Fast-Track Insolvency Resolution Procedure: An Ease to Small Creditors

Introduction:

Time is a valuable resource that one should keep track of. When dealing with a situation involving financial debts and losses, it is important to keep this in mind. Previously, insolvency or liquidation procedures were lengthy and time-consuming; however, the Insolvency and Bankruptcy Code of 2016 made the process of insolvency or liquidation considerably simpler. The Act was passed to make restructuring and insolvency resolutions for businesses, partnerships, and other specified individuals easier.

The Bankruptcy Law Reforms Committee (BLRC) passed the law, which included a unique provision that expedited bankruptcy procedures for small businesses, start-ups, and unlisted companies with a total asset value of less than Rs 1 crore. This exceptional provision of fast-track insolvency procedure, which worked as a saviour for creditors, is covered under part-II, chapter-4, Sections 55 to 58, which provide the specific provisions for the beginning procedure.This code only enables a designated person to apply to begin the process, and the time involved in the procedure is less than other laws for resolving disputes.Consequently, the fast-track process framed to mainly aimed at improving the insolvency resolution process for MSMEs, according to the World Bank’s Report on the Treatment of MSME Insolvency. The fast-track process is defined as a method that reduces timelines to make general insolvency law more suitable for MSMEs.

Analysing a Fast Tract Resolution Process:
In this procedure firstly, a resolution professional is appointed. Then the resolution professional makes a public announcement within 3 days of his appointment. The parties to the claim (creditor & the financial creditor) submittheir claim with authorized proofs in a particularly prescribed manner within 10 days to the interim resolution professional and attaching all the supporting documents and clarifications. Following receipt of the claims, the interim resolution expert must verify them within 7 days of the end date of receipt and publish the creditors’ list. Then a committee of creditors is formed by the interim resolution professional. The interim resolution professionals are responsible for leading the meeting of Committee of Creditors and the meeting has to be scheduled within 7 days from report submission and the meeting notice should be served one week prior to the meeting date. The professional also has to appoint a registered valuer within 7 days for initiating liquidation of the corporate debtor. Then the resolution professional must create an electronic memorandum of information and distribute it to all members of the Committee of Creditors and the drafted information must be in according to the need of creditors. Then the resolution plan is submitted for approval. Lastly the approval or Rejection of plan has to be made by the Adjudicating authority.

Advantage of Fast track merger process:
1. There is no requirement for NCLT approval.
2. There is no need for a public announcement.
3. There is no court-ordered meeting.
4. Administrative burden is reduced
5. It is possible to avoid a series of hearings.