A cheaper, faster and easier insolvency resolution process is on the cards for micro, small and medium enterprises (MSMEs), according to KR Saji Kumar, executive director of the Insolvency and Bankruptcy Board of India (IBBI).
The board envisaged a shorter time limit than the current 180 days for an MSME insolvency resolution process, along with cost-effective and easier procedures where the debtor continues to manage the business while negotiating with creditors, Kumar said during an online conference on Monday.
“The advantage should be that the time should be short, it cannot be 180 days, it can be lesser than that. And the process should be cheap, in the sense that the cost would be very less,” Kumar said, explaining that the high costs of insolvency resolution should not apply here unlike in the case of corporate debtors where the stakes are very high.
Further, it would provide a ‘debtor in possession’ model for MSMEs that would enable them to negotiate the resolution with creditors and incentivise them to continue running the business post-insolvency resolution.
“For the purpose of easy insolvency resolution of MSMEs, we proposed that the debtor, the MSME, should be provided an opportunity to hold and continue the business while they try to negotiate with creditors so that they will be in a position to continue the business (post-resolution) or maybe to look for a new resolution applicant to take over the business,” Kumar said.
On May 17, as part of the Atma Nirbhar Bharat package, finance minister Nirmala Sitharaman had raised the threshold for initiating insolvency proceedings to Rs 1 crore, from Rs 1 lakh to protect MSMEs from the pandemic and lockdown fallout.
She had also announced that a special insolvency framework for MSMEs would be notified under section 240A of Insolvency and Bankruptcy Code (IBC).
According to Kumar, the IBBI has already conducted stakeholder consultations on the matter and was in the process of consolidating its reports for the government to make the final call.
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