Different treatment likely for SMEs facing insolvency

NEW DELHI: Government may consider giving different treatment to small and medium enterprises (SMEs) under the Insolvency and Bankruptcy Code (IBC) since they usually have limited number of buyers and rely largely on promoters for a resolution.

“It is my view that we have to consider the case of SMEs objectively since they form the backbone of the country and create huge employment,” PP Chaudhary, minister of state for corporate affairs and law & justice, told ET.

A recent ordinance has amended IBC barring promoters from presenting a resolution plan for companies facing insolvency. This has put SMEs at a disadvantage by limiting their resolution options and forcing them to liquidate. “If they (SMEs) face a problem, then the government can seriously consider their case,” Chaudhary said.

According to industry experts, cases of nearly 300 small and medium companies have been admitted by the National Company Law Tribunal and their resolution process has been started.



On November 23, government promulgated an ordinance to tighten the Insolvency and Bankruptcy Code barring wilful defaulters, those with non-performing loans of over one year, undischarged insolvents and disqualified directors from bidding for their own companies in the resolution process.

‘IBC FOR VALUE MAXIMISATION’
Chaudhary said the government’s decision to promulgate the ordinance was justified as it prevented unscrupulous people from taking advantage of the corporate structure.

“The code ensures maximisation of value of assets of a corporate debtor… It was considered necessary to prohibit certain persons from submitting a resolution plan who may adversely impact the credibility of the processes under the code,” the minister said.

As many as 400 companies have been referred to the National Company Law Tribunal (NCLT) for resolution.

‘BALANCING INTEREST OF HOMEBUYERS & BANKS’
The ministry of corporate affairs has also received a letter from the housing and urban affairs ministry to look into the concerns of buyers in the insolvency process, with respect to the ongoing matter involving the Jaypee Group. “We have to strike a balance between the interests of homebuyers and banks…

“A 14-member committee has been appointed to consider various issues including this,” Chaudhary said.

The minister also said that going forward, the reform agenda will prioritise “ease of doing business, create an environment of compliances, transparency and clean the system of suspected companies.”

The Insolvency and Bankruptcy Board of India earlier amended regulations governing the corporate insolvency resolution process to ensure that — as part of due diligence prior to approval of a resolution plan — antecedents, creditworthiness and credibility of a resolution applicant, including promoters, are taken into account by the committee of creditors.