UNDERSTANDING THE FAST-TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP) UNDER IBC

INTRODUCTION

In the past few years, ever since the Insolvency and Bankruptcy Code came into effect in 2016, the economic structure has witnessed a significant number of corporate insolvencies. Due to frequent insolvency disputes, the financial distress caused can pose severe problems to companies, creditors and debtors, which eventually leads to economic instability. To combat such inadequacies, the Ministry of Corporate Affairs passed a notification in 2017 that dealt with Fast-track Corporate Insolvency Resolution Process (hereinafter referred to as CIRP) proceedings and how they aim to eliminate the excess delay which is caused due to the standard procedure of insolvency proceedings.

Insolvency resolution of every corporate debtor may not entail the same level of complexity and some could be resolved earlier. The Code accordingly provides for a fast track CIRP for certain categories of corporate debtors, as may be notified by the Central Government, where the resolution process needs to be completed within 90 days, with provision for one-time extension up to 45 days.

1: What is Fast Track Corporate Insolvency Resolution Process?

As per Section 2(1)(h) of the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017, “fast track process” is defined as the fast-track insolvency resolution process for corporate persons under Chapter IV of Part II of the Insolvency and Bankruptcy Code, 2016. In simple words, Fast Track CIRP enables small and micro firms to efficiently restructure or liquidate by providing a time-bound, cost-effective, and professional method to insolvency resolution.

2: What are the benefits of opting for Fast Track CIRP over regular CIRP?

Opting for the fast-track Corporate Insolvency Resolution Process (CIRP) results in a resolution in 90 to 135 days, which is much faster than the usual CIRP timeframe. This faster approach lowers expenses, decreases company disruption, and helps to protect asset value. It is especially useful for smaller businesses or those with simpler debt structures, allowing for a more streamlined and quick bankruptcy resolution process. By addressing financial difficulties early on, the fast-track CIRP promotes faster recovery and business continuity.

3: What is the eligibility criteria for initiating Fast Track CIRP?

An application for the fast-track Corporate Insolvency Resolution Process (CIRP) can be submitted for certain types of corporate debtors as specified by the Central Government. These include corporate debtors whose assets and income fall below a defined threshold, those with a particular class of creditors or a specific amount of debt, and other categories of corporate entities as identified by the government. This targeted approach ensures that the fast-track process is suitable for entities that meet these specific criteria, enabling a more streamlined and quicker resolution of insolvency cases.

4: What are the key stages involved in Fast Track CIRP?

Under Insolvency and Bankruptcy Code (IBC) 2016, the Fast Track Corporate Insolvency Resolution Process (CIRP) is a streamlined insolvency procedure intended for smaller or less complicated situations. An application is submitted to the National Company Law Tribunal (NCLT) at the start of the procedure, and if approved, an Interim Resolution Professional (IRP) is assigned to oversee the debtor’s affairs. A statement requesting creditors to submit claims is then made public. Following the formation of the Committee of Creditors (CoC), a resolution plan is examined and approved. The authorised plan is carried out with oversight from the IRP. If the idea is rejected, the business might face liquidation. The full procedure is intended to be finished in 90 days, with a potential 45-day extension.

5: What happens if the Fast Track CIRP is not completed within the stipulated time?

Section 56 of the Insolvency and Bankruptcy Code provides that a fast-track CIRP has to be completed within a period of 90 days with one time extension of further 45 days. Section 58 provides that the process of CIRP and the provisions relating to offences and penalties under the Code shall apply to fast-track CIRP as well. To implement the provisions of the Code to fast-track CIRP, the Board has, in exercise of its regulation-making power made the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 and it was brought into force on 14th June, 2017.

6: Who can initiate Fast Track CIRP?

A fast-track corporate insolvency resolution process can be initiated by either a creditor or the corporate debtor by submitting an application that includes proof of default, as verified by records from an information utility or other methods specified by the Insolvency and Bankruptcy Board of India (IBBI), along with any additional information required by the IBBI to confirm the debtor’s eligibility for the fast-track process.

7: What is the role of the Resolution Professional in Fast Track CIRP?

An insolvency professional shall be eligible to be appointed as a resolution professional for a fast-track process of a corporate debtor if he, and all partners and directors of the insolvency professional entity of which he is a partner or director, are independent of the corporate debtor. A person is considered independent of the corporate debtor if they qualify to be an independent director under the Companies Act, 2013, are not a related party, and have not been an employee, proprietor, or partner of certain firms associated with the debtor in the past three years. An insolvency professional cannot be appointed as a resolution professional if they, or their entity, are under a restraint order by the Board. They must make necessary disclosures during and after their appointment and cannot continue if their entity or its members represent other stakeholders in the same fast-track process.

CONCLUSION

The introduction of Fast Track CIRP aims to alleviate the burden on small companies by offering a simplified, flexible, and quicker resolution process compared to the standard CIRP under the IBC, 2016. The regulation, effective from June 14, 2017, applies to small companies, start-ups (private companies, partnerships, or LLPs with turnover not exceeding Rs. 25 crore), and unlisted companies with total assets not exceeding Rs. 1 crore. While the Fast Track CIRP reduces the procedural timeline significantly, it also places considerable pressure on the resolution professional to act promptly and adhere to strict deadlines.