IBC Amendment Bill Passed In Lok Sabha To Allow Pre-Packaged Insolvency Process For MSMEs

The Lok Sabha on Wednesday passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2021. It was introduced in the house on Monday, July 26 and passed without any discussion due to disruptions caused by opposition protests.

As per the Government, the Covid-19 pandemic has taken a hit on the businesses, especially micro, small or medium enterprises (MSME sector) which is critical to the economy considering their significant contribution to the GDP and employment generation. Thus, the bill proposes pre-packaged insolvency resolution process for corporate debtors under the MSME Development Act, 2006. This, the Government says, will ensure "quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs".

The Bill will replace the IBC Amendment Ordinance promulgated by the President on April 4, 2021. It provides for—

(a) specifying a minimum threshold of not more than one crore rupees for initiating pre-packaged insolvency resolution process;

(b) disposal of simultaneous applications for initiation of corporate insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor;

(c) inserting a new Chapter III-A containing sections 54A to 54P to facilitate pre-packaged insolvency resolution process for corporate persons that are MSMEs;

(d) penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons;

(e) penalty for fraudulent management of corporate debtor during pre-packaged insolvency resolution process; and

(f) punishment for offences related to pre-packaged insolvency resolution process.

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