As per our reports, the special insolvency resolution framework for MSMEs recommends a lot shorter time period for resolution of a company in 90 days rather than 300 days as provided under the Insolvency & Bankruptcy Code for completion of the procedure and permits promoters of a defaulting MSME enterprise to present a resolution plan. The Central Government is proposing to draft an insolvency law for MSMEs with a turnover of less than Rs 250 crore or an investment of less than Rs 50 crore, recommends that the insolvency systems against a MSME must be triggered by the MSME itself and not by the creditors.
For initiating an insolvency procedure, the MSME enterprise must take approval from financial creditors having at least 25% of the outstanding financial claims. The draft arrangements, which are yet to be made public, additionally envisage a total change in the methodology, from the existing creditor-in-charge to debtor-in-charge. The promoters of MSME enterprise continue to run the company in lieu of the financial creditors through Resolution Professionals as prescribed under the IBC. The draft framework looks to simplify the claim verification procedure and preparation of information memorandum. The framework likewise tries to exempt the MSMEs from Section 29A of the IBC, which prevents promoters of a company from presenting a resolution plan.
The promoter ought to have the option to inform the resolution professional within a period of 15 days from the initiation of the insolvency procedure if they will present a resolution plan for the revival of the company. The Committee of Creditors (CoC) will be formed. The framework also empowers initiation of the insolvency resolution process on the event of default of at any rate of at least Rs 1 lakh, arising on or after 25th March 2020, independent of the expansion in the threshold of default from Rs 1 lakh to Rs 1 crore and suspension of initiation of CIRP under sections 7, 9 and 10 for defaults during the COVID-19 period.
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