Centre tables two bills to help covid-hit MSME sector | key highlights
The Centre on Monday presented two bills in Lok Sabha for amendment to provide relief to the MSME sector, which has been adversely impacted by the covid-19 pandemic. Finance Minister Nirmala Sitharaman tabled Insolvency and Bankruptcy Code (Amendment) Bill, 2021 and Factoring Regulation (Amendment) Bill, 2020 saying the proposed amendments would help the stressed small and medium enterprises in the country.
Insolvency and Bankruptcy Code (Amendment) Bill, 2021
The Insolvency and Bankruptcy Code (Amendment) Bill, 2021 — which was introduced by Corporate and Finance Minister Nirmala Sitharaman — will replace the ordinance that was promulgated on April 4 as part of efforts to provide relief for MSMEs adversely impacted by the pandemic.
Key highlights of the Insolvency and Bankruptcy Code (Amendment) Bill, 2021
1) The bill seeks to have a new chapter in the Code to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises (MSMEs).
2) The proposed amendments specify the threshold of a default not exceeding ₹ 1 crore for initiation of pre-packaged resolution process. The Centre has already prescribed the threshold of ₹ 10 lakh for this purpose.
3) Under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT).
4) There would be a penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons, and for fraudulent management of the corporate debtor during the process.
5) Further, punishment would be meted out for offences related to pre-packaged insolvency resolution process.
Factoring Regulation (Amendment) Bill
The Factoring Regulation Act, 2011 was enacted to provide for regulating the assignment of receivables to factors, registration of factors carrying on factoring business and the rights and obligations of parties to the contract for assignment of receivables. Factoring is a transaction where a business entity sells its receivables from a customer to a third party which is a ”factor” for immediate realisation of funds either in part or in full.
Key highlights of the Factoring Regulation (Amendment) Bill
1) The amendments to the factoring law are based on the recommendations of the U K Sinha Committee.
2) The bill seeks to help MSMEs by providing added avenues for getting credit facility, especially through Trade Receivables Discounting System.
3) The bill seeks to widen the scope of entities which can engage in factoring business and also permits other nonbanking finance companies also to undertake factoring business and participate on the Trade Receivables Discounting System plat
4) The bill is also likely to enhance traction on the TReDS platform introduced by the Reserve Bank of India back in 2014 for entrepreneurs to unlock working capital tied in their unpaid invoices.
5) The legislation aims to increase in the availability of working capital may lead to growth in the business of the micro, small and medium enterprises sector and also boost employment in the country.
MSME sector is critical to the economy considering their significant contribution to the country’s gross domestic product and generation of employment to a sizeable population.
(with agency inputs)