Govt proposes norms for easier exits, revival of MSMEs

The government has proposed amendments to the micro, small and medium-enterprises (MSME) Act with the twin objectives of time-bound exit and revival of loss-making units to help them consolidate their businesses and re-deploy capital in other greenfield ventures.

It has invited suggestions related to the proposed changes with a view to formulate a policy in this regard.

"The objective of proposed amendment for MSME Act is two-fold — revival and exit of MSMEs. Revival: MSMEs that seek early assistance to tide over difficult financial times and provide a framework where a viable MSME can seek standard, as well as customised relief and concession to revive. Exit: To provide an easier and expeditious exit procedure for the benefit of promoters and guarantors through liquidation and change in management," the MSME ministry stated.

"It is proposed that a separate chapter on restructuring and exit of MSMEs can be added to the MSME Act, which mandates scheme for closure of sick MSMEs," it added.

The proposed amendments include establishment of revival and exit committee as an adjunct to MSME facilitation council and establishment of appellate authority.

Moreover, the MSME can file an application voluntarily if accumulated losses of the enterprise equals to half or more of its entire net worth for last financial year and enterprise apprehends failure of its business specifying revival plan or exit through liquidation proceedings.

Upon filing, an automatic moratorium for a period of 180 days shall operate (extendable to 30 days more at a time till revival plan or liquidation proceedings initiated).

Besides, on appeals and discharge, the first appeal by an aggrieved enterprise/creditor should be presented before appellate authority within 30 days; whereas the second appeal against appellate authority's order would lie before the Supreme Court.

"The MSME facing insolvency/bankruptcy should be provided legal opportunities to revive its unit. This could be by way of re-organisation and rehabilitation scheme with comfort to creditors and a mechanism for interim suspension of enforcement rights," the MSME Ministry said.

As of now, there is no legal framework for re-organisation/winding up/exit for small units leading to a huge wastage of human resources (promoters and employees), capital (banks & financial institutions) and physical resources (industrial land & buildings, plant, machinery, etc.)

The changes proposed are in tune with "Body Corporate" as under Companies Act and Limited Liability Partnership (LLP) Act, 2008 with regard to limiting liabilities and improving process for winding up with affordable litigation process/ administrative mechanism.