Interim report of Vishwanathan Committee on bankruptcy; MSMEs disappointed
Updated: Feb 11, 2015 05:23:54pm
New Delhi Feb 11 (KNN) The Bankruptcy Law Reform Committee (BLRC), set up by the Department of Economic Affairs, Ministry of Finance, under the Chairmanship of Mr T K Vishwanathan, has proposed setting up Committees for distressed Micro, Small and Medium Enterprises (MSMEs).
The insolvency bankruptcy regime in India is conspicuous by its absence. The only central corporate rescue law in force is the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) which is but dysfunctional. However, that does not cover MSMEs. This too is largely seen as a debt recovery tool and not an insolvency resolution tool for it does not facilitate rescue in practice. And, the Chapter XIX of the new Companies Act 2013 which provides for a broader and more balanced corporate rescue procedure, applicable to all companies, has not been notified for commencement.
The administrative mechanism suggested by BLRC to resolve financial distress of viable MSMEs and termed as ‘Committees for Distressed Micro, Small and Medium Enterprises’ are proposed to be set up by the banks.
Any eligible MSMEs under financial distress or a concerned bank will be able to initiate proceedings before such Committees for the formulation of a ‘Corrective Action Plan’ to arrive at a feasible solution within the RBI guidelines. The above mechanism can be given statutory status by introducing an amendment to the Micro Small and Medium Enterprises Development Act, 2006.
MSMEs, however, are not impressed. “Sickness among MSMEs is rampant but the Committee has failed to propose a mechanism suitable for MSMEs. It is trying to resolve the issue from the sole perspective of restructuring of bank loans whereas the problem is of resolving the recovery proceedings of statutory dues during restructuring”, according to sources from Federation of Indian Micro and Small and Medium Enterprises (FISME).
If an MSME is "sick", even if its commercial creditors wish to restructure loans, the rehabilitation process is often undermined by the uncoordinated exercise by state and central institutions of statutory claims, resulting loss of value and potential harm to multiple stakeholders.
FISME highlighted the lack of mechanism of a mandatory stay during restructuring which is critical for exercise to reach at a logical end. With over 97% of MSMEs being proprietorships or partnership firms and involvement of personal guarantees make the restructuring exercise
According to FISME the number of sick MSMEs stands 2, 49,903 on March, 2013 locking resources worth billions in bank loans, land and machinery. The enormity of the ordeal is much larger as the RBI data captures only the units financed by banks which are less than 6% of MSMEs. Bulk of the resources locked in long legal battles could be quickly freed-up and redeployed in the economy if there is a mechanism for revival or closure of such units. (KNN/AB)
The insolvency bankruptcy regime in India is conspicuous by its absence. The only central corporate rescue law in force is the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) which is but dysfunctional. However, that does not cover MSMEs. This too is largely seen as a debt recovery tool and not an insolvency resolution tool for it does not facilitate rescue in practice. And, the Chapter XIX of the new Companies Act 2013 which provides for a broader and more balanced corporate rescue procedure, applicable to all companies, has not been notified for commencement.
The administrative mechanism suggested by BLRC to resolve financial distress of viable MSMEs and termed as ‘Committees for Distressed Micro, Small and Medium Enterprises’ are proposed to be set up by the banks.
Any eligible MSMEs under financial distress or a concerned bank will be able to initiate proceedings before such Committees for the formulation of a ‘Corrective Action Plan’ to arrive at a feasible solution within the RBI guidelines. The above mechanism can be given statutory status by introducing an amendment to the Micro Small and Medium Enterprises Development Act, 2006.
MSMEs, however, are not impressed. “Sickness among MSMEs is rampant but the Committee has failed to propose a mechanism suitable for MSMEs. It is trying to resolve the issue from the sole perspective of restructuring of bank loans whereas the problem is of resolving the recovery proceedings of statutory dues during restructuring”, according to sources from Federation of Indian Micro and Small and Medium Enterprises (FISME).
If an MSME is "sick", even if its commercial creditors wish to restructure loans, the rehabilitation process is often undermined by the uncoordinated exercise by state and central institutions of statutory claims, resulting loss of value and potential harm to multiple stakeholders.
FISME highlighted the lack of mechanism of a mandatory stay during restructuring which is critical for exercise to reach at a logical end. With over 97% of MSMEs being proprietorships or partnership firms and involvement of personal guarantees make the restructuring exercise
According to FISME the number of sick MSMEs stands 2, 49,903 on March, 2013 locking resources worth billions in bank loans, land and machinery. The enormity of the ordeal is much larger as the RBI data captures only the units financed by banks which are less than 6% of MSMEs. Bulk of the resources locked in long legal battles could be quickly freed-up and redeployed in the economy if there is a mechanism for revival or closure of such units. (KNN/AB)
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