FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

For Corporate Debtors of small sizes, Fast Track Corporate Insolvency Resolution Process (FTCIRP) has been envisaged. Section 55 provides eligibility conditions for initiation of FTCIRP, which is as under:

55. Fast track corporate insolvency resolution process. –

(1) a corporate insolvency resolution process carried out in accordance with this Chapter shall be called as fast track corporate insolvency resolution process.

 (2) An application for fast-track corporate insolvency resolution process may be made in respect of the following corporate debtors, namely: –

 (a) a corporate debtor with assets and income below a level as may be notified by the Central Government; or

(b) a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government; or

(c) such other category of corporate persons as may be notified by the Central Government.

An application for initiation of FTCIRP can be made in respect of 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; and such other category of Corporate Persons as may be notified by the Central Government.

The Central Government issued notification dated 14^th June, 2017 providing details of Corporate Debtors, which are eligible to initiate FTCIRP. Relevant para is reproduced as under:

S.O.1911(E) In exercise of the powers conferred by sub-section (2) of section 55 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby notifies that an application for fast-track Corporate Insolvency Resolution Process may be made in respect of the following Corporate Debtors, namely: –

(a) a small company as defined under clause (85) of section 2 of Companies Act, 2013 (18 of 2013); or

(b) a Startup (other than the partnership firm) as defined in the notification of the Government of India in the Ministry of Commerce and Industry number G.S.R. 501(E), dated the 23rd May, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), dated the 23rd May, 2017; or

 (c) an unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year, not exceeding rupees one crore.

A small company as defined under Section 2 (85) of the Companies Act, 2013 is eligible to initiate FTCIRP.  Small company has been defined under Section 2 (85) of Companies Act, 2013 as a company, other than a public company, of which paid up share capital does not exceed fifty lakh rupees or such higher amount as may be prescribed, which cannot be more than ten crore rupees and turn over as per profit and loss account for the preceding financial year does not exceed two crore rupees or such high amount as may be prescribed which will not be more than one hundred crore rupees.  Section 2 (85) does not apply to holding company or subsidiary company, a company registered under section 8 or a company or body corporate governed by any special act.

A startup (other than Partnership Firm) as defined in the notification of the Govt. of India, is also eligible to initiate FTCIRP.  According to notification of the Central Government, startup company has been defined as under:

(a) An entity shall be considered as a Startup:

 i. Upto a period of seven years from the date of incorporation/registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India. In the case of Startups in the biotechnology sector, the period shall be upto ten years from the date of its incorporation/ registration.

ii. Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded Rs. 25 crores

iii. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation. Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a “Startup”

An unlisted company with total assets, as reported in the financial statement of the immediately preceding financial year not exceeding rupees one crore is also eligible to initiate FTCIRP.

TIME PERIOD OF FTCIRP

Section 56 provides that FTCIRP has to be completed within a period of ninety days. Time period is extendable by forty-five days, if a resolution is passed by Committee of Creditors with seventy five percent voting share for such extension and application to this effect is made before the Adjudicating Authority. If the Adjudicating Authority is satisfied that FTCIRP cannot be completed within stipulated period, it can extend the FTCIRP by forty-five days. Such extension can only be granted once.

APPLICATION FOR INITATION OF FTCIRP

Section 57 provides details of manner of filing application for initiating FTCIRP, which is as under

57. Manner of initiating fast track corporate insolvency resolution Process. –

An application for fast track corporate insolvency resolution process may be filed by a creditor or Corporate Debtor as the case may be, along with-

(a) the proof of the existence of default as evidenced by records available with an information utility or such other means as may be specified by the Board; and

(b) such other information as may be specified by the Board to establish that the corporate debtor is eligible for fast track corporate insolvency resolution process.

An application for initiating FTCIRP can be filed by a creditor or the Corporate Debtor.

Such application has to be filed with proof of existence of defaults as evidenced by records available with an information utility and such other information as may be specified by IBBI.

APPLICABILITY OF CHAPTER II & CHAPTER VII

As per Section 58, the provisions of Chapter II in respect of CIRP and provisions of chapter VII in respect of offences and penalties are applicable to FTCIRP as the context may require.  IBBI has also framed IBBI (Fast Track Corporate Insolvency Resolution Process) Regulations, 2017 which provides detailed procedure for conduct of FTCIRP.

COMPARISION OF CIRP AND FTCIRP

Difference between CIRP and FTCIRP is of degree and not of kind.

The regular CIRP has to be completed within 180 days and extension of   CIRP period by 90 days can be availed on application made by Resolution Professional. On the other hand, the FTCIRP process has to be completed within a period of ninety days from the insolvency commencement date and extension of 45 days can be availed on application made by Resolution Professional.

In regular CIRP, two registered valuers have to be appointed for conduct of valuation of assets of the Corporate Debtor, but in FTCIRP only one registered valuer has to be appointed.

In regular CIRP, five-day notice has to be sent to participants for meeting of Committee of Creditors but in case of FTCIRP seven days notice has to be sent to participants of Committee of Creditors.

___________________________________________