Setting Up of Business, Industrial and Labour Laws · Startups and its Registration

Winding Up and Easy Exit for Startups under IBC

Updated 11 October 2026 · Fact-checked

Easy exit lets a failed startup close quickly. Under the Insolvency and Bankruptcy Code, the fast track insolvency process (Sections 55 to 58) aims to finish within 90 days, extendable once by 45 days. Other routes are voluntary liquidation, striking off by the Registrar, and closing an LLP. Pick the route by debts and assets.

Understand Winding Up and Easy Exit for Startups

A startup can fail even when the idea was good. If closing the business takes years, founders and investors lose time and money, and fewer people will try new ventures. The Startup India Action Plan therefore promised an easy exit: a startup with simple debts or no assets should be able to wind up within 90 days of applying.

The legal tool is the Fast Track Corporate Insolvency Resolution Process in Chapter IV of the Insolvency and Bankruptcy Code, 2016 (Sections 55 to 58). It is a shorter version of the normal process. Section 55 deals with eligibility. It makes fast track available to a corporate debtor whose assets and income are below a notified level, to a class of creditors or debt as notified, or to other notified classes of corporate persons. Under Rule 4 of the Insolvency (Fast Track) Rules, the notified classes are small companies, startups (other than those with a partnership firm or LLP as promoter or member) and unlisted companies with total assets of ₹1 crore or less. Sections 57 and 58 deal with how the process is started and conducted. A creditor or the corporate debtor may apply. The National Company Law Tribunal (NCLT) is the Adjudicating Authority.

The key point is time. Under Section 56, the fast track process must be completed within 90 days from the insolvency commencement date. The NCLT may extend this once, by not more than 45 days. The extension needs an application by the resolution professional, backed by a committee of creditors resolution passed by 75% of voting share. If no resolution plan is approved in time, Section 56(4) requires the NCLT to pass a liquidation order under Section 33(2) of the Code (Chapter III).

Fast track is not the only exit. A company that has no debt, or can pay its debts in full from the proceeds of its assets, can use voluntary liquidation under Section 59 of the Code. The directors must make a declaration of solvency, and the members must pass a special resolution. Under Section 59(3)(b), an ordinary resolution is enough where the Articles provide for winding up on a particular event and that event has occurred. If the company has debts, creditors representing two-thirds in value of the debt must approve. A dormant or non-operating company can ask the Registrar of Companies to strike its name off under Section 248 of the Companies Act, 2013. A startup run as an LLP can use the LLP closure routes.

In the exam, always ask three questions. Is the entity solvent or insolvent? Does it have debts and assets? How fast does it need to close? The answers decide the route.

Key rules to remember

Fast track time limit: Fast track CIRP to be completed within 90 days from the insolvency commencement date; Section 56. This is the '90 days' that students search for.
Extension of fast track period: Extension: once only, up to 45 days, on resolution professional's application, with committee of creditors approval by 75% of voting share; Section 56. So the outer limit is 90 + 45 = 135 days.
Who can use fast track: Corporate debtors of a notified class: small companies, startups (other than those with a partnership firm or LLP as promoter or member) and unlisted companies with total assets of ₹1 crore or less; Section 55, read with Rule 4 of the Insolvency (Fast Track) Rules. Section 55 also covers debtors with assets and income below a notified level and notified classes of creditors or debt. A creditor or the corporate debtor may apply. Sections 57 and 58 cover how the process is initiated and conducted.
Failure of fast track: No resolution plan approved within time → NCLT orders liquidation under Section 33(2) of the Code (Chapter III), as Section 56(4) requires; Section 56(4) gives the liquidation consequence, and the order is passed under Section 33(2). The company then moves to liquidation.
Voluntary liquidation conditions: Company has no debt, or can pay its debts in full from the proceeds of its assets + declaration of solvency by directors + special resolution of members (ordinary resolution where the event stated in the Articles has occurred, Section 59(3)(b)) + approval of creditors representing two-thirds in value where the company has debts (Section 59(3)(c)); Section 59 of the Code. Applies when the company is not insolvent and can pay its debts in full.
Striking off by Registrar: Application under Section 248 of the Companies Act, 2013 with special resolution or consent of 75% of members by paid-up share capital; For companies not carrying on business or operations. Check the conditions before choosing this route.

