Centre Promulgates IBC Amendment Ordinance to allow Pre-Packaged Insolvency for MSMEs

The Central Government has promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance 2021 to allow pre-packaged insolvency process for MSMEs, the Economic Times of India reported. The Ordinance, in essence, has amended the Insolvency and Bankruptcy Code 2016 and allows the Central Government to notify such pre packaged process for defaults of not more than Rs 1 crore. The government had been looking to offer a pre-packaged resolution framework for stressed companies under the IBC. A pre-packaged resolution essentially translates to a company preparing a restructuring plan with its creditors before initiating insolvency proceedings. This helps to cut down the time and costs in the overall process. Soumitra Majumdar, Partner, J Sagar Associates says The IBC Amendment Ordinance 2021 makes available the pre-packaged route to genuine and viable cases, to ensure least business disruption. “While modelled on a debtor-in-possession approach, it vests significant consent rights to the financial creditors, such that the mechanism cannot be misused by errant promoters. Further, adopting the plan evaluation process akin to Swiss Challenge, it retains competitive tension such that promoters propose plans with least impairment to rights and claims of creditors,” he says. A new chapter III A has been inserted that deals with pre-packaged insolvency resolution process. “An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006,” the Ordinance stated. Read more.