IBC Ordinance paves the way for pre-packaged resolution process for MSMEs

The government has amended the Insolvency and Bankruptcy Code (IBC) to provide for a pre-packaged resolution process for micro, small and medium enterprises (MSMEs). An Ordinance has been promulgated to amend the insolvency law, according to a government 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. 

According to the Ordinance, it is considered necessary to address the specific requirements of MSMEs relating to the resolution of their insolvency urgently due to the unique nature of their businesses and simpler corporate structures. 

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 which is least disruptive to the continuity of their businesses and which preserves jobs, the Ordinance adds.

Soumitra Majumdar, a partner at J Sagar Associates, has said that the IBC Amendment Ordinance, 2021 makes available the pre-packaged route to genuine and viable cases to ensure least business disruption. “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,” Mr Majumdar notes.

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