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November 4, 2024 / IBC

RP Responsibility to ensure CIRP in MSME sector status of CD

Engine of Growth in India -MSME

Table of Contents

  • Amendment to Reg 36 of CIRP Reg- for CIRP effectiveness in MSME
  • Key Highlights of the Proposal in Amendment to Reg 36 of CIRP Reg- for CIRP effectiveness in MSME
    • Disclosure Requirement as per Reg 36 of CIRP Reg
    • Udyam Registration Certificate before making the disclosure in Information Memorandum: 
    • Rationale: Potential resolution applicants
    • Public Comments:
  • Implications of Proposal in Amendment to Reg 36 of CIRP Reg
    • IFCCL- Insolvency and Bankruptcy Services

Amendment to Reg 36 of CIRP Reg- for CIRP effectiveness in MSME

The discussion paper from the Insolvency and Bankruptcy Board of India on August 23, 2024, proposes a significant amendment to Regulation 36 of the CIRP Regulations. The proposal aims to address the current gap in the disclosure requirements for Corporate Debtors under the Insolvency and Bankruptcy Code, 2016, by mandating the inclusion of information regarding the MSME status of the Corporate Debtors in the Information Memorandum.

The Insolvency and Bankruptcy Board of India’s proposed amendment is a welcome move towards enhancing transparency in the Corporate Insolvency Resolution Process for Micro, Small & Medium Enterprises. It addresses a critical gap in the current regulatory framework by ensuring that the Micro, Small & Medium Enterprises status of corporate debtors is disclosed upfront. This change could lead to more informed decision-making by potential resolution applicants and improve the overall effectiveness of the Corporate Insolvency Resolution Process in the Micro, Small & Medium Enterprises sector.

Key Highlights of the Proposal in Amendment to Reg 36 of CIRP Reg- for CIRP effectiveness in MSME

  1. Disclosure Requirement as per Reg 36 of CIRP Reg

    • The proposed amendment mandates that the status of a corporate debtor, whether it is registered as a Micro, Small, or Medium Enterprise under the Micro, Small, and Medium Enterprises Development Act, 2006, be explicitly disclosed in the Information Memorandum prepared by the Resolution Professional.
  1. Udyam Registration Certificate before making the disclosure in Information Memorandum: 

    • If available documents indicate that the corporate debtor falls within the MSME category, the Resolution Professional may obtain an Udyam Registration Certificate before making the disclosure in the IM. This ensures that the MSME status is formally recognized, reducing ambiguity.
  2. Rationale: Potential resolution applicants

    • Reducing Information Asymmetry: The amendment seeks to provide clarity on the MSME status of the Corporate Debtors, which is crucial for potential resolution applicants. This clarity can reduce disputes and delays in the resolution process.
    • Encouraging Participation: By making MSME status information readily available, the proposal may attract more resolution applicants, particularly those who seek out Micro, Small & Medium Enterprises for their unique advantages, such as simplified compliance requirements and government incentives.
    • Value Maximization: Increased participation from resolution applicants could lead to better competitive bids, ultimately maximizing the value for creditors.
  3. Public Comments:

    • The Insolvency and Bankruptcy Board of India’s has invited stakeholders to submit comments on this proposal by September 12, 2024. The comments can be submitted electronically through the The Insolvency and Bankruptcy Board of India website.

Implications of Proposal in Amendment to Reg 36 of CIRP Reg

  • For Resolution Professionals: This amendment adds a new responsibility, requiring them to ensure that the Micro, Small & Medium Enterprises status of the Corporate Debtors is accurately reflected and supported by appropriate documentation, such as the Udyam Registration Certificate.
  • Resolution Applicants: The proposed disclosure could be a critical factor in determining eligibility and strategic interest in bidding for the Corporate Debtors. It will particularly benefit those targeting Micro, Small & Medium Enterprises for their potential incentives and benefits.
  • For the Insolvency Process: By reducing information asymmetry, the amendment could streamline the resolution process, making it more efficient and potentially reducing the time taken to resolve Micro, Small & Medium Enterprises cases.
  • Stakeholders are encouraged to review the discussion paper and provide their comments to help shape the final regulations.

IFCCL- Insolvency and Bankruptcy Services

  • IFCCL is a Company specializing in a comprehensive range of Insolvency and Bankruptcy services, established specifically to address the evolving needs under the Insolvency and Bankruptcy Code (IBC), 2016. With a registered office in New Delhi, IFCCL  is positioned to serve clients nationwide.
  • Our expertise covers Insolvency Advisory, Business Turnarounds, Liquidation Process Management, and related services as defined under the Code. IFCCL  operates as an Insolvency Professional support Services, with a dedicated team of seasoned professionals who bring decades of experience in their fields. This team includes Senior Bankers, Industry Experts, Chartered Accountants, Company Secretaries, Lawyers, Accountants, and other professionals, all of whom collaborate to fulfill the duties and responsibilities required by the IBC.
  • Our services include Process Advisory, Resolution Plan Preparation, Liquidation Process Management, and Resolution Plan Implementation. We are committed to adhering to the strict timelines mandated for the Corporate Insolvency Resolution Process under IBC, striving to achieve optimal solutions within these frameworks. We focus on preserving and protecting the assets of corporate debtors, including ensuring the continuity of business operations.
  • At IFCCL, we value all client engagements, providing exceptional service regardless of contract size. Our team brings a high level of dedication and experience, ensuring our clients can navigate the changing dynamics of the IBC with confidence. We are actively seeking opportunities for strategic collaborations with fellow insolvency professionals and welcome discussions on potential partnerships.

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