Govt introduces a Bill to amend insolvency law
The government introduced a bill in the Lok Sabha to amend the insolvency law and provide for a pre-packaged resolution process for stressed MSMEs. The proposed amendments would enable the government to notify the threshold of a default not exceeding Rs 1 crore for initiation of pre-packaged resolution process.
- The government has already prescribed the threshold of Rs 10 lakh for this purpose.
- The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 -- which was introduced by Corporate and Finance Minister Nirmala Sitharaman -- will replace the ordinance that was promulgated on 4 April 2021 as part of efforts to provide relief for MSMEs adversely impacted by the pandemic.
- Generally, under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under IBC need to be approved by NCLT.
- As per the Statement of Objects and Reasons of the bill, it seeks to specify a minimum threshold of not more than Rs 1 crore for initiating pre-packaged insolvency resolution process as well as provisions for disposal of simultaneous applications for initiation of insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.
- There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.
- The Code, which came into force in 2016, was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals.