Centre introduces bill to amend insolvency law in Lok Sabha

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Union Minister Nirmala Sitharaman introduced a bill in Lok Sabha to amend the insolvency law and bring a pre-packaged resolution process for stressed MSMEs. Amendments would enable the government to notify the threshold of a default not exceeding ₹1 crore for initiation of pre-packaged resolution process. The Centre has already prescribed a threshold of ₹10 lakh for it.


The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 — which was introduced by Corporate and Finance Minister Nirmala Sitharaman — will replace the ordinance that was promulgated on April 4 as part of efforts to provide relief for MSMEs adversely impacted by the pandemic.


The bill, which was introduced in the Lower House amid Opposition din over various issues, seeks to have a new chapter in the Code to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises (MSMEs).


Generally, under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under IBC need to be approved by NCLT.


As per the Statement of Objects and Reasons of the bill, it seeks to specify a minimum threshold of not more than Rs 1 crore for initiating pre-packaged insolvency resolution process as well as provisions for disposal of simultaneous applications for initiation of insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.


There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process. Further, punishment would be meted out for offences related to pre-packaged insolvency resolution process.

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