Govt Sets Up Bankruptcy Reforms Committee For SMEs

To encourage new start-ups in the small and medium enterprises (SMEs) sector, the government has set up a legal bankruptcy framework that will enable easy exit for SMEs. According to a statement issued by the Ministry of Finance, a three-member panel committee will look into the issue of bankruptcy in the SME sectors.

“Pursuant to the above announcement, a Committee has been set up under the Chairmanship of Shri TK Vishwanathan, former Secretary General, Lok Sabha and former Union Law Secretary, to study the corporate bankruptcy legal framework in India and submit a report by
February next year,” stated the Ministry of Finance.

The ministry plans to address gamut of issues pertaining to SME bankruptcy, which includes early detection and resolution of financial distress, protection of interest of stakeholders, study the rescue mechanism and suggest ways of improving it and liquidation procedures for smaller firms among others.

Interestingly, under the previous government, the inter-ministerial committee last year had made recommendations for dealing with bankruptcy in the SME sector. The panel had suggested that the ministry of finance should provide required funds to ministry of MSME (micro small and medium enterprises) in order to carry out a detailed exercise through professionals on easing the procedures for the closure of a manufacturing enterprise.

The committee had also recommended that bankruptcy laws should be amended in such a way that they facilitate easy closure and easier restart of distressed small and medium sized companies.

However, the recommendations were not fully implemented, which further worsened the situation for MSMEs reeling under huge debts last year.