Special resolution framework for MSMEs soon, to have ‘better acceptance’ of genuine failures: IBBI chief

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Published: July 26, 2020 3:57 PM

Ease of Doing Business for MSMEs: Efforts are being made to speed up the processing of cases under IBC by having a provision for the pre-pack plan wherein the company and its creditors will agree upon a resolution plan in advance.

Finance Minister Nirmala Sitharaman in order to help Covid-hit MSMEs had raised the default threshold sharply from Rs 1 lakh to Rs 1 crore under section 4 of IBC.

Ease of Doing Business for MSMEs: MSMEs are soon likely to have a special insolvency resolution framework, currently at an advanced stage of preparation, under section 240A of the Insolvency and Bankruptcy Code (IBC) while a pre-pack (pre-packaged) resolution framework is also being worked upon, according to Insolvency and Bankruptcy Board of India chairperson M S Sahoo. The market participants and the ecosystem would be nimbler and they would find innovative ways of implementing innovative resolution mechanisms, PTI reported citing Sahoo. “There would be better acceptance of genuine business failures and consequently, entrepreneurship would flourish. IBC would emerge stronger,” he added.

IBBI chief Sahoo told the news agency in an email interview that the focus is on a swift response as Covid’s situation evolves ahead and recalibration of the ecosystem in sync with the all ”new normal”. The efforts are being made to speed up the processing of cases under IBC by having a provision for the pre-pack plan. Here, the company and its creditors will agree upon a resolution plan in advance.

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Sahoo said that the Code would consolidate good behaviour through its features that seek promoters and external resolution applicants to compete for a firm’s insolvency resolution. This would be different from all previous ways wherein creditors were allowed to look for a resolution only from existing promoters. However, Sahoo added that the timeline is a key issue that is not resolved yet. “The market performs better where there is little time between the execution of the transaction and its consummation. Hopefully, a special framework for MSMEs and prepack resolution would be faster,” he said.

Finance Minister Nirmala Sitharaman in order to help Covid-hit MSMEs had raised the default threshold sharply from Rs 1 lakh to Rs 1 crore under section 4 of IBC. “This will by and large prevent triggering of insolvency proceedings against MSMEs,” said a press note issued by the Finance Ministry. Recently, the Cabinet had promulgated an ordinance to suspend the insolvency proceedings for at least six months from starting from March 25 amid the Corona pandemic.

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