Insolvency resolution: Promoters of stressed MSMEs to get relief

By: | Published: March 10, 2018 4:30 AM

In a move aimed at providing relief to the micro, small and medium enterprises (MSMEs), a panel set up to look into various issues relating to the Insolvency and Bankruptcy Code (IBC) is considering allowing promoters of MSMEs to bid for their stressed assets.

Insolvency, Insolvency resolution, MSME, MSME promoterIn a move aimed at providing relief to the micro, small and medium enterprises (MSMEs), a panel set up to look into various issues relating to the Insolvency and Bankruptcy Code (IBC) is considering allowing promoters of MSMEs to bid for their stressed assets.

In a move aimed at providing relief to the micro, small and medium enterprises (MSMEs), a panel set up to look into various issues relating to the Insolvency and Bankruptcy Code (IBC) is considering allowing promoters of MSMEs to bid for their stressed assets even without clearing dues if they are not wilful defaulters, official sources told FE. As part of its efforts to expedite the insolvency process, the panel is also examining the possibility of trimming the share of votes required for approving a resolution plan by the committee of creditors to anywhere between 60% and 66%, against the current 75%. It is also considering relaxing the related-person criterion without diluting the soul of it to enable a smoother implementation of the law, the sources said. The 14-member Insolvency Law Committee, chaired by corporate affairs secretary Injeti Srinivas, will meet on Monday to deliberate on some of these issues. “These issues are being discussed but a final decision will be taken only after deliberations are over,” said a senior government official. “There are deliberations on how MSMEs can be given some relief, whether we can have a separate window to address their cases,” he said.

In November last year, the government disallowed wilful defaulters and dubious promoters from submitting insolvency resolution plan. It also barred those whose accounts have been classified as non-performing assets for at least a year. However, such defaulting promoters can bid for their companies only after they clear the overdue amounts with interests and other charges. The government also restricted the participation of those related to or connected to promoters in some way or the other in the resolution process. The latest move comes amid the realisation that MSMEs are mostly driven by promoters, who are the ones that are interested in bidding for their stressed firms in an insolvency resolution process. Since there is hardly any third-party interest in a stressed MSME, unlike large companies, almost all of them are set to go for liquidation. This will result in job losses, a scenario the government wants to avoid. As such, all the 60-odd companies that are going for liquidation are MSMEs. By contrast, the large sick companies, including Bhushan Steel and Essar Steel, have gathered interests. Of close to 600 firms where insolvency proceedings have so far been initiated, around 80% are MSMEs, said analysts. According to the new classification, firms having annual turnover up to Rs 5 crore fall under the ‘micro’ category. Units having turnover between Rs 5 crore and Rs 75 crore will be classified as small enterprises, whereas those having turnover between Rs 75 crore and Rs 250 crore will be classified as medium enterprises. According to Mamta Binani, a member of the All India Insolvency Professionals Association, in the absence of bidders, MSMEs are compulsorily heading for liquidation once the resolution period is over.

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