The government does not expect a rush of insolvency cases from micro, small and medium enterprises (MSMEs) after it promulgated an ordinance to open a special fast track window for them.
The ministry of corporate affairs — which will set the floor for initiating cases under “pre-packaged” insolvency — and the Insolvency & Bankruptcy Board of India (IBBI) are expected the notify the regulations for initiating insolvency resolution under the new scheme.
While the default floor for corporate insolvency resolution was increased from Rs 1 lakh to Rs 1 crore last year under the Insolvency and Bankruptcy Code, in case of MSMEs the threshold will be set lower with the maximum amount of default capped at Rs 1 crore.
“Only serious entrepreneurs facing genuine problems due to the special situation will have the opportunity to use the scheme meant for MSMEs, especially because banks will also need to have comfort,” corporate affairs secretary Rajesh Verma told TOI.
He said in a large and diverse country such as India, ‘a one size fits all approach’ may not serve the requirements. “That is why there is a framework within a framework. There are enough safeguards to ensure that only the genuine needs are met,” Verma said.
He also said apart from aiding resolution, a key thrust was job preservation in MSMEs. The scheme will be available to around seven lakh MSME businesses that are registered under the Companies Act, either as corporate entities or as limited liability partnership firms.
The law comes with stiff penalties too in case of violations and frauds, including a possible jail term.
