IBBI: “Special Insolvency Resolution Framework for MSMEs”

On July 26, 2020, the Insolvency and Bankruptcy Board of India Chief M S Sahoo announced that a special resolution framework for MSMEs is being prepared.

Highlights

The Government of India has already suspended several provisions of Insolvency and Bankruptcy Code (IBC) to tackle COVID-19 crisis. It includes exemption of COVID-19 related debts. The GoI also passed the IBC (Amendment) Ordinance, 2020 to prevent companies from being pushed into insolvency. The Sections 7, 9, and 10 of the IBC were suspended.

The Insolvency Bankruptcy Code provides a time bound process to resolve insolvency.

What is the issue?

With the IBC being diluted by GoI, the number of Non-Performing Assets are to increase in the country. RBI is raising concerns about Government’s actions on diluting IBC. According to RBI, the IBC that is supposed to speed up the resolution and is now slowing it down. This will mainly have adverse impacts on MSMEs. According to the Financial Stability Report (FSR) recently released by RBI, the NPAs could rise to 14.7% by March 2021 from 8.5% in March 2020. The FSR is released by RBI twice a year, once in June or July and the next time in December.

Therefore, GoI is to come up with Special Insolvency Resolution Framework for MSMEs.

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