Pre-packaged scheme, special rules for MSMEs in amendments to IBC

Changes likely to be tabled in Winter Session of Parliament

The insolvency law committee and a group of ministers are considering various amendments to the four-year-old Insolvency and Bankruptcy Code (IBC), some of which are likely to be introduced in the upcoming Winter Session of Parliament, a senior government official told Business Standard.

The issues being taken up on priority by the committee, set up by the Ministry of Corporate Affairs (MCA), include introducing a pre-packaged scheme for corporate insolvencies, a special framework for micro, small and medium enterprises (MSMEs), and steps to reduce the delay in admission and disposal of cases. 

“Amendments are always need-based and matters of urgent nature will have to be dealt with. Issues are being thrashed out by the committee which will make its recommendations soon... It is an evolving law,” the official said.

The committee is evaluating suggestions received from industry associations and the Insolvency and Bankruptcy Board of India (IBBI), according to the official.

Various sub-committees have also been set up by the MCA to look into framing rules to make the insolvency process of MSMEs smooth, and flesh out finer details of the pre-packaged scheme.

Both the schemes have been finalised by the IBBI. The pre-packaged schemes —  popular in the United States and the United Kingdom — involve an agreement by the stressed company and its creditors with a buyer before initiating insolvency proceedings.

The special insolvency framework for MSMEs is likely to allow the insolvent debtor to retain possession of the company till a resolution is reached. All important decisions, however, will have to be finalised by the committee of creditors.

The MCA is likely to introduce some of these amendments in the Winter Session, in December. “We still have some time to frame the policy to address the most pressing issues,” the senior official added. He also said some of the issues can be dealt with by taking administrative steps such as setting up of more benches of the National Company Law Tribunal (NCLT), while some would require amendment to the IBC law. 

The committee is also deliberating on the likely scenarios after the suspension of provisions related to initiating corporate insolvency is over. Currently the law cannot be invoked by lenders, with the suspension coming to an end in December. It can, however, be extended till March.

“We are keeping a close watch on the situation and the decision regarding further extension will be taken closer to the date,” the senior official said. 

Some of the suggestions being made to the committee include allowing a stressed company to resolve parts which can continue to operate and liquidate parts where no value can be recovered. Several industry members have also asked the government to increase the period of moratorium which currently gets over right after a plan is approved by the NCLT. 

One of the proposals to avoid frivolous litigations such as those filed by disgruntled promoters or operational creditors is to increase the fee for filing an application in the NCLT. 

The last amendment to the IBC was done through an Ordinance in June this year to suspend sections 7, 9 and of the Code that allow lenders, operational creditors and promoters to trigger insolvency against a company.