The government expedited the rollout of the pre-packaged insolvency resolution framework for micro, small and medium enterprises (MSMEs) to preserve jobs, said Rajesh Verma, secretary to the corporate affairs ministry.

While the ordinance amending the insolvency law covers only corporate MSMEs, they account for over 60% of all active Indian corporates, stated Shri. Verma. “The employment potential of MSMEs is very large, so job preservation is one of the objectives of this pre-pack framework,” said Verma. “In foreign jurisdictions like the Netherlands, UK and elsewhere, the job preservation aspect of prepack frameworks for small firms has worked very well”.

The government late Sunday promulgated an ordinance to amend the Insolvency & Bankruptcy code to provide for pre-packs for MSMES. A pre-packaged resolution allows a company to prepare a restructuring plan in cooperation with creditors before initiating insolvency proceedings, reducing the time and cost involved in the process. The new framework applies to defaults occurring during the pandemic and is based on the ‘debtor-in-possession’ model with the involvement of a resolution professional only to monitor the process.