Government brings ordinance for pre-packaged insolvency resolution of MSMEs under Insolvency and Bankruptcy Code

The government has introduced an ordinance for a pre-packaged insolvency resolution process for pandemic-hit micro, small and medium enterprises (MSMEs), which will be completed within 120 days.

Micro, small and medium enterprises are critical for India's economy as they contribute significantly to its gross domestic product and provide employment to a sizeable population. It is considered necessary to urgently address the specific requirements of micro, small and medium enterprises relating to the resolution of their insolvency, due to the unique nature of their businesses and simpler corporate structures, the government ordinance said.

The pre-pack will act as an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises under the Insolvency and Bankruptcy Code and ensure quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner that is least disruptive to the continuity of their businesses and which preserves jobs, the ordinance added.

The Government has taken several measures to mitigate the distress caused by the pandemic, including increasing the minimum amount of default for initiation of corporate insolvency resolution process to Rs 1 crore and suspending filing of applications for initiation of corporate insolvency resolution process in respect of defaults arising for one year beginning March 25, 2020.

Such suspension for filing of applications for initiation of corporate insolvency resolution process has ended on March 24, 2021.