MSMEs not keen on proposed amendments to Insolvency and Bankruptcy Code

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MSMEs not keen on proposed amendments to Insolvency and Bankruptcy Code

Industry experts said the changes in the threshold limit for applications may lead to large companies delaying the bills of small firms

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A cross-section of representatives of micro, small and medium enterprises (MSMEs) are not enthused by the proposed amendments related to the insolvency and bankruptcy code, as a part of ‘Atmanirbhar Bharat Abhiyan’ package.

Finance minister Nirmala Sitharaman on Sunday said that the government has decided to increase the minimum threshold for applications under the Insolvency and Bankruptcy Code (IBC) to ₹1 crore, from ₹1 lakh earlier.

“We are afraid that the changes will put the industry in deep trouble due to the revision in the threshold limit. The receivables in general are less than 1 crore to individual small units,” said S. Vasudevan, joint secretary, Tamil Nadu Small and Tiny Industries’ Association. The amendment will give license to large companies to delay the bills of small companies whose supply values are less than 1 crore, he said.

“We strongly suggest revoking the amendment and retaining the threshold limit at ₹1 lakh so that the delays of MSMEs are addressed legally,” Mr. Vasudevan said.

K.E. Raghunathan, former national president, All India Manufacturers’ Organisation, said the move would not help MSME, whose dues from bigger companies are less than ₹ 1 crore. He said the government should have brought an alternative mechanism before enhancing the threshold.

However, K. Vaitheeswaran, advocate and tax consultant said the increase in threshold will help MSMEs who are hit by the lockdown, as it would also prevent banks and others from initiating insolvency action against them.

The Finance Minister had also said that for MSMEs, a special insolvency framework will be notified under section 240-A of IBC.

No fresh insolvency will be initiated for one year under the Insolvency and Bankruptcy Code. Also, coronavirus-related debt will be excluded from definition of default, she had said while announcing the last tranche of the stimulus package.

Source- The Hindu.