MINISTRY OF CORPORATE AFFAIRS AMENDS THE DEFINITION OF START-UP FOR A FAST-TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER THE INSOLVENCY AND BANKCRUPTCY CODE, 2016.

CORPORATE LAW UPDATE

8th September 2022

Issue No. 10/22-23

MINISTRY OF CORPORATE AFFAIRS AMENDS THE DEFINITION OF START-UP FOR A FAST-TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER THE INSOLVENCY AND BANKCRUPTCY CODE, 2016.

The Ministry of Corporate Affairs (“MCA”) by their Notification dated 30th August, 2022, has amended the definition of ‘Start-up’ (“Amendment”) for the application under Section 55 of the Insolvency and Bankruptcy Code, 2016 i.e., for Fast-Track Corporate Insolvency Resolution Process (“FT CIRP”). Prior to the Amendment, the definition of ‘Start-up’ was provided in the Ministry of Commerce and Industry’s Notification dated 23rd May, 2017 as confirmed under the MCA Notification dated 14th June, 2017.

The Amendment inter alia states that the definition of a ‘startup’ for a FT CIRP shall now be as defined by the Ministry of Commerce and Industry’s  Notification dated 19th February 2019.

The Amendment has widened the purview of the definition of ‘start-ups’. For an entity to be considered as a startup for FT CIRP, following conditions shall to satisfied:

  1. The entity should be working towards innovation, development or improvement of products or processes or services, or it should have a scalable business model with a potential to generate employment or wealth. This condition remains unaltered in the Amendment.
  2. The tenure of an entity shall be not more than 10 years from the date of its incorporation. Prior to the Amendment, the tenure was 7 years.
  • The turnover of an entity for any of the financial years subsequent to its incorporation shall be greater than Rs. 100 crores. Prior to the Amendment, the turnover threshold prescribed was Rs. 25 crores.

Now if an entity complies with the above conditions, it shall be a start-up entitled to FT CIRP, where the process of restructuring shall be completed within 90 days.

The said amendment can be accessed here.

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