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NEW DELHI : The government is working on a special resolution plan to rescue bankrupt micro, small and medium enterprises (MSMEs), an official statement said. The corporate affairs ministry is finalizing the plan under the Insolvency and Bankruptcy Code (IBC), and it will be notified soon, said the statement, which was issued after finance and corporate affairs minister Nirmala Sitharaman reviewed measures to support the pandemic-hit economy.

The scheme, to be notified under section 240A of the IBC, will specify a modified version of the bankruptcy scheme for small businesses. This section empowers the government to customize the requirements of bankruptcy resolution for MSMEs. One major exemption to SMEs will be from section 29A of the code, which says that major shareholders of companies in default cannot participate in the resolution scheme unless the default is rectified. For small businesses, there may not be much interest from other investors to take charge of a company, and excluding the promoter from resolution may not be a good idea.

In June, the Centre had suspended operation of the code for at least six months so that businesses are not dragged to tribunals by lenders for defaults made after 25 March, when India entered a stringent nationwide lockdown. As part of the regulatory relief to businesses struggling with the impact of the pandemic, the government has extended due dates under various laws, including the Income Tax Act and the Companies Act.

On the 30,000 crore special liquidity scheme for non-banking financial companies (NBFCs) and housing finance companies (HFCs), investment bank and project adviser SBICAP has received 24 applications for 9,875 crore within a week of launch on 1 July, the ministry said. The first application has received approval while the rest are being considered. The scheme was announced as a part of the Atmanirbhar Bharat package.

In May, Sitharaman had announced several measures to support the poor, farmers and small businesses hit by the coronavirus-induced lockdown.

shreya.n@livemint.com

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