Include the fees of MSMEs in IBC in the costs of CIRP: FISME to the Minister of Finance

NEW DELHI: The recovery of money owed to micro, small and medium-sized enterprises (MSMEs) by corporate debtors should be included in the scope of the costs of the corporate insolvency resolution (CIRP) process, said the Micro Federation and Small and Medium Enterprises of India (FISME) in its pre-budget presentation to the finance Minister .

FISME said that, as operational creditors, MSMEs could not recover the fees and the protection of the MSME Development Law (MSMED) had been undermined.

The current recovery process under the IBC is unilateral. MSMEs are classified as operational creditors. They get nothing if their buyer undergoes CIRP. This goes against the letter and spirit of the MSMED Act, which guarantees the recovery of fees along with interest, he said.

According to the FISME assessment, 25,000 MSMEs are affected and 75,000 more are likely to be affected. If a solution is found to repay their dues, the burden on the financial creditors would be minimal and decline to 1.18-1.33 per cent, it said, citing the June 30, 2019 IBBI data.

After discussions with interested parties, we propose that payments due to MSMEs of corporate debtors before and during the CIRP process be included in the 'costs of insolvency resolution process' as set out in section 5 (13) of the IBC read with regulation 31 of the Regulations of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons), 2016, he said.

Según el FISME, las recuperaciones de los acreedores financieros no se verán afectadas, ya que las cuotas de las MIPYMES se tratarán como parte del costo del proceso de insolvencia, mientras que to the mismo tiempo garantizarían recuperaciones sustanciales de las cuotas para las micro y pequeñas empresas.

Regarding the insolvency process of the MSMEs under the IBC, he said that the associated or proprietary companies were excluded from their scope and about 97 percent of the MSMEs fell into that category, so they did not allow their bankruptcy proceedings. insolvency in the NCLT.

The IBC 2016 is a comprehensive legislation and provides a framework for the resolution of insolvency and bankruptcy for all types of entities. But the 'rules' have been framed only for corporate corporations/companies.

Therefore, company/owner firms and individuals are excluded. Since 97 percent of MSMEs are company/owner firms and even when they are registered as companies, due to the participation of their personal guarantees, the IBC Rules provide no relief, FISME said.

The formation of a committee to frame the rules for insolvency proceedings of companies and property companies has been urged.