Fresh Start Process – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions
Question 1.
Explain the concept of ‘Qualified Debt’ and ‘Excluded Debt’ under the Insolvency and Bankruptcy Code, 2016
Answer:
- The Insolvency and Bankruptcy Code, 2016 has provided separate insolvency resolution process for individuals and partnership firms. Part III provides for Insolvency Resolution Process for individuals and partnership firms.
- As per automatic ‘Fresh Start Process’, eligible debtors can apply to the Adjudicating Authority for discharge from certain debts not exceeding a specified threshold and can start afresh without any liabilities.
- The Fresh Start Process is applicable for individuals and partnership firms and hence the applicable Adjudicating Authority shall be the Debt Recovery Tribunal (DRT).
- The Fresh Start Process is made available for persons who owe relatively less amount of money and have little or no income or assets to repay their debts.
- The result of the Fresh Start Process is the discharge from the qualifying debts and the debtor shall not be required to pay the amount comprising of the qualifying debts.
- ‘Qualifying Debt’ means amount due, including interest or any other sum due in respect of the amounts owed under any contract, by the debtor. However, qualified debt does not include –
- an excluded debt;
- a secured debt; and
- any debt, which is incurred 3 months before the date of application for Fresh Start Process.
- ‘Excluded Debt’ means
- liability to pay fine/penalty imposed by a Court or Tribunal;
- liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation;
- liability to pay maintenance to any person under any law for the time being in force;
- liability in relation to a student loan;
- any other debt as may be prescribed.
Question 2.
As per the Insolvency and Bankruptcy Code, 2016, what are the eligibility conditions for applying for ‘Fresh Start Process’?
Answer:
→ The Insolvency and Bankruptcy Code, 2016 has provided separate insolvency resolution process for individuals and partnership firms. Part III provides for Insolvency Resolution Process for individuals and partnership firms.
→ A debtor, who is unable to pay his debt and fulfills the specified conditions, is entitled apply for a fresh start for discharge of his qualifying debt.
→ A debtor may apply, either personally or through a Resolution Professional, for a fresh start, in respect of his qualifying debts to the Adjudicating Authority if –
(a) the gross annual income of the debtor does not exceed Rs. 60,000;
(b) the aggregate value of the assets of the debtor does not exceed Rs. 20,000;
(c) the aggregate value of the qualifying debts does not exceed Rs. 35,000;
(d) he is not an undischarged bankrupt;
(e) he does not own a dwelling unit;
(f) any Fresh Start Process, insolvency resolution process or bankruptcy process is not pending;
(g) no previous Fresh Start Order has been made to him in the preceding 12 months.
Question 3.
As per the Insolvency and Bankruptcy Code, 2016, whether a ‘Fresh Start’ order can be revoked by the Adjudicating Authority?
Answer:
- The Insolvency and Bankruptcy Code, 2016 has provided separate insolvency resolution process for individuals and partnership firms. Part III provides for Insolvency Resolution Process for individuals and partnership firms.
- The Resolution Professional may submit an application to Adjudicating Authority seeking revocation of its order for Fresh Start.
- The purpose is to rescind the Fresh Start Process due to:
- any change in the financial circumstances of the debtor, thereby making him ineligible for a Fresh Start Process; or
- the debtor acts in violation of certain provisions of the Code; or
- if the debtor has acted mala fide and has willfully failed to comply with the Code.
- The Adjudicating Authority shall, (within 14 days of receipt of application) may admit or reject the application. If the application is accepted, the moratorium period and Fresh Start Process shall cease to have effect.