Insolvency scheme: Govt, regulator finalising pre-pack framework, MSME scheme

By FE Bureau6 days ago

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The government and the regulator are in the process of finalising a so-called pre-pack insolvency scheme, while a special framework for micro, small and medium enterprises (MSMEs) is almost ready

Under both the pre-pack scheme and the framework for MSMEs, the time limit for the resolution will also be drastically reduced.

The government and the regulator are in the process of finalising a so-called pre-pack insolvency scheme, while a special framework for micro, small and medium enterprises (MSMEs) is almost ready, sources told FE.

As authorities brace for a potential rise in bad loan cases with the lifting of a suspension of insolvency proceedings against Covid-related defaults on March 25, the schemes are being tailored to incentivise early identification of stress, facilitate fast resolution and reduce costs and litigation.

Work is on. Stakeholders comments on pre-pack insolvency scheme have been obtained. Both the schemes could be notified soon, a source said. The Insolvency and Bankruptcy Code (IBC) needs to be amended for the pre-pack scheme.

Under the special framework for MSMEs, only the debtors could be allowed to trigger their own bankruptcy process, albeit with the approval of unrelated financial creditors who account for at least 25% of outstanding claims. Creditors can still trigger insolvency proceedings against MSMEs, but only through the usual corporate insolvency resolution process (CIRP) under extant rules.

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