According to a report by business daily FE, the government will first come up with insolvency regulations for individuals who are into businesses, which is likely to come around in a month. Under this, individuals giving personal guarantees for corporate loans and a large number of micro, small and medium enterprises (MSMEs) – that are basically proprietorship and partnership firms – will be covered.
The existing IBC regulations do not entertain MSMEs as 97 per cent of the sector is not a limited liability partnerships or companies, i.e. bodies corporate. These enterprises are basically business entities formed by individuals, and not ‘bodies corporate’ in legal terms.
MSME promoters have unlimited liability, unlike those of companies whose liability is limited to the extent of their equity capital. Also, MSMEs are often the ones to give personal guarantee for loans to be invested in these entities.
Following the first phase, next up on the agenda maybe rules to deal with cases where individuals who are not into any business and yet go bankrupt to service personal debt for any reason, according to the said sources.
The sources also informed that policy think-tank NITI Aayog will organize a meeting on August 30 to hold discussions over regulations on cases involving individuals who are into business, with relevant stakeholders as participants.
The report suggests that a strong insolvency framework for proprietorship or partnership firms is crucial, as around 36 million such SMEs exist in the country that employ more than 80 million people and account for a third of the country’s manufacturing output, according to data compiled by the MSME Ministry.
The Insolvency and Bankruptcy Code – 2016 is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.