Centre Introduces Bill To Help Pandemic-Hit Small Enterprises

Government has introduced a bill to provide relief to pandemic hit small and medium enterprises

The Centre on Monday introduced a bill in Lok Sabha for providing a resolution process for financially stressed micro, small and medium enterprises (MSMEs), especially those which have been affected by the Coronavirus pandemic.

The bill will amend the insolvency law and offer what is being termed, a pre-packaged resolution process for such small enterprises.

The proposed amendments would help notify the threshold of a default not exceeding Rs 1 crore for initiation of pre-packaged resolution process. The Centre has already prescribed the threshold of Rs 10 lakh for this purpose.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021, which was introduced by Finance Minister Nirmala Sitharaman, will replace the ordinance that came into effect on April 4, 2021 to provide relief for pandemic affected MSMEs.

The bill seeks to have a new chapter in the Code to facilitate pre-packaged insolvency resolution process for corporate persons that are MSMEs.

Under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under the Insolvency and Bankruptcy Code (IBC) need the tribunal’s approval. 

As per the bill’s objective, it aims to specify a minimum threshold of not more than Rs 1 crore for initiating pre-packaged insolvency resolution process as well as provisions for disposal of simultaneous applications for initiation of insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.

There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.

Further, punishment would be meted out for offences related to pre-packaged insolvency resolution process.