The government expedited the rollout of the pre-packaged insolvency resolution framework for micro, small and medium enterprises (MSMEs) to preserve jobs, said Rajesh Verma, secretary to the corporate affairs ministry.While the ordinance amending the insolvency law covers only corporate MSMEs, they account for over 60% of all active Indian corporates, Verma told ET. “The employment potential of MSMEs is very large, so job preservation is one of the objectives of this prepack framework,” said Verma. “In foreign jurisdictions like the Netherlands, UK and elsewhere, the job preservation aspect of prepack frameworks for small firms has worked very well.” 81980531The government late Sunday promulgated an ordinance to amend the Insolvency & Bankruptcy code to provide for pre-packs for MSMES. A pre-packaged resolution allows a company to prepare a restructuring plan in cooperation with creditors before initiating insolvency proceedings, reducing the time and cost involved in the process. The new framework applies to defaults occurring during the pandemic and is based on the ‘debtor-in-possession’ model with the involvement of a resolution professional only to monitor the process.A corporate debtor (CD) can initiate the process with the approval of 60% of financial creditors and the entire court proceedings from commencement to the approval of the resolution plan will have to be completed in 120 days, as per the ordinance.Most of the insolvency resolution processes such as the consent of creditors and shareholders, list of claims and formulation of the resolution plan would take place before approaching the court, he said. While this would reduce the pressure on the National Company Law Tribunal, the 120-day time limit for court proceedings with the debtor-in-control model would also minimise business disruptions.According to the secretary, the government had to come out with an ordinance as it found an immediate need to provide an alternative insolvency resolution framework with the debtor-in-control model for small firms.

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