Good news for start-ups, faster insolvency resolution on anvil

Source: Financial Express, Apr 18, 2017

New Delhi: The Insolvency and Bankruptcy Board of India (IBBI) is considering a proposal to expedite the resolution of smaller and less complicated cases, and those involving start-ups within 90 days.“We are putting out a draft on this issue in a day or two,” IBBI chairman MS Sahoo told FE. A final decision will be made in due course. The Insolvency and Bankruptcy Code, under which the IBBI was set up, provides for wrapping up the insolvency resolution process in 180 days from the date of the admission of an application for initiating the resolution process by the adjudicating authority. The IBBI came into force from December 1, 2016.

Faster resolution of small cases will encourage investments in start-ups, most of which don’t survive long, as well as small companies, analysts said. This was one of the reasons why the government, as part of its start-up India initiative, wanted to give start-ups an easy option to exit within 90 days. Currently, at least 35 corporate insolvency resolution processes are going on under the Insolvency and Bankruptcy Code.

The IBBI move comes at a time when India’s rank in resolving insolvency in the World Bank’s ease of doing business index 2017 is as low as 136, worse than its overall rank of 130th of 190 nations.

The Insolvency and Bankruptcy Code, aimed at boosting the ease of doing business in the country, is expected to improve India’s rank in the World Bank’s index in the coming years. The IBBI is expected to be the anchor of this critical initiative of the government.

The code seeks to consolidate and amend laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner.

However, the IBBI and the National Company Law Tribunal (NCLT) have the power to penalise in case an insolvency process has been triggered in a fraudulent manner, depending on individual cases.

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