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Govt amends IBC, introduces pre-packaged resolution process for MSMEs

The amendment allows the Centre to notify the minimum amount of default value, not more than Rs 1 crore, for pre-packaged insolvency resolution process.

twitter-logoBusinessToday.In | April 5, 2021 | Updated 14:59 IST
Govt amends IBC, introduces pre-packaged resolution process for MSMEs
The government had last year suspended fresh insolvency proceedings for six months from March 25. The suspension was extended twice by three months.

The government on Sunday amended the Insolvency and Bankruptcy Code, 2016 by promulgating an Ordinance to provide pre-packaged resolution for micro, small and medium enterprises (MSMEs).

The amendment allows the Centre to notify the minimum amount of default value, not more than Rs 1 crore, for pre-packaged insolvency resolution process.

The government had last year suspended fresh insolvency proceedings for six months from March 25, when a nationwide lockdown was imposed to curb the spread of coronavirus infections. The suspension was extended twice by three months till December 24, 2020 and then March 24, 2021.

The Ordinance said MSMEs are critical for India's economy as they contribute significantly to its gross domestic product and provide employment to a sizeable population, and it is considered necessary to urgently address the specific requirements of MSMEs relating to the resolution of their insolvency due to the unique nature of their businesses and simpler corporate structures.

Also read: Govt to resume fresh insolvency proceedings under bankruptcy

"It is considered expedient to provide an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises under the Insolvency and Bankruptcy Code, 2016, ensuring quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs," it said.

The IBC Amendment Ordinance, 2021 makes available the pre-packaged route to genuine and viable cases, to ensure least business disruption, Soumitra Majumdar, Partner at J Sagar Associates, told news agency PTI.

"While modelled on debtor-in-possession approach, it vests significant consent rights to the financial creditors, such that the mechanism cannot be misused by errant promoters. Further, adopting the plan evaluation process akin to Swiss Challenge, it retains competitive tension such that promoters propose plans with least impairment to rights and claims of creditors," Majumdar said.

The Insolvency and Bankruptcy Code (IBC) provides for a market-linked and time-bound resolution of stressed assets.

(With inputs from PTI)

Also read: Cheque-bounce cases can't be filed or continued against firms facing IBC proceedings, says SC

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