Author - Associate Aashi Agrawal
“Not everyone who walks through darkness makes it out”.
Entrepreneurship costs a lot from a human being, sometimes to could also be life. There exists a psychological relationship between entrepreneurship and mental health.
In news lately, all of us must have heard that the founder of the famous Cafe Coffee Day chains, V G Siddhartha, committed suicide due to immense pressure of debt and not being able to create an appropriate profitable business. Likewise, Jody Sherman, the well-known founder of the e-commerce site Ecomom, took his own life.
These emerging incidents have proved that when being on the verge of insolvency (i.e, a situation where an individual or a business or a company is unable to pay the money they owe from their investors/lenders/creditors, etc. on time), the mental trauma of being in debt leads the entrepreneurs to take the most drastic step to end their life.
However, there are certain legal remedies for entrepreneurs in debt provided by the Insolvency and Bankruptcy Code, 2016 (a bankruptcy law) introduced in Lok Sabha which seeks to create a single law for insolvency and bankruptcy by consolidating existing frameworks) to companies/ individuals after they turn insolvent.
To take advantage of any legal remedy and in order to deal with debt, the first thing an entrepreneur should do is to contact a confidential legal advisor.
Following are the legal remedies available for entrepreneurs in debt:
Initiation of Insolvency Proceedings: When an entrepreneur finds himself at a dead-end, one of the best recourses may be filing for insolvency. Under section 10 of Insolvency and Bankruptcy Code, 2016 a Corporate Debtor (here, the entrepreneur) can submit an application for commencement of insolvency proceedings with the Adjudicating Authority.
The entrepreneur is required to furnish the information regarding books of account and the resolution professional proposed to be appointed. Adding in the special resolution passed by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total number of partners of the corporate debtor, as the case may be, agreeing to the filing of insolvency application.
The main benefit an entrepreneur will get after filing insolvency is time. After filing insolvency, the creditors cannot foreclose on or repossess any property.
Commencement of Members Voluntary Liquidation: It is a formal process for closing down the business of a company provided that the company should be solvent. The entrepreneur (Corporate Debtor) with the other partners can file for voluntarily winding up the company and wind up its business under Companies Act, 2013. It provides the creditors and debtors to settle their issues of payment without going to court.
Commencement of Creditors’ Voluntary Liquidation: The process of Creditors’ Voluntary Liquidation is different from the one mentioned above. Being an insolvent liquidation, it is often in the interest of all the parties to enter into such liquidation when the creditors are threatening to take legal actions. An Insolvency Practitioner must be appointed to guide in the process.
-> Fast Track Corporate Insolvency Resolution Process: Section 55 of the Insolvency and Bankruptcy Code, 2016 provides for fast track corporate insolvency provided that the debtor’s income, assets and volume of debt should be below a level as notified by the Central Government. As the name suggests, the entire procedure of filing of insolvency until its acceptance by the Authority is concluded within 90 days.
Apart from these legal remedies, there are ways in which the Government could provide relief to the entrepreneurs in debt.
Generally, entrepreneurs are congenitally characterized by self-confidence which leads them to not seek any external help or involvement regard financial difficulties until it becomes unavoidable. In this context, the Government should provide initiatives, programmes, and support groups by making the maximum use of available structures for preventing the entrepreneurs to end up in the no-rescue zone.
Secondly, the government should be having the back of such entrepreneurs by amending the present laws which in result will also help other businesses to work more effectively knowing that the government will be of great help in need.
In the context of taxation, the government could take exceptional actions like tax deferrals, graded multiple systems, or renegotiating outstanding taxes over a longer time frame of repayment.
Lastly, the evolving procedures like Good and Service Taxes are introduced in the system to create transparency which are helping such entrepreneurs and businesses to evolve in a better way and simultaneously boosting the overall economy.
For any Insolvency and Bankruptcy Law related matter, please Post Your Requirement anonymously and get free proposals OR find the Best Insolvency and Bankruptcy Law Lawyers and book a free appointment directly.