Parul
As per news reports, the centre is likely to roll out a special scheme for salvaging bankrupt micro, small and medium enterprises (MSMEs). The ministry of corporate affairs is finalising a special insolvency resolution under the Insolvency and Bankruptcy Code ‘to provide relief to MSMEs and the same would be notified soon,’ said the official statement.
The scheme, to be notified under Section 240A of the Code, will specify a modified version of the bankruptcy scheme for small business. The section empowers the government to customise the requirements of bankruptcy resolution for small businesses.
One major exemption to SMEs will be from Section 29A of the Code, which says that major shareholders of companies in default cannot participate in the resolution scheme unless the default is rectified.
In the case of small businesses, there may not be much interest from other investors to take charge of the company and excluding the promoter from resolution may not be a good idea.
Meanwhile, in the month of June, the government had suspended operation of the Code for at least six months so that businesses will not be dragged into tribunals by lenders for defaults made after 25 March, when India entered into a stringent national lockdown.
In fact, as part of regulatory relief to businesses struggling with the impact of the pandemic, the central government has extended due dates under various laws including the Income Tax Act and the Companies Act.
