The government on Wednesday said it has set the minimum default threshold for initiation of pre-packaged insolvency resolution process by a MSME corporate debtor at Rs 10 lakh.
On April 4, the President had promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 for providing pre-packaged resolution for micro, small and medium enterprises (MSMEs).
While pre-packaged resolution is for defaults up to Rs 1 crore, the amendment said that the government will notify the minimum amount of default value for initiating the resolution process.
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Explaining the benefits of pre-packaged resolution process through a series of tweets, the Finance Ministry said that the central government has decided minimum threshold default of Rs 10 lakh for initiation of resolution process by MSME corporate debtor.
"Pre-pack for MSMEs is a hybrid corporate rescue process, which blends elements and virtues of both formal and informal insolvency proceedings. A resolution plan is negotiated between debtor and its creditors before commencement of formal proceedings," the ministry said.
The amendment for pre-packaged resolution for MSMEs will have multiple benefits for the sector, it said, adding that it is a time and cost effective insolvency resolution which will cause minimum business disruption, maximise value, preserve employment and lessen the burden on the National Company Law Tribunal (NCLT).
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"The initiative is based on a trust model and the amendments honour the honest MSME owners by trying to ensure that the resolution happens and the company remains with them," the Ministry of Corporate Affairs said in a statement.
It is expected that the incorporation of pre-packaged insolvency resolution process will alleviate the distress faced by MSMEs due to the impact of the pandemic and the unique nature of their business, it added.
The government had suspended fresh insolvency proceedings for six months from March 25, 2020, when a nationwide lockdown was imposed to curb the spread of coronavirus infections. The suspension was extended twice by three months till December 24, 2020 and then March 24, 2021.
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