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Special resolution plan to rescue bankrupt MSMEs

The Central Government is working on a Special Resolution Plan to rescue bankrupt micro, small and medium enterprises (MSMEs). The Corporate Affairs Ministry is finalizing the plan under the Insolvency and Bankruptcy Code (IBC) after finance and corporate affairs minister Nirmala Sitharaman reviewed measures to support the pandemic-hit economy.

The scheme, to be notified under Section 240-A 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 29-A 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.

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