What Legal Remedies Are Available To Entrepreneurs In Debt?
Initiation of Insolvency proceedings by Debtor
Under the Insolvency and Bankruptcy Code, 2016 (Code), in case of an
entrepreneur (Corporate Debtor) in debt may submit an application under Section-
10 of the Code for initiation of insolvency proceedings. The entrepreneur must
supply all information regarding the books of account and the RP (person who
determines the liquidation value of the Corporate Debtor by way of reaching at
an estimated probable value of the assets on the insolvency initiation date) to
be appointed. In addition, a special resolution has to be passed by the
shareholders of the Corporate Debtor or a resolution by at least 3/4th of the
total number of partners of the company must be passed whereby agreeing to the
filing of the insolvency resolution application.
Although there may be some panic of abuse of Section-10, it is a crucial tool
available to the corporate debtors when looking to resolve their insolvency,
especially in cases where creditors hold back or are dragging their feet on
selecting an outside Code resolution plan. Anyhow, the success of this legal
provision is dependent on how jurisprudence around Sections 65 and 66 of the
Code evolves. While Section- 65 provides a brake to file (keeping in mind the
risk of National Company Law Tribunal (NCLT) deciding malicious or fraudulent
intention by the debtor), Section- 66 provides a motivation to the Directors to
file (to evade personal liability for unfair trading).
Fast Track Corporate Insolvency Resolution Process
Under Section- 55 of the Code, the yardstick for requesting Fast Track
Resolution depends on the debtor income, assets and volume of debt. This covers
the procedure from inception of insolvency till the acceptance of such
resolution by the National Company Law Tribunal (NCLT), which concludes the
procedure. The entire procedure is concluded within 90 days. Although, the
National Company Law Tribunal may, if contented, increase the period of 90 days
by another 45 days.
Voluntary winding up of a company
Under the Companies Act, 2013, the Corporate Debtor (entrepreneur) with other
partners can formally resolve to voluntarily wind up the business of the company
and thus, dissolve it under Section- 304. The aim of voluntarily winding up a
company is to enable the creditors and debtors to settle their issues among
themselves without having to go to Court. However, voluntary winding up is only
available to solvent companies i.e. companies having more assets than
How can the Government provide relief/ support to such entrepreneurs?
First, it is not entirely fair to tax such business houses but become their
support system in tough times primarily because businesses like CCD are private
and therefore, they cannot be given direct bailout packages or financial help
like in the case of Air India etc. However, these businesses have shareholders
who are the common people or in other words the electorate and when such
businesses dissolve the share holders are impacted terribly. Since share holders
are the investors they need to be protected for building nation economy.
Now the question is how the Government can help well before the naming and
shaming of such entrepreneurs begin. The law, local investigating agencies as
well as the government must identify, whether the entrepreneur is trying to find
a solution or whether he is trying to evade paying back the money. Moreover, the
Government agencies should have cells which can work out a plan to save the
business house through mergers etc. though all this requires a decent amount of
Therefore, the Government can try and make amends in the present law to go all
out to help already established businesses. This will act as an amazing booster
to other business houses to enhance their performance because they will have the
backing of the Government. The Government through fair and impartial means must
identify who has cheated by design or who has been a victim of market trends.
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