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MSMEs can initiate bankruptcy resolution with 15,000 fee

The fee for MSMEs to file for pre-pack resolution scheme has been kept lower than the  ₹25,000 applicable under the general bankruptcy code provisions.. Photo: ReutersPremium
The fee for MSMEs to file for pre-pack resolution scheme has been kept lower than the 25,000 applicable under the general bankruptcy code provisions.. Photo: Reuters

  • The corporate affairs ministry has brought out the finer details of the procedure to be followed by small businesses while moving a tribunal with a turnaround plan backed by shareholders and creditors

Small businesses that are on the verge of collapse can initiate the new bankruptcy resolution scheme by paying a fee of 15,000, as per rules notified by the government under the ‘pre-pack’ resolution scheme.

The fee for MSMEs to file for pre-pack resolution scheme has been kept lower than the 25,000 applicable under the general bankruptcy code provisions.

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The corporate affairs ministry has brought out the finer details of the procedure to be followed by small businesses while moving a tribunal with a turnaround plan backed by shareholders and creditors. The paperwork required at the time of filing, which involves 16 annexures along with the application, suggests the groundwork done should be extensive so that no time is lost at the tribunal.

With the rules on the finer aspects of the pre-pack scheme and the forms to be used notified, the scheme is fully operational now.

Under the scheme, lenders have extensive oversight but the business in distress enjoys moratorium from all recovery proceedings and remains in control of the operations so that there is no disruption to business and employment.

“It is informal up to a point and formal thereafter. It blends debtor-in possession with creditor-in-control. It is neither a fully private nor a fully public process - it allows the company, if eligible under section 29A (which disqualifies wilful defaulters), to submit the base resolution plan which is exposed to swiss challenge for value maximisation," Insolvency and Bankruptcy Board of India (IBBI) chairman M S Sahoo said in a quarterly newsletter of the regulatory body. The pre-pack scheme safeguards the rights of stakeholders and has adequate checks and balances to prevent any potential misuse, Sahoo said.

The scheme offers a quick turnaround opportunity without business disruption to micro, small and medium enterprises. Almost 60% of the over 13 lakh active companies in the country will be eligible to make use of the scheme. It, however, is not applicable to businesses which are unincorporated.

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