The government has amended the insolvency law to provide for a pre-packaged resolution process for Micro, Small, and Medium Enterprises (MSMEs).
An ordinance was promulgated to amend the Insolvency and Bankruptcy Code (IBC) on April 4, according to a notification.
The latest move comes less than two weeks after the suspension of certain IBC provisions ended. The suspension, wherein fresh insolvency proceedings were not allowed for a year starting from March 25, 2020, was implemented amid the coronavirus pandemic disrupting economic activities.
As per the ordinance, 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.
According to the ordinance, it is considered expedient to provide an efficient alternative insolvency resolution process for MSMEs to ensure quicker, cost-effective, and value maximising outcomes for all stakeholders, in a manner that is least disruptive to the continuity of their businesses and which preserves jobs.
Soumitra Majumdar, Partner at J Sagar Associates, said the IBC Amendment Ordinance 2021 makes the pre-packaged route available to genuine and viable cases, to ensure the least business disruption.
"Adopting the plan evaluation process akin to Swiss Challenge retains competitive tension such that promoters propose plans with least impairment to rights and claims of creditors," Majumdar noted.
IBC provides for a market-linked and time-bound resolution of stressed assets.
