India revises insolvency rules to prevent mass defaults

The Indian government has made changes to its corporate insolvency rules to prevent mass defaults from small businesses.

The Ministry of Corporate Affairs has increased the threshold amount of corporate defaults under the Insolvency and Bankruptcy Code by 100 times to 10 million rupees ($133,500; €113,300) as it saw large-scale financial distress emerging in micro and small businesses.

The previous threshold amount was 100,000 rupees, according to a press release by the Ministry of Finance. On the raising of the threshold amount, the statement said: “This will by and large prevent triggering of insolvency proceedings against MSMEs (micro, small and medium enterprises).”

Also, the Indian government issued an ordinance to suspend new applicants starting insolvency proceedings for six months from 25 March.

According to the latest disclosures by the Insolvency and Bankruptcy Board of India, the regulator, a total of 3,774 cases have been filed since the inception the corporate insolvency resolution process, known as CIRP.

CIRP is the corporate resolution process under an insolvency regime in India. The National Company Law Tribunal – an adjudicating authority for the insolvency resolution process for companies and limited liability partnerships under the IBC – initiates the corporate insolvency resolution process when a company goes on a default.

Last year, 1,878 CIRP cases were filed and there were 2,170 ongoing cases as of 31 March.

IBBI is understood to be forming a special insolvency resolution framework for small businesses, according to the latest newsletter from the National Investment Promotion and Facilitation Agency.

Elsewhere, the World Bank will lend $750 million to the Indian government to help provide liquidity to 1.5 million micro, small and medium enterprises in India.