FISME demands priority in payment to MSME operational creditors under insolvency resolution process
The Federation of Indian Micro, Small and Medium Enterprises (FISME) has proposed for some amendments in Insolvency and Bankruptcy Code (IBC) to secure MSME dues under CIRP during the Corporate Insolvency Resolution Process (CIRP) and liquidation process under the Insolvency and Bankruptcy Code (IBC).
It has proposed that MSMEs be classified as a separate sub category under the existing Operational Creditors category and accorded priority for payment of their dues over the dues of the other operational creditors and other debts/debtors by introducing a relevant amendment under the waterfall mechanism as stated under Section 53.
It also proposes that Section 53 be so amended as to put dues of MSMEs at par with the dues of workmen to a minimum extent of 5% of the total CIRP or liquidation amount as the case maybe for payment.
The MSME body argues that for distribution of assets as per ‘waterfall mechanism’ under both these processes, the dues of MSME operational creditors are mostly written off with little to no recoveries received against them as by the time the dues of the secured creditors are addressed there is very little left to distribute.
It further says that MSMEs further have little or no voting rights in the Committee of Creditors (CoC) during CIRP which usually consists of primarily secured creditors.
FISME further argues that the CoC and the liquidator have wide ranging powder with regards the distribution of assets and unless and until a MSME is able to arm twist the CoC in getting its due share (or be classified as an essential suppliers), there is very little chance of these companies receiving anything.
“In most cases the secured financial creditors could have just as easily taken a nominal haircut and share this with the micro and small enterprises which would huge relief to them. The procedure is such that the hapless MSME suppliers get nothing if their large buyers go through CIRP/ liquidation,” it says.
The process, it says, has rendered many MSMEs suppliers to the brink of closure for no fault of theirs. As one large corporate entity would have many MSME suppliers, a large debtor becoming insolvent has a snowball effect. All of this is despite the MSME Act which provides for timely payment of MSME dues which stand overruled by the IBC.
The suggestions are part of FISME’s budget demands which they have put up with the Finance Ministry.
It also suggests that the model professional Code of Conduct for the CoC as suggested by the Parliamentary Standing Committee on Finance should have a clause that MSME creditors be dealt fairly’ keeping in mind their special status as already provided by the MSMED Act.
Also Read: A code of conduct for CoC, finally
