oppn parties Pre-Pack Scheme For MSMEs: Excellent Move

News Snippets

  • Kapil Sibal leaves Congress, fills nomination for Rajya Sabha with SPs backing
  • RBI bans 5 NBFCs as it cracks down on e-lending platforms
  • Hindustan Motors to tie-up with Peugeot to bring out a redesigned version of the iconic Ambassador
  • GST Council to defer rate rejig due to inflation
  • Centre to sell 29.5% in Hindustan Zinc at an expected price of Rs 38000cr
  • Stocks remain negative on Wednesday: Sensex loses 303 points to 53749 and Nifty 99 to 16025
  • IPL: RCB beat LSG by 14 runs and end their dream run. Rajat Patidar scores a brilliant 112. RCB will take on RR to decide who goes through to the finals
  • Delhi Additional district judge Nikhil Chopra says there is no legal right for people seeking to worship deity inside Qutab Minar, says it survived 800 years without worship so "let it survive like that"
  • Punjab chief minister Bhagwant Mann sacks state health minister Vijay Singla over corruption charges. Singla was later arrested by the ACB
  • Protestors burn the house of Andhra minister P Viswaroop and MLA Satish Kumar over renaming of Konaseema district as B R Amberdkar Konaseema
  • Gyanvapi: Varanasi district judge decides to first hear the 'maintainability' plea filed by mosque management
  • Delhivery and Venus Pipes shares list at premium of 10% and 8.7% respectively even when market sentiment was down
  • In a bid to cool edible oil prices, Centre allows duty-free imports of 20 lakh tonnes each of crude sunflower oil and crude palm oil per annum this year and next
  • Centre caps sugar exports to ensure availability of stocks in the domestic markets to cool prices
  • Stock markets get the jitters as RBI signals rate hike and government moves in to control inflation: Sensex tumbles by 236 points to 54052 and Nifty goes down by 89 points to 16125
Yasin Malik of JKLF gets two life terms in terror funding case /////// Kashmir TV artist killed and her nephew injured in a terror attack in Hushroo in Budgam district
oppn parties
Pre-Pack Scheme For MSMEs: Excellent Move

By Linus Garg
First publised on 2021-04-09 11:05:06

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

The government has done well to introduce a pre-pack resolution scheme for stressed micro, small and medium enterprises (MSME) with defaults up to Rs 1 crore. Under this scheme, even before the company goes into liquidation under the IBC, the existing management can propose a resolution plan to the creditors, keeping the operational creditors fully secured. If 66% of the creditors approve the plan, they can approach the NCLT for final approval. The whole process has to be completed in 120 days.

During this time, the company will continue to be run by the existing management. This will ease the resolution process and will initially make it comparatively litigation-free as promoters will not create stumbling blocks in the process. But if 66% of the creditors wish, they can press for a Resolution Professional (RP) to run the management even during the process after getting permission from court. The RP can invite competing bids under some circumstances, the main being if the claims of the operational creditors are not proposed to be settled in full. Once 66% of the creditors approve the plan submitted by the debtor, they can apply for approval by the NCLT. Any proposal submitted by the debtors with the intention to defraud will attract penalty.

This is a good move as it will ease the process for MSMEs. There will be less litigation and the NCLT will also not be burdened too much. The timeline allowed is also faster compared to the 330 (revised from 270 days) days in the IBC. If the main motive of the IBC is to work for faster redeployment of stressed assets then this is an excellent way to go about it. If existing promoters are allowed to restructure the company without losing control and if they can find the capital to do so, they must be given a chance. Depending upon the success of the scheme, it can later be extended for bigger defaulters.