Govt launches bill in Lok Sabha to amend insolvency law

The centre has launched a bill in the Lok Sabha to amend insolvency law and establish a pre-packaged resolution process for stressed MSMEs. The proposed amendments would allow the government to set a default threshold of Rs 1 crore as the starting point for the pre-packaged resolution process. The government has already set a limit of Rs 10 lakh for this purpose. The Insolvency and Bankruptcy Code (Amendment) Bill, 2021, introduced by Corporate and Finance Minister Nirmala Sitharaman, will replace the ordinance that was issued on April 4 to help MSMEs affected by the pandemic. The bill, which was introduced in the Lower House amid a barrage of criticism from the Opposition over a variety of issues, seeks to add a new chapter to the Code to facilitate pre-packaged insolvency resolution for corporate entities that are Micro, Small, and Medium Enterprises (MSMEs). In a pre-packaged process, major stakeholders such as creditors and shareholders work together to find a potential buyer and negotiate a resolution plan before going to the National Company Law Tribunal (NCLT). NCLT must approve all resolution plans under the IBC. There would be a penalty for initiating a pre-packaged insolvency resolution process fraudulently or maliciously with the intent to defraud others, as well as for fraudulent management of the corporate debtor during the process. Offences relating to the pre-packaged insolvency resolution process would also be punished. Furthermore, the government had halted the filing of new corporate insolvency resolution applications for defaults that occurred between March 25, 2020, and 24th March 2021. The Code has also been amended in the past to address emerging market realities. In 2016, the Code was passed to consolidate and amend the laws governing corporate reorganisation and insolvency resolution for corporations, partnerships, and individuals. Image Source Also read: NCLT admits insolvency plea against McNally Sayaji