Faster Exit for Investors : Objective
To make it
easier for Startups to wind up operations
Details
Given the innovative nature of
Startups, a significant
percentage fail to succeed. In the event of a business failure, it is critical to reallocate capital and resources to more
productive avenues and accordingly a swift
and simple process has been proposed for
Startups to wind-up operations. This will promote entrepreneurs to experiment
with new and innovative ideas, without
having the fear of facing a complex and
long-drawn exit process where their
capital remain interminably stuck.
The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in
December 2015 has provisions for the
fast track and / or voluntary closure of businesses.
In terms of
the IBB, Startups with simple debt structures or those meeting such criteria as may be specified may be wound up
within a period of 90 days from making
of an application for winding up on a fast track basis. In such instances, an insolvency professional shall
be appointed for the Startup, who shall be in charge of the company (the
promoters and management shall no longer run the company) for liquidating
its assets and
paying its creditors within
six months of
such appointment. On appointment of the insolvency
professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and
repayment of creditors in accordance with the distribution waterfall set
out in the IBB. This process will
respect the concept of limited
liability.
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