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.

What

  1. The government has already prescribed the threshold of Rs 10 lakh for this purpose.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.