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Shutting Down A Company Gets Easier; Govt. Brings Easier Rules For Insolvency of Startups

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Business Closed

Indian entrepreneurs often joke that it is easier to get a divorce in India, compared to shutting down a company.

But no longer.

In a major step towards making entrepreneurship widespread, Govt. has decided to make insolvency laws even more smooth, and easier.

As per notifications received from Govt. of India, a startup can be now shut down within 90 days, compared to 180 days which is the norm right now.

And if we believe a World Bank report on Ease of Doing Business, it takes an average of 4 years to wind up a business in India.

Last year in May, Govt. had amended the Insolvency and Bankruptcy Code 2016, to make shutting down of companies easier. Now, after a year, some concrete laws have been created, which will make the whole process seamless.

The New Rules for Shutting Down A Company in India

As per latest notifications issued from Ministry of Corporate Affairs, a fast track resolution for insolvency has been introduced, which will ensure that the time taken to wind up operations takes only 90 days.

45 additional days can be granted if the required process is not completed.

This special fast track insolvency resolution is applicable for certain sections of the business world, which includes:

a) Small scale businesses which have a market capitalization of less than Rs 50 lakh and/or revenues of less than Rs 2 crore per year, with total borrowings of less than Rs 2 crore.

b) An unlisted company with total assets less than Rs 1 crore (as declared in the financial statements of the current year)

c) Startups, which are defined under DIPP’s protocol

Insolvency Process: The New Way

In order to make the process of shutting down corporations faster, Govt. has constituted a panel of 423 experts in patent and design applications and 596 experts in Trademarks applications.

Hence, startups dealing with Intellectual Property and Trademarks won’t face any issues while shutting down their companies.

Besides, Govt. has understood that there exist several companies which are dealing with foreign currencies as well.

In order to resolve insolvency issues for such companies, the fast track mechanism will consider Indian currency for all corporate related tasks, and the current exchange value of foreign currency, in relation to Indian currency shall be considered for resolution.

The notification also said, “An estimate of the liquidation value would be computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor.”

When we analysed the success of countries like Singapore and Hong Kong in attracting entrepreneurs, compared to India, we found that the ease of exit and dissolving a company is an equally important factor.

We hope that after this recent notification regarding insolvency of companies, things will change for good in India. Do share your opinions by commenting right here!

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