Insolvency and Bankruptcy Board of India (IBBI) chairman MS Sahoo on Friday said there was a “rationale” for treating promoters of micro, small and medium enterprises (MSMEs) differently from the promoters of larger companies.
“When a big company goes into liquidation, it is the MSMEs that take a hit because, often, they have only one buyer for their goods. MSMEs are treated differently everywhere, and there is a rationale for it,” Sahoo said on the sidelines of a conference organised by Ficci.
Sahoo’s comments assume significance because promoters of MSMEs, apart from those who have been classified as wilful defaulters, are likely to be allowed to bid for their companies at the National Company Law Tribunal (NCLT). Currently, they are barred from doing so under the ambit of Section 29 (A) of the Insolvency and Bankruptcy Code (IBC).
Earlier this week, the Union Cabinet approved an ordinance amending the IBC. The changes need to be ratified by the President of India. One of the amendments is understood to be related to MSMEs. Sahoo declined to comment on the ordinance.
So far, there has been limited interest for the MSME units at the NCLT, and consequently, bankers are staring at a spate of liquidation which would fetch them very little. Making the promoters eligible to bid for their companies would help bankers recover a bigger share of their dues. Currently, the recognised non-performing assets (NPA) of the MSME borrowers are a staggering Rs 77,000 crore, according to data from TransUnion Cibil.
Sahoo also said that the committee of creditors (CoC) has a higher responsibility to look at the interest of all the stakeholders, adding that they are in a custodian and trustee position. He further said that the objective of the bankruptcy law is to resolve an insolvency and revive an asset for collective good and not to maximise value for a chosen few.