The discussion paper released by the Insolvency and Bankruptcy Board of India (IBBI) addresses the need for a robust framework for the registration and disclosure of Micro, Small, and Medium Enterprises (MSMEs) under the Corporate Insolvency Resolution Process (CIRP). This is so because the MSMEs play a crucial role in the Indian economy, contributing significantly to employment and GDP. Recognizing their importance, the Insolvency and Bankruptcy Code (IBC) provides special provisions for MSMEs, such as exemptions from certain disqualification criteria and the initiation of pre-packaged insolvency resolution processes.
Currently, Regulation 36 of the Insolvency and Bankruptcy Borad of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) mandates the preparation of an Information Memorandum (IM) but does not necessitate the disclosure of the MSME status of the corporate debtor. This lack of disclosure led to complications and delays in the resolution process. The proposed amendment to Regulation 36 mandates the inclusion of the MSME status of the corporate debtor in the IM, based on the Udyam Registration Certificate, which is an official document certifying the MSME classification. The amendment aims to mitigate information asymmetry by ensuring that prospective resolution applicants are aware of the MSME status of the corporate debtor. The procedure involves the resolution professional verifying the MSME status through available documents and, if necessary, obtaining the Udyam Registration Certificate before disclosing the MSME classification in the IM.
The proposed amendment is expected to streamline the resolution process by providing clarity on the MSME status, encouraging greater participation from potential resolution applicants. This is particularly important as certain applicants specifically seek MSMEs due to their unique advantages, such as simplified compliance requirements and government incentives. By mandating the disclosure of MSME status, the IBBI aims to enhance transparency, reduce uncertainties, and ultimately maximize the value of the corporate debtor’s assets.
This initiative is a crucial step towards refining the CIRP regulations to better serve the needs of MSMEs and all stakeholders involved in the insolvency process. By mandating the disclosure of MSME status, the IBBI aims to create a more transparent and efficient framework that can lead to more successful resolutions. The proposed changes are expected to build greater trust among stakeholders, reduce uncertainties, and encourage more participation from resolution applicants, ultimately contributing to the value maximization of the corporate debtor’s assets.