Wednesday, January 27, 2016

Easier Winding Up for Investors for Startup India

Faster Exit for Investors : Objective

To make it easier for Startups to wind up operations


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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