President promulgates Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 - (07 Apr 2021)

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The President promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 on 4th April 2021. The Cabinet had approved on 31st March, 2021, the proposal to make amendments in the Insolvency and Bankruptcy Code, 2016 (IBC), through the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021. The amendments aims to provide an efficient alternative insolvency resolution framework for corporate persons classified as micro, small and medium enterprises (MSMEs) under the IBC, for ensuring quicker, cost-effective and in a manner which is least disruptive to the continuity of MSMEs businesses.

The Central Government sets minimum limit upto Rs. 10 lakh for default to initiate resolution process by MSME corporate debtor. It can be filed under a newly inserted Section 54C of the IBC. Adjudicating Authority shall either admit or reject the application for initiation of pre-pack within fourteen days from the date of filing of the application. For defaults of more than Rs 1 crore, IBC can continue to be used. The pre-packaged insolvency resolution process will be completed within 120 out of which 90 days’ time has been given to the resolution professional to file the resolution plan with the Adjudicating Authority and 30 days time has been given to the Adjudicating Authority to approve the resolution plan. If no resolution plan is approved by the committee of creditors, then the resolution professional shall apply to the Adjudicating Authority to terminate the pre-packaged insolvency resolution process.

The incorporation of Pre-Packaged insolvency resolution process (PIRP) for MSMEs in the IBC will alleviate the distress faced by MSMEs due to the impact of the pandemic. It provides an efficient alternative insolvency resolution framework for corporate persons classified as MSMEs for timely, efficient and cost-effective resolution of distress thereby ensuring positive signal to debt market, employment preservation, ease of doing business and preservation of enterprise capital. There would be lesser burden on Adjudicating Authority through the amendment and it would ensure continuity of business operations for corporate debtor (CD). The amendment ensures less process costs and maximum assets realization for financial creditors (FC).

Tags : ORDINANCE AMENDMENT MSMES