MSME Status Sought to be Disclosed in Information Memorandum

The Insolvency and Bankruptcy Board of India (IBBI) has floated a paper which envisages the disclosure of the corporate debtor’s status as a micro, small and medium enterprise (MSME) in the information memorandum. Stakeholders are invited to comment on this proposal by September 12.

The information memorandum, which contains key details about the corporate debtor—including assets, and liabilities, the latest annual financial statements, etc.—is submitted electronically by the resolution professional to committee members within 95 days of the insolvency commencement date, as per Regulation 36 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations).

The proposed amendment seeks to add Sub-clause (kb) in Regulation 36(2) of the CIRP Regulations, mandating the disclosure of whether a corporate debtor is registered as an MSME in accordance with provisions of the Micro, Small and Medium Enterprises Development Act, 2006. The proviso to said provision specifies that if the corporate debtor meets the criteria for being classified as an MSME based on available documents, the resolution professional may get the Udyam Registration Certificate generated, on a case-to-case basis before disclosing its status as an MSME in the information memorandum.

This amendment is expected to address information asymmetry in the resolution process for MSMEs. The discussion paper notes that certain resolution applicants seek out MSMEs because of their distinctive benefits, such as simplified compliance and government incentives. As such, the amendment is likely to boost participation, leading to better outcomes and greater value maximisation.

Additionally, the Insolvency and Bankruptcy Code, 2016, includes special provisions for MSMEs undergoing insolvency resolution. For example, Section 240A exempts resolution applicants for MSMEs from the disqualification criteria specified in clauses (c) and (h) of Section 29A. This Section was introduced to prevent the liquidation of MSMEs. The proposed amendment is anticipated to provide clarity and encourage more resolution applicants to participate by addressing uncertainties regarding eligibility.