Govt to define SMEs differently under new insolvency code

The government is planning to treat small and medium enterprises (SMEs) differently under the newly amended insolvency act, by tweaking […]

   

The government is planning to treat small and medium enterprises (SMEs) differently under the newly amended insolvency act, by tweaking the current definition applicable to such business units facing insolvency, said a corporate ministry official, said a corporate ministry official recently. “We plan to take into account the profit after tax and the turnover to categorise a company as an SME in order to exempt it from the recent ordinance on insolvency,” an official in the ministry of corporate affairs is quoted as saying by Business Standard. According to the current definition, a manufacturing firm, with investment in its plant and machinery within the range of Rs 25 lakh to Rs 5 crore, is defined as a small enterprise. In the services sector, a firm falls in this category if its investment in equipment is between Rs 10 lakh and Rs 2 crore. For medium enterprises, the investment limits are Rs 5 crore to Rs 10 crore for manufacturing units and Rs 2 crore to Rs 5 crore for service providers. The government had recently passed an ordinance amending the insolvency and bankruptcy code. Under the new norms, promoters of insolvent companies are debarred from bidding for their stressed assets. The plan to change the definition of SMEs is driven by the consideration that these enterprises are usually promoter-driven and if they face insolvency proceedings their promoters should get an opportunity to bid for their stressed assets.

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