Pre-pack plan for insolvency to be tested with MSMEs

NEW DELHI: As the government readies to roll out pre-packaged insolvency solutions for micro, small and medium enterprises (MSMEs), it has suddenly discovered that the plan could be held up in procedural issues.
The ministry of corporate affairs (MCA) - which has already held detailed consultations with stakeholders, including the Insolvency & Bankruptcy Board of India (IBBI) - is looking at ways to implement the decision to have a special window for MSMEs, given that the law requires the government to first place the notification in Parliament for 30 days.

With Parliament session still a few weeks away, various options are being considered as finance minister Nirmala Sitharaman announced the move two months ago, sources told TOI.

The ministry is, however, keen that the concept of pre-packaged insolvency could be tested out with MSMEs. Under a pre-packaged insolvency plan, debtors and creditors agree upon the restructuring plan in advance, helping speed up the process.

In case of MSMEs, as reported first by on June 17, the government is looking at a system where founders or promoters get the first chance to prepare the resolution plan. If the proposal is acceptable to lenders, it will then be approved by NCLT.

Sources said IBBI has also begun consultations on pre-packaged plans for larger entities, an issue on which the consultation process had started a few months ago. The regulator is expected to be ready with the final solution in over a month, sources said.