Budget 2020: Amend IBBI rules for payment of dues during insolvency process, MSMEs tell FM Sitharaman

By The editor On Jan 6, 2020

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Union Budget 2020 India | Credit and Finance for MSMEs: The MSME sector, in a presentation on budget expectations to the Finance Minister Nirmala Sitharaman recently, has sought amendment in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The suggestion by the MSME body FISME has been made in the backdrop of the Corporate Insolvency Resolution Process (CIRP). The recovery process said FISME, under the Insolvency and Bankruptcy Code (IBC) is “extremely one-sided,” as MSMEs are classified as operational creditors and currently gets nothing in the event of their buyers undergoing CIRP. “This is against the letter and spirit of MSMED Act which guarantees the recovery of the dues along with interest.”

The amendment proposed, hence, would include the payments due to small businesses from corporate debtors before and during the CIRP within the ambit of ‘insolvency resolution process costs’ as provided for under section 5 (13) of IBC read with regulation 31 of the IBBI regulations. 25,000 MSMEs have already been affected while 75,000 more are getting affected due to the current process, as per FISME’s assessment.

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The body said that if the amendment is made to the regulation, the recoveries of the financial creditors won’t be affected since the MSME dues will then be treated as part of the insolvency process cost. Also, it will ensure substantial recoveries of dues for micro and small enterprises.

FISME also suggested setting up a committee by the Ministry of Corporate Affairs/IBBA for making rules for partnership or proprietorship firms — 97 per cent of which are MSMEs. This is because the current rules in IBC 2016 are only for body corporates and companies, FISME added. Hence, even if MSMEs are registered as Companies, due to the involvement of their personal guarantees, the current IBC regulations fail to offer any relief.

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