolution process is a process intended to focus on a particular group of corporate debtors against whom the procedure of bankruptcy may be started by the lenders or corporate borrower himself. With this process, those less unpredictable cases can be completed swiftly, which will give enough opportunity to adjudicating authorities to focus on more complex issues and that which needs a lot of time.

Read our article:Pre-pack Insolvency Resolution Process Regulations for MSMEs