Amending the insolvency law, the government has introduced a pre-packaged resolution process for stressed MSMEs so that such enterprises can have a quicker and value-maximising outcome.

Micro, Small and Medium Enterprises (MSMEs), many of whom have been impacted by the coronavirus pandemic, can now seek resolution for their stress through the pre-packaged process under the Insolvency and Bankruptcy Code (IBC).

An ordinance was promulgated to amend the IBC on 4 April. This move, welcomed by the MSMEs, comes two weeks after the suspension of certain IBC provisions ended.

The IBC was suspended for a year starting from 25 March, 2020. Under the heat of the coronavirus pandemic, fresh insolvency proceedings were not allowed for a year.

The ordinance, introducing the pre-packaged resolution process, seeks to urgently address the specific requirements of MSMEs relating to the resolution of their insolvency due to the unique nature of their businesses and simpler corporate structures.

Normally, under a pre-packaged process, main stakeholders such as creditors and shareholders identify a prospective buyer and negotiate a resolution plan before submitting the plan to NCLT for formal approval.

All resolution plans under the IBC need to be approved by the National Company Law Tribunal (NCLT).

According to the ordinance, it is considered expedient to provide an efficient alternative insolvency resolution process MSMEs to ensure a quicker, cost-effective and value maximising outcome for all stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs.

"... in order to achieve these objectives, it is considered expedient to introduce a pre-packaged insolvency resolution process for corporate persons classified as micro, small and medium enterprises," it added.