The Rajya Sabha passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2021. The Lok Sabha had passed the Bill on July 28.

The Bill will replace the IBC Amendment Ordinance, 2021 promulgated in April which introduced pre-packs as an insolvency resolution mechanism for micro, small and medium enterprises (MSMEs) with defaults up to Rs 1 crore.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 provides for a pre-packaged insolvency resolution mechanism for MSMEs.

Why the govt brings in amendments?

• The Insolvency and Bankruptcy Code, 2016, was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, individuals and to achieve the desired objectives under it. 

• The Code has been amended in the past to deal with the emerging market realities and to achieve certainty to the various processes under the law.

• COVID-19 pandemic has impacted businesses, financial markets and economies all over the world, including India. 

• The government has been taking several measures to mitigate the distress caused by the pandemic, by increasing the minimum amount of default to one crore rupees for initiation of corporate insolvency resolution process and suspension of filing of corporate insolvency resolution applications in respect of the defaults arising during the period of one year between March 25, 2020 and March 24, 2021. 

• The MSME sector is critical to the economy considering their significant contribution to our gross domestic product and generation of employment to a sizeable population. 

• It has, therefore, been considered necessary to urgently address the specific requirements of the sector by providing an efficient and alternative framework under the Code for quicker, cost-effective insolvency resolution process that is least disruptive to the businesses, ensuring, among other objectives, job preservation.

What are the highlights of amendment Bill?

• The proposed amendments will enable the government to notify the threshold of a default not exceeding Rs 1 crore for initiation of the pre-packaged resolution process. The government has already prescribed the threshold of Rs 10 lakh for this purpose.

• It has provisions for disposal of simultaneous applications for initiation of the insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor.

• The Bill proposes a new chapter in the IB Code to facilitate the pre-packaged insolvency resolution process for corporate persons that are MSMEs.

• There would be a penalty for fraudulent or malicious initiation of the pre-packaged insolvency resolution process, or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.

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