An amendment to the Insolvency and Bankruptcy
Code ("IBC") recently received the
President's assent. It replaces an ordinance promulgated
earlier this year, and provides for a pre-packaged insolvency
resolution process ("PIRP") for micro,
small and medium enterprises ("MSMEs").
This comes in the backdrop of the financial stress caused by
Covid-19 to MSMEs, and envisages a hybrid mechanism of negotiated
debt restructuring, which, upon approval of the National Company
Law Tribunal ("NCLT"), becomes binding
on all stakeholders.
MSMEs account for about 30 per cent of the gross domestic
product, employ over 110 million Indians, and are key to economic
growth. A huge chunk of them are unregistered and don't
(especially in the micro-sector) have formal corporate structures;
they raise debt funding on the strength of the personal assets of
their founders and are dependent on the management skills of their
founders.
