Ease of doing business for MSMEs: The number of companies in wholesale and retail trade admitted for Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016 has increased by 24.9 per cent year-on-year as of March 2023. According to the report by credit rating company CareEdge, the number of cases belonging to the wholesale and retail trade increased from 526 as of March 2022 to 657 at the end of March this year.
Importantly, the share of the trading sector in the total 6,571 insolvency cases as of March 2023 stood at 10 per cent – fourth highest after 2,561 manufacturing cases with 39 per cent share followed by 1,379 cases from the real estate sector with 21 per cent share, and 722 cases from the construction with 11 per cent share. Hotels & restaurants, electricity & others, transport 7 storage, etc., were other sectors with cases under CIRP.
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CIRP is a recovery mechanism for a company’s creditors in case the former fails to make payment to them. The company’s financial creditors such as banks, operational creditors such as vendors, suppliers, etc., or the corporate itself can apply for CIRP before the National Company Law Tribunal (NCLT).
Cases under CIRP have increased each quarter since the launch of IBC, highlighting the rising acceptance of IBC as an effective debt resolution mechanism.
“IBC has continued to gain in popularity, with close to 6,600 companies being admitted and a significant number of these cases on a cumulative basis till March 2023 being filed by the financial creditors (2,912 cases) and the operational creditors (3,265 cases). The share of corporate debtors has continued to remain the smallest over the same period,” the report said.
However, a significant portion of the total cases are not closed and are ongoing under the insolvency process. According to the data, only 10 per cent of cases ended in approval of resolution plans, while 31 per cent remained in the resolution process in comparison to 35 per cent as of the end of March 2022. 2,030 cases or 30.9 per cent of total cases had ended in liquidation.
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For the uninitiated, the MSME Ministry in July 2021 had reinstated retail and wholesale trade under the MSME category, for the limited purpose of priority sector lending, aiming to benefit 2.5 crore retail and wholesale traders. This allowed traders to register themselves on the government’s Udyam registration portal.
In fact, retail and wholesale traders were topping the table of top 10 segments or sub-sectors in the MSME sector based on the number of registrations on the Udyam portal. As of February 2, 2023, out of around 1.38 crore Udyam-registered MSMEs, the top 10 categories or segments contributed for 96.47 lakh registrations, of which 19.7 lakh – maximum registrations – were of retail traders and 12.3 lakh, the second highest number of registrations, were of wholesale traders, FE Aspire had reported.