How to solve Winding Up and Easy Exit for Startups questions

Use this method for any question on startup exit, whether it asks for a definition, a timeline or advice to a founder.

1Identify the type of entity: private company, LLP or other. This decides which law applies.
2Check solvency. If the startup can pay all its debts, think voluntary liquidation or striking off. If it cannot, think insolvency.
3Check eligibility for fast track: is the company in a class notified under Section 55 of the Code?
4State the process: application to the NCLT by a creditor or the corporate debtor, appointment of a resolution professional, committee of creditors, resolution plan or liquidation.
5State the time limits: 90 days, one extension of up to 45 days, and the 75% committee of creditors approval needed for the extension (Section 56).
6State the outcome if the process fails: the NCLT passes a liquidation order under Section 33(2) of the Code, as Section 56(4) provides.
7Compare with the alternative routes: voluntary liquidation, striking off under Section 248, or LLP closure.
8End with a clear conclusion that names the best route for the facts given.

Quickest way: Three-question route filter

When to use it: Use it for case-study questions where you must advise which exit route a startup should take.

Ask: can it pay its debts in full? Yes points to voluntary liquidation or striking off. No points to fast track insolvency or normal CIRP.
Ask: is it a notified class for fast track? If yes, name the 90 + 45 day limits.
Ask: is it dormant with no debts or operations? If yes, mention striking off under Section 248.
Write the answer in three parts: provision, application to the facts, conclusion.

Common mistakes in Winding Up and Easy Exit for Startups

Saying fast track exit is always done in exactly 90 days.
The '90 days' headline from the Action Plan is remembered without the extension rule.
Fix: Write that it must be completed within 90 days, extendable once by up to 45 days, giving an outer limit of 135 days.
Applying fast track to every startup.
Students forget that eligibility depends on classes notified by the Government.
Fix: Always say 'a corporate debtor of a class notified under Section 55' and then list the classes as notified.
Mixing up voluntary liquidation with fast track insolvency.
Both are quick exits and both appear under the Code.
Fix: Remember: voluntary liquidation is for solvent companies and starts with a declaration of solvency. Fast track is for insolvent debtors and runs through the NCLT.
Forgetting the 75% committee of creditors vote for the extension.
Students recall the 45 days but not the approval needed.
Fix: Learn the extension as one sentence: resolution professional applies, committee of creditors approves by 75%, NCLT grants once, up to 45 days.
Ignoring striking off under the Companies Act as an exit route.
The topic is seen as purely an IBC topic.
Fix: Add a line on Section 248 for dormant companies with no debts or operations, and compare it with the IBC routes.
Ending without a conclusion.
Students list provisions and run out of time.
Fix: Close every case answer with a one-line conclusion naming the route and the reason.

Worked examples

Example 1

Explain the fast track insolvency process available to startups under the Insolvency and Bankruptcy Code, 2016, with particular reference to its time limit.

Show the solution

Provision: Sections 55 to 58 of the Code provide a fast track corporate insolvency resolution process. It applies to notified classes of corporate debtors: small companies, startups (other than those with a partnership firm or LLP as promoter or member) and unlisted companies with total assets of ₹1 crore or less.
Process: a creditor or the corporate debtor applies to the NCLT. A resolution professional is appointed and a committee of creditors is formed. A resolution plan is then considered.
Time limit: under Section 56, the process must be completed within 90 days from the insolvency commencement date.
Extension: the NCLT may extend the period once, by not more than 45 days. The resolution professional must apply, and the committee of creditors must approve by 75% of voting share. The outer limit is therefore 90 + 45 = 135 days.
If no resolution plan is approved in time, Section 56(4) requires the NCLT to pass a liquidation order under Section 33(2) of the Code.

