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President Ramnath Kovind has given his assent to the Insolvency and Bankruptcy Code (amendment) Bill 2021, which was passed by the Parliament in the recently concluded monsoon session. This enactment will now provide the statutory backing for the pre-packaged insolvency resolution process (Pre-Pack) regime for companies classified as micro, small and medium enterprises (MSMEs).
The law will replace the ordinance to this effect promulgated in April.
It is intended as a cost-effective and speedier alternative to the prevailing corporate insolvency process. Today There are over 6.3 crore MSMEs in India, and the segment accounts for nearly half of the country’s total exports thereby becoming the backbone of the nation’s economy even during the pandemic.
pre-packaged insolvency
A pre-packaged insolvency is an arrangement where the resolution of a company’s business is negotiated with a buyer before the appointment of an Insolvency Professional (IP). It is a blend of informal and formal mechanisms, with the informal part stretching up to NCLT admission, followed by the existing NCLT-supervised process for resolution under IBC. The debt default threshold is set at at ₹10 lakh for MSMEs in the pre-packaged insolvency resolution process.
Since the threshold of debt default is ₹1 crore under IBC, most MSMEs become ineligible for it.
Meanwhile, the CA Institute has come out with a Handbook on “Do’s and Dont’s for insolvency professionals under the Insolvency and Bankruptcy Code 2016. This has been done to create awareness among its members and help the IPsin understanding their roles and responsibilities under the Code so as to address the expectation of the regulator IBBI.
This has been released at a time when the Parliamentary Standing Committee on Finance headed by Jayant Sinha had in its recent report on the working of IBC voiced apprehension about the competence of young IPs, without any experience, in handling the affairs of huge and complex corporations.
This Panel had noted that there are numerous conduct issues with regards to IPs. The regulators have so far taken action against 123 IPs.
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