NEW DELHI: The Centre has amended the Insolvency and Bankruptcy Code 2016 through an ordinance in an effort to provide a pre-packaged resolution for micro, small and medium enterprises (MSMEs). The amendment allows the Centre to notify the minimum default value, not more than Rs 1 crore, for this pre-packaged insolvency resolution process.
“It is considered expedient to provide an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises under the IBC 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,” the government said.
The Centre had, last year, suspended fresh insolvency proceedings for six months from March 25, after a nationwide lockdown was imposed to curb the spread of Covid-19. This provision eventually expired on March 24, 2021.
The ordinance, approved by the President on Sunday, said: “It is considered necessary to urgently address the specific requirements of micro, small and medium enterprises relating to the resolution of their insolvency, due to the unique nature of their businesses and simpler corporate structures”.
This resolution process, however, must be completed within 120 days and the resolution plan approved by the Committee of Creditors (CoC) needs to be submitted to the Adjudicating Authority within 90 days. For this to go forward, not less than 66 per cent of the financial creditors need to have approved the plan.
“The duties of the Resolution Professional broadly remain the same as prescribed under the normal insolvency process, except that the management of the affairs of the Corporate Debtor continue to vest with the Board of Directors /Partners (with certain exceptions)... duty bound to protect and preserve its value and manage operations as a going concern,” said Sunil Gupta of Resurgent India.
New provision to speed up resolution process
For the plan to apply, not less than 66 per cent of the financial creditors need to approve it
Resolution plan approved by CoC to be given to Adjudicating Authority within 90 days
Duties of RP largely the same as in the normal IBC process