New bill to amend insolvency in Lok Sabha
The government submitted a bill in the Lok Sabha on Monday to alter the insolvency legislation and create a pre-packaged resolution route for stressed small businesses.
The proposed revisions will allow the government to announce a default threshold of Rs. 1 crore for the pre-packaged resolution procedure to begin. For this purpose, the government has already set a limit of Rs. 10 lakh.
The Insolvency and Bankruptcy Code (Amendment) Bill, 2021, introduced by Corporate and Finance Minister Nirmala Sitharaman, will supersede the ordinance issued on April 4 to help MSMEs affected the pandemic.
The bill, which was introduced in the Lower House despite a barrage of criticism from the opposition over various issues, seeks to add a new chapter to the code to promote pre-packaged bankruptcy resolution for corporate entities that are Micro, Small, and Medium Enterprises (MSMEs).
In a pre-packaged process, major players such as creditors and shareholders work together to find a potential buyer and create a resolution plan before going to the National Company Law Tribunal (NCLT). NCLT must approve all resolution plans under the IBC.
According to the bill’s Statement of Objects and Reasons, it aims to set a minimum threshold of Rs. 1 crore for starting a pre-packaged insolvency resolution process and provisions for dealing with concurrent applications for initiation of insolvency resolution.
According to the Statement of Objects and Reasons, the MSME sector is vital to the economy because of its major contribution to the country’s gross domestic product and the production of employment for a large population.
“It has thus been deemed necessary to address the sector’s specific requirements by providing an efficient and alternative framework under the Code for a faster, cost-effective insolvency resolution process that is least disruptive to businesses, ensuring, among other objectives, job preservation,” the report stated. The Code has also been revised in the past to address emerging market realities.
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