Answer: The fast track process is a shorter insolvency process for notified classes of corporate debtors, including eligible startups. It must end within 90 days, extendable once by up to 45 days (75% committee of creditors approval). If it fails, the NCLT orders liquidation under Section 33(2) of the Code, as Section 56(4) provides. This gives a startup an easy and time-bound exit.

Example 2

Swadesh Foods Pvt. Ltd. is a startup that has stopped operations. It owes ₹8,00,000 to creditors and cannot pay. Its directors want the quickest legal exit. Advise them.

Show the solution

Provision: Swadesh Foods cannot pay its debts, so it is insolvent. Voluntary liquidation under Section 59 needs a company that can pay its debts in full and a declaration of solvency, so it is not available.
Striking off under Section 248 of the Companies Act, 2013 is meant for companies that are not carrying on business. The company has unpaid creditors, so this route is not suitable until they are dealt with.
Application: eligibility is a precondition. A startup is in a notified class under Section 55 if no partnership firm or LLP is its promoter or member. Swadesh Foods is a private company, so it may also qualify as a small company. If it falls within a notified class, the fast track process under Sections 55 to 58 is the quickest route. If it does not, the normal corporate insolvency resolution process applies.
Process: if the NCLT admits the application, a resolution professional is appointed, and the process must be completed within 90 days, extendable once by up to 45 days (Section 56).
If no resolution plan is approved within the time limit, Section 56(4) requires the NCLT to pass a liquidation order under Section 33(2) of the Code, and the company is wound up.

Answer: The directors should first check that Swadesh Foods falls within a notified class under Section 55. If it does, they should use the fast track process under Sections 55 to 58 of the Code. This gives a time-bound exit of 90 days, extendable once by up to 45 days. Voluntary liquidation and striking off are unsuitable because the company is insolvent and has unpaid creditors.

Exam tips

Learn the numbers as a set: 90 days, 45 days, 75% and the Sections 55 to 58 range. Examiners test them directly.
In case studies, check solvency first. It decides between voluntary liquidation and insolvency routes.
Write 'as notified' when listing eligible classes. This protects you from stating a fixed figure that may change.
Use the ICSI answer pattern: provision, facts, conclusion. Cite the Section where you are sure of it.
Add a short comparison of two exit routes if the question says 'discuss' or 'advise'.

Practice questions from Startups and its Registration

Winding Up and Easy Exit for Startups: frequently asked questions

What is the startup easy exit under IBC in 90 days?

It is the fast track corporate insolvency resolution process in Sections 55 to 58 of the Insolvency and Bankruptcy Code, 2016. Under Section 56, it must be completed within 90 days from the insolvency commencement date. The NCLT can extend it once by up to 45 days.

Can every startup use the fast track process?

No. It is open only to classes of corporate debtors that the Government has notified under Section 55. These include small companies, unlisted companies with total assets of ₹1 crore or less, and startups other than those with a partnership firm or LLP as promoter or member. Check the notified class before applying.

What happens if the fast track process fails?

If no resolution plan is approved within the allowed time, Section 56(4) requires the NCLT to pass a liquidation order under Section 33(2) of the Code. The company is then wound up under the Code.

How is voluntary liquidation different from fast track exit?

Voluntary liquidation under Section 59 is for a company that has no debt or can pay its debts in full, and whose directors can make a declaration of solvency. Fast track exit is an insolvency process for a company that cannot pay its debts.

Is striking off a company the same as winding up?

No. Striking off under Section 248 of the Companies Act, 2013 removes a non-operating company's name from the Registrar's records. Winding up is a formal process in which assets are sold and creditors are paid before the company is dissolved.