Insolvency resolution: Cheaper, faster and easier process on cards for MSMEs

Insolvency and Bankruptcy Board of India (IBBI) has proposed a new framework for micro, small and medium enterprise (MSME) insolvency resolution process, reducing the time limit to less than 180 days.

The plan aims to focus on making the procedure more cost-effective, quicker and easier allowing the debtors to continue running the business while allowing the flexibility of negotiating with creditors.

The risk is very high for MSMEs as debtors, it is a matter of each penny and each minute of time. The goal is to give exposure of a short time limit of less than 180 days in a manner where it costs less.

The foundation presents a model called ‘debtor in possession’ for MSMEs, standing on the idea of giving the power of negotiation to MSMEs with creditors and encourages to provide incentives post insolvency resolution to continue with business operations. This power is a way of providing the debtors (MSMEs) an opportunity to have a suitable credit period that enables them to resume with the work post insolvency or find a new candidate to take over the business.

The resolution is in line with government’s vision of creating Atmanirbhar India, after the finance minister raised the threshold limit of initiating insolvency proceedings in order to protect the MSMEs from the pan India lockdown effect from to Rs 1 crore from Rs 1 lakh.

The amenities of this would pave the way to insolvency court for MSMEs under section 10 of the IBC. Securing the MSMEs of no malafide intent, they would be given a pre-packaged insolvency resolution with judicial overview.

As of 25th July, 2020, IBBI will await for the government to announce the final decision, soon after IBBI undertakes the process of consolidating the report and submitting.

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