No fresh bankruptcy for 1 year, special insolvency framework for MSMEs

As part of the Atmanirbhar Bharat Abhiyaan, Finance Minister Nirmala Sitharaman delivered the fifth tranche of the economic package on May 17 where she announced slew of measures to enhance Ease of Doing Business through IBC related measures concerning MSMEs.

She announced that the insolvency proceedings will not be initiated up to 1 year. Currently MCA has extended it to six months.

The government had earlier suspended any fresh admission for six months. Further, the government will also set up a special insolvency framework for MSMEs under Section 240A of the Insolvency of Bankruptcy Code. Section 240A of IBC applies to micro, small and medium enterprises and states that the provisions of clauses (c) and (h) of section 29A shall not apply to the resolution applicant in respect of corporate insolvency resolution process of any micro, small and medium enterprises.

This has been a long pending demand of the industry and economists.

The threshold for insolvency will also be raised to Rs. 1 crore from the current Rs. 1 lakh which will be supportive for the MSME sector.

Further, the debt occurring due to the coronavirus pandemic will not be categorized as “default”, thereby will be insulated from triggering insolvency proceedings. The changes would implemented through promulgation of ordinance subject to a ratification by the Parliament later so that things move quickly, Sitharaman said.