A cheaper, faster and easier insolvency resolution process is on the cards for micro, small and medium enterprises (MSMEs), said Insolvency and Bankruptcy Board of India (IBBI) executive director KR Saji Kumar.
The board envisaged a shorter time limit than the current 180 days for an MSME insolvency resolution process, along with cost-effective and easier procedures where the debtor continues to manage the business while negotiating with creditors, Kumar said during an online conference on Monday.
“The advantage should be that the time should be short. It cannot be 180 days; it can be lesser than that. And the process should be cheap, in the sense that the cost would be very less,” Kumar said, explaining that the high costs of insolvency resolution should not apply here unlike in the case of corporate debtors where the stakes are very high.
Further, it would provide a ‘debtor in possession’ model for MSMEs that would enable them to negotiate the resolution with creditors and incentivise them to continue running the business after insolvency resolution.
“For the purpose of easy insolvency resolution of MSMEs, we proposed that the debtor, the MSME, should be provided an opportunity to hold and continue the business while they try to negotiate with creditors so that they will be in a position to continue the business (after resolution) or maybe to look for a new resolution applicant to take over the business,” said Kumar.
On May 17, as part of the Atmanirbhar Bharat package, finance minister Nirmala Sitharaman had raised the threshold for initiating insolvency proceedings to Rs 1 crore, from Rs 1 lakh, to protect MSMEs from the pandemic and lockdown fallout.
She had also announced that a special insolvency framework for MSMEs would be notified under section 240A of the Insolvency and Bankruptcy Code.
The provisions would likely enable MSMEs to go to insolvency court under section 10 of the IBC, said Manoj Kumar, partner at Corporate Professionals, adding that it would provide for a pre-packaged insolvency resolution with judicial overview to ensure there is no malafide intent.
On Monday, Saji Kumar said the IBBI had conducted stakeholder consultations on the matter and was in the process of consolidating its reports for the government to make the final call.