MSMEs seek IBC suspension, but MCA reluctant

“We have received many representations from smaller units, requesting suspension of the Insolvency proceedings.

Published: 15th May 2021 12:14 PM  |   Last Updated: 20th May 2021 10:47 AM   |  A+A-

Many businesses will be hoping to gain succor from the Insolvency and Bankruptcy Code.

Image for representation (Photo | Reuters)

Express News Service

NEW DELHI:  The government seems to be in no mood to suspend the Insolvency process, even as smaller companies have requested the Corporate Affairs Ministry to extend the protection given to them from bankruptcy proceedings for defaults during the pandemic for another three months on account of unprecedented second Covid-19 wave.

“We have received many representations from smaller units, requesting suspension of the Insolvency proceedings. While the ministry is aware of the difficulty faced by them, at this moment there is no such consideration. There is already a provision for pre-packaged Insolvency deals, which was done after taking consultation from both banks and MSMEs,” a senior official from the ministry of corporate affairs told The New Indian Express. Last year, the government suspended bankruptcy action against corporate defaulters. But this expired on March 24 this year. 

Banks and financial institutions are yet to warm up to the idea, given that the Pre Pack Insolvency Resolution Process (PPIRP) permits defaulting promoters to manage day-to-day activities of the corporate debtor. “This is problematic. This is a major hitch for the financial institutions. So mostly the concept is yet to take off,” a Punjab National Bank official said.

Experts, meanwhile, are not not in favour of suspending the insolvency process. “It is better not to suspend the IBC and to use it in an effective manner to revive corporates facing stress be it due to COVID or otherwise,” said Sudhir Chandi, Director of Resurgent India. He, however, feels that  the central bank can step in to relax asset classification norms for companies going under pre-pack. “All in all, it is a good tool for preservation of value of the company,” he noted.


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