Agri Business

Defaulting cashew MSMEs may get a chance to redeem themselves

Vinson Kurian Thiruvananthapuram | Updated on January 12, 2018

The Finance Ministry has agreed in principle to grant a special window to defaulting MSMEs in the cashew sector, which could normally invoke the Insolvency and Bankruptcy Code (IBC).

Finance Minister Arun Jaitley has agreed to a proposal to amend the IBC suitably to allow these MSMEs one shot at restructuring, Rajeev Chandrasekhar, Independent MP, told BusinessLine here.

Difficult transition

This was decided after he had met Jaitley last month. According to Chandrasekhar, the cashew sector that employs lakhs needs to be handled with care and caution.

Post-IBC, there have been many instances of the MSME units in the sector folding up, especially during a critical period when they were in the transition period through demonetisation and GST.

Some of them had lapsed into bankruptcy, promptly invoking the IBC and concomitant takeover by banks.

The Finance Minister has agreed in principle that this would not be allowed to happen.

Chandrasekhar said he has also suggested that the Finance Ministry sit up with the Commerce Ministry to devise a short-term package for the cashew sector.

“I think there’s sensitivity on these issues in the Finance Ministry. Post-budget, there would likely be a meeting of stakeholders to figure these things out,” he added.

‘Don’t apply IBC’

It is acknowledged that these units have only a limited number of buyers, if any, and rely largely on promoters for resolution.

“A bank cannot ideally take over a small company run by a single person. After all, who does the bank entrust it to? Only the original owner knows best how to run it. So what I’m saying is that, unlike in the case of mega enterprises, please don’t apply IBC to the small MSME units. Give them one opportunity to get their business back on track.”

A lot of them have not been mismanaged, as is largely the case with the big companies. Rather, it could be a combination of mismanagement, adverse economic situation, demonetisation, GST and transition issues.

In the process, these units were rendered unable to meet their bank obligations, leading to default. If they’re taken out of the purview of IBC and supported with some cashew sector-specific sops, they can get back to their feet, Chandrasekhar said.

Published on January 12, 2018

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