The government amends the insolvency law; Introduces the pre-packaged resolution process for MSMEs

The government has amended the Insolvency Act to provide a pre-packaged resolution process for micro, small and medium enterprises.

According to a notification, the ordinance was brought on 4 April to amend the Insolvency and Bankruptcy Code (IBC).

The latest move comes less than two weeks after the IBC provisions expire. The suspension – in which new insolvency proceedings were not allowed for a year beginning on March 25, 2020 – was implemented amidst a coronavirus epidemic disrupting economic activity.

According to the ordinance, due to the unique nature of their businesses and simple corporate structures, the specific needs of micro, small and medium enterprises (MSMEs) are considered necessary to immediately relate to the resolution of their insolvency.

According to the ordinance, it is considered expedient to provide MSMEs an efficient alternative bankruptcy resolution process to ensure a quick, cost-effective and value-maximizing outcome for all stakeholders, in a manner that is least disruptive to the continuity of their businesses And that preserves jobs.

“To achieve these objectives, it is considered expedient to initiate a pre-packaged insolvency resolution process for corporate individuals classified as micro, small and medium enterprises.”

J. The IBC Amendment Ordinance 2021, said Saumitra Mazumdar, partner at Sagar Associates, provides pre-packaged routes for genuine and viable cases to ensure minimal business interruption.

“When modeled on a debtor-in-possession approach, it implicates significant consent rights for financial creditors, such that the mechanism cannot be misused by misbranded promoters.

Majumdar said, “By adopting the forward planning evaluation process as the Swiss Challenge, it maintains competitive tensions, so that the promoters are offered plans with the least loss of rights and claims.”

IBC provides for the timely resolution of market-linked and stressed assets.