Govt proposes amendments for easier exit, revival of MSMEs
Updated: Nov 17, 2014 04:09:07pm
New Delhi, Nov 17 (KNN) In answer to several demands made by the micro, small and medium enterprises sector, the MSME Ministry is planning to introduce a new chapter in the MSME Act that would address issues such as sickness of MSMEs, non-performing assets and exit policy.
In this regard the MSME Ministry has proposed amendments, calling for comments which will have to be sent within 15 days from the issue of the notification dated October-24.
"The objective of proposed amendment for MSME Act is two-fold - revival and exit of MSMEs. Revival - MSMEs that seek early assistance to tide over difficult financial times and provide a framework where a viable MSME can seek standard as well as customised relief and concession to revive; and Exit - to provide an easier and expeditious exit procedure for the benefit of promoters and guarantors through liquidation and change in management," the MSME Ministry said.
The Ministry has proposed that a separate chapter on Restructuring and Exit of MSME be added to the MSME Act, which mandates a scheme for closure of sick MSMEs.
The changes proposed are in tune with "Body Corporate" as under Companies Act and Limited Liability Partnership (LLP) Act, 2008 with regard to limiting liabilities and improving process for winding up with affordable litigation process/ administrative mechanism, it said.
The Ministry has stated that as of now, there is no legal framework for re-organisation/winding up/exit for small units leading to a huge wastage of human resources (promoters and employees), capital (banks and financial institutions) and physical resources (industrial land and buildings, plant, machinery, etc.).
For starters, the government has recommended the establishment of a Revival and Exit Committee as an adjunct to MSME Facilitation Council; and establishment of Appellate Authority, attached to the National Board of MSME.
“The MSME can file an application voluntarily if accumulated losses of the enterprise equals to half or more of its entire net worth for last financial year and enterprise apprehends failure of its business specifying revival plan or exit through liquidation proceedings,” it said.
Upon filing, an automatic moratorium for a period of 180 days shall operate (extendable to 30 days more at a time till revival plan or liquidation proceedings initiated).
In voluntary liquidation, an enterprise opts for exit through liquidation process after which the business and assets of the enterprise shall be liquidated. In involuntary liquidation, the adjudicating authority may order liquidation through provisional trustee if no revival plan can be formulated or fails.
As far as the liquidation process is concerned, debtors have to make payments to the enterprise within 30 days. In case of delay, debtor or the contributory will have to pay interest as specified in S 16. The provisional trustee will liquidate all movable and immovable assets of the enterprise by conducting sale by way of public auction or by private sale. Distribution of profits will be done as under S 529 of Companies Act.
With regard to appeals and discharge, the first appeal by an aggrieved enterprise/creditor should be presented before appellate authority within 30 days; while the second appeal against appellate authority's order would lie before the Supreme Court of India.
Further, a certificate of discharge will be given to the entrepreneur and /or guarantor subsequent to implementation of Revival Plan or liquidation.
Significantly, “the MSME facing insolvency/bankruptcy should be provided legal opportunities to revive its unit. This could be by way of re-organisation and rehabilitation scheme with comfort to creditors and a mechanism for interim suspension of enforcement rights," the MSME Ministry said.
According to official data, the salient features of the proposed Exit Policy are: exit mechanism would ensure that compensation would be covered by either an insurance policy or by a sinking fund; premium for sinking fund would be recovered from the intending units upfront while allotment of lands in NIMZs; and the sinking fund will be replenished constantly, as per official data.
Further, compensation for workers will be 20 days per year of service. There is also a provision for asset redeployment procedure for sick industries. However, there is no capital gain tax in case asset in redeployed by the entrepreneur for a new unit within 3 years’ time. (KNN/ES)
In this regard the MSME Ministry has proposed amendments, calling for comments which will have to be sent within 15 days from the issue of the notification dated October-24.
"The objective of proposed amendment for MSME Act is two-fold - revival and exit of MSMEs. Revival - MSMEs that seek early assistance to tide over difficult financial times and provide a framework where a viable MSME can seek standard as well as customised relief and concession to revive; and Exit - to provide an easier and expeditious exit procedure for the benefit of promoters and guarantors through liquidation and change in management," the MSME Ministry said.
The Ministry has proposed that a separate chapter on Restructuring and Exit of MSME be added to the MSME Act, which mandates a scheme for closure of sick MSMEs.
The changes proposed are in tune with "Body Corporate" as under Companies Act and Limited Liability Partnership (LLP) Act, 2008 with regard to limiting liabilities and improving process for winding up with affordable litigation process/ administrative mechanism, it said.
The Ministry has stated that as of now, there is no legal framework for re-organisation/winding up/exit for small units leading to a huge wastage of human resources (promoters and employees), capital (banks and financial institutions) and physical resources (industrial land and buildings, plant, machinery, etc.).
For starters, the government has recommended the establishment of a Revival and Exit Committee as an adjunct to MSME Facilitation Council; and establishment of Appellate Authority, attached to the National Board of MSME.
“The MSME can file an application voluntarily if accumulated losses of the enterprise equals to half or more of its entire net worth for last financial year and enterprise apprehends failure of its business specifying revival plan or exit through liquidation proceedings,” it said.
Upon filing, an automatic moratorium for a period of 180 days shall operate (extendable to 30 days more at a time till revival plan or liquidation proceedings initiated).
In voluntary liquidation, an enterprise opts for exit through liquidation process after which the business and assets of the enterprise shall be liquidated. In involuntary liquidation, the adjudicating authority may order liquidation through provisional trustee if no revival plan can be formulated or fails.
As far as the liquidation process is concerned, debtors have to make payments to the enterprise within 30 days. In case of delay, debtor or the contributory will have to pay interest as specified in S 16. The provisional trustee will liquidate all movable and immovable assets of the enterprise by conducting sale by way of public auction or by private sale. Distribution of profits will be done as under S 529 of Companies Act.
With regard to appeals and discharge, the first appeal by an aggrieved enterprise/creditor should be presented before appellate authority within 30 days; while the second appeal against appellate authority's order would lie before the Supreme Court of India.
Further, a certificate of discharge will be given to the entrepreneur and /or guarantor subsequent to implementation of Revival Plan or liquidation.
Significantly, “the MSME facing insolvency/bankruptcy should be provided legal opportunities to revive its unit. This could be by way of re-organisation and rehabilitation scheme with comfort to creditors and a mechanism for interim suspension of enforcement rights," the MSME Ministry said.
According to official data, the salient features of the proposed Exit Policy are: exit mechanism would ensure that compensation would be covered by either an insurance policy or by a sinking fund; premium for sinking fund would be recovered from the intending units upfront while allotment of lands in NIMZs; and the sinking fund will be replenished constantly, as per official data.
Further, compensation for workers will be 20 days per year of service. There is also a provision for asset redeployment procedure for sick industries. However, there is no capital gain tax in case asset in redeployed by the entrepreneur for a new unit within 3 years’ time. (KNN/ES)
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