Economy

Pre-packs for MSMEs: Minimum default threshold to be set at ₹10 lakh

KR Srivats New Delhi | Updated on April 10, 2021

MS Sahoo, chairperson, IBBI   -  KSL

Centre has decided to peg the minimum threshold default at ₹10 lakh for initiation of pre-pack insolvency resolution process by a MSME corporate debtor.

This decision comes on the heels of the Centre issuing an ordinance to introduce a pre-packaged insolvency resolution process (pre-pack) for MSMEs registered as a corporate debtor. This ordinance received President’s assent on April 4.

Pre-packs are an arrangement where the resolution of a company’s business is negotiated with a buyer before the appointment of an insolvency professional. They are seen to be a viable alternative to the current corporate insolvency resolution process as they are less time consuming and more cost effective.

The amendment ordinance has enabled pre-packs for MSMEs classified in a corporate form, but with sufficient checks and balances, said MS Sahoo, Chairperson, Insolvency and Bankruptcy Board of India (IBBI). However, this pre-pack regime will not be available for a proprietorship or a partnership operating as MSME.

“The government has now set the minimum threshold default at ₹10 lakh for pre packs for MSMEs. So pre packs is available for MSMEs in respect of defaults of ₹10 lakhs or more”, he said.

Sahoo highlighted that the government has come with pre-pack for MSMEs at the right time and introduced this alternative approach when the haze around moratorium has been cleared by the Supreme Court, the suspension of initiation of insolvency proceedings has expired and the trajectory of Covid-19 is fairly understood.

MCA to frame rules soon

He said that the Corporate Affairs Ministry (MCA) will soon come up with rules for pre-packs for MSMEs.

India currently has about 6-7 lakh companies that are classified as MSMEs and potentially these many could benefit from the newly introduced pre-packaged insolvency framework.

Published on April 09, 2021

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