Tradeindia Exim Newsletter
06, April 2021
Pre-pack insolvency for MSMEs

The central government has introduced pre-packaged insolvency resolution process (pre-pack) for companies classified as Micro, Small and Medium Enterprises (MSMEs). By an order issued in June last year, it had constituted a sub-committee of Insolvency Law Committee, which submitted its report after a few months, and now the Ordinance route was taken to make this framework a reality. It is welcome news as lakhs of MSMEs are expected to potentially benefit from the move.

Simply speaking, in this arrangement an informal plan is to be worked out by the creditor and debtor for debt resolution, before submitting the plan to NCLT for formal approval. The objective is to provide a quicker outcome for stressed MSMEs. The sector has been hit hard by the ongoing pandemic, and the new amendment to Insolvency and Bankruptcy Code 2016 comes as a big relief. It will be less time-consuming and inexpensive as against current corporate insolvency proceedings.

The Centre has introduced the regime with procedural checks and balances, and first for the MSMEs as these units are critical for the economy and they are also the worst affected during the pandemic times. Experts point out that if successful, the regime may be extended to other corporate borrowers as well. The ordinance specifies a maximum time period of 120 days for completion of the pre-pack process and the debtor will continue to have control over the enterprise till resolution happens.

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