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Pre-pack insolvency for MSMEs now a reality
April 05, 2021
Centre issues Ordinance; debt default threshold to be notified The Centre has taken the Ordinance route to introduce pre-packaged insolvency resolution process (pre-pack) for companies classified as micro, small and medium enterprises (MSMEs).
India has 6-7 lakh companies that are classified as MSMEs, which could potentially benefit from the newly-introduced pre-packaged insolvency framework.
A pre-packaged insolvency in the Indian framework context is an arrangement where the resolution of a company’s business is negotiated with a buyer before the appointment of an insolvency professional. It is a blend of informal and formal mechanisms, with the informal process stretching up to NCLT admission, followed by an existing NCLT supervised process for resolution, as specified under the Insolvency and Bankruptcy Code (IBC).
Seeking to provide a quicker and value-maximising outcome for stressed MSMEs, the government has introduced a pre-packaged resolution process for such enterprises by amending the insolvency law. Now, Micro, Small and Medium Enterprises (MSMEs) can seek resolution for their stress through the pre-packaged process under the Insolvency and Bankruptcy Code (IBC). An ordinance was promulgated to amend the IBC on April 4. Many MSMEs have been impacted by the coronavirus pandemic and experts opined that the latest amendment, which comes less than two weeks after the suspension of certain IBC provisions ended, is a welcome move. The suspension wherein fresh insolvency proceedings were not allowed for a year starting from March 25, 2020 was implemented amid the coronavirus pandemic disrupting economic activities.
In a move that will safeguard real estate companies from frivolous litigation, the Supreme Court (SC) has upheld the constitutional validity of the Insolvency and Bankruptcy Code (IBC) amendment that requires at least 100 allottees, or 10 per cent of creditors, to invoke an insolvency petition against a company. A Bench of Justices R F Nariman, Navin Sinha, and K M Joseph said in its 465-page order that insisting on a threshold with regard to these categories of creditors would lead to a halt in indiscriminate litigation which could result in uncontrollable docket explosion as far as the authorities who work with the Code are concerned.
SC upholds 100-homebuyer threshold for insolvency application against realtors
The threshold is the requirement that there should be at least 100 allottees or 10 per cent of the total allottees, whichever is less, to support an insolvency application against a real estate project
Dipak Mondal | January 19, 2021 | Updated 23:35 IST
The Supreme Court has dismissed the homebuyers plea against the threshold introduced in the Insolvency and Bankruptcy Code (IBC) for them to file insolvency application against a real estate company.
The threshold is the requirement that there should be at least 100 allottees or 10 per cent of the total allottees, whichever is less, to support an insolvency application against a real estate project.