THE IMPACT OF INSOLVENCY LAWS ON SMALL SCALE AND MEDIUM – SIZED

ENTERPRISES (SMEs)

ABSTRACT :

The Insolvency and Bankruptcy Code( IBC) of 2016 has been a transformative piece of legislation in
India's profitable geography, furnishing a robust frame for resolving fiscal torture and icing profitable
stability. This paper examines the specific counteraccusations of the IBC on Micro, Small, and
Medium Enterprises( MSMEs), which form the backbone of India’s frugality by contributing
significantly to GDP, employment, and exports. MSMEs frequently face unique challenges, similar as
limited access to credit, reliance on larger pots, and vulnerability to profitable dislocations, which
make them particularly susceptible to fiscal torture.

The IBC offers a technical medium for MSME bankruptcy resolution, including vittles similar aspre-
packaged bankruptcy judgments to streamline the process. This study explores how these vittles have
eased briskly and more cost-effective judgments , securing the interests of creditors while enabling
feasible businesses to continue operations. still, challenges persist, including the limited mindfulness
of IBC vittles among MSMEs, procedural inefficiencies, and the smirch of bankruptcy, which can
discourage MSME possessors from exercising these mechanisms.

Through qualitative and quantitative analysis, this paper evaluates the effectiveness of IBC in
addressing MSME bankruptcies and highlights the gaps that remain in policy and perpetration. The
findings emphasize the need for acclimatized reforms, capacity- structure enterprise, and stronger
institutional support to insure that the IBC fulfills its eventuality in fostering a flexible MSME sector.
This study contributes to the broader converse on profitable reforms and highlights the critical part of
legislative fabrics in supporting MSME growth and sustainability in a dynamic profitable terrain.

Keywords - Insolvency law , Bankruptcy, MSMEs.

[Type text]
The Meaning of MSMEs

The definition of MSMEs The following categories belong to MSMEs that comply with the
Micro, Small, and Medium-Sized Business Development Act of 2006 (MSMED):

(i) a microbusiness, that is characterized as one that invests no more than one crore rupees in
plant, machinery, or equipment and has a turnover of just over Rs. 5 crores;

(ii) a small business with an aggregate revenue of Rs. 50 crores and an aggregate investment of
Rs. 10 crores in plant, machinery, or equipment; and

(iii) a medium-sized business with a highest turnover of Rs. 250 crores and a maximum
investment of Rs. 50 crores in plant, machinery, or equipment.1

Enacted in 2006, the MSMED Act intended at strengthening MSMEs while enhancing their
competitiveness by resolving policy challenges and investment ceilings for these companies. It
offers a legal framework to recognize medium-sized businesses, bringing together micro, small,
and medium-sized tiers, and recognizing manufacturing and service troops. A national
consultative structure with balanced stakeholder representation and advisory responsibilities is
set up by the MSMED Act. Funds for MSME promotion, efforts to promote development,
progressive allowing policies, preferential government procurement, and procedures for dealing
with late payments and company closures are some of its salient aspects. However, because of
problems with enforcement, the facilitation council's authority to solve payment delays has been
limited.

Type of enterprises Investment in plant,machinery Turnover

or equipment

Micro business 1 crore 5 crore

Small business 10 crore 50 crore

Medium sized business 50 crore 250 crore

PROVISIONS FOR MSMEs UNDER INSOLENCY LAWS

1
Ministry of Micro, Small & Medium Enterprises, Government of India Designed,( National Informatics Centre( NIC ) :
(25 Jun 2022) < https://msme.gov.in/faqs/q1-what-definition-msme > acessed on 1/12/2024
The previous position (Section 29A)2

In order to offer complete consolidated legislation regarding bankruptcy and ruin in India, the
Insolvency and Bankruptcy Code, 20163 was passed in 2016 . Section 29A was added to the
Code as part of the 2018 modification, essentially laying out rules about who is not allowed to
submit a resolution plan. However, this recently added clause was heavily criticized for having
overly broadened the scope of disqualification to the point where it significantly reduced the
number of potential resolution applicants based on what could be called generalized criteria for
disqualification, which fail to distinguish between legitimate applicants and those with
antecedent. Since MSME's were more labor-intensive small company units that were unable to
draw in many bidders, the addition of this segment also created a number of challenges for them,
ultimately resulting in liquidation. The 2018 Insolvency Law Committee Report also covered the
significance of MSME's to the Indian economy.4

By easing the requirements of Section 29A on the submission of a resolution plan in the case of
such businesses in their favor, the Code has lately provided relief of Micro Small and Medium
Enterprises (MSME). Section 29A of the Code outlines the requirements for becoming a
Resolution Applicant and subsequently submitting a Resolution Plan. The purpose of the section,
which was introduced by the legislatures, was to prevent promoters from taking advantage of the
Code's goals by purchasing back properties at a subsidized price. The purpose of the waiver
under the aforementioned clause is to allow MSME corporate debtors and promoters who are not
willfully in default or subject to any other particular disqualifications outlined in said Section
29A to bid on an MSME's Resolution Plan. Section 240A, which expressly waives the

2
Section 29A of IBC – Insolvency and Bankruptcy Code, 2016 : Persons not eligible to be resolution applicant (July 1, 2018)
< https://ibclaw.in/section-29a-persons-not-eligible-to-be-resolution-applicant/> accessed on 6/12/2024

3
DR. G. NARAYANA RAJU, Secretary to the Govt. of India.THE INSOLVENCY AND BANKRUPTCY CODE, 2016 (28th May,

2016),<https://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf > accessed on 7/12/202 4

4
MSME’s and Insolvency and Bankruptcy Code,(Chambers and partners 17 December 2018)

<https://chambers.com/articles/msmes-and-insolvency-and-bankruptcy-code> accessed on 7/12/2024

[Type text]
application of Section 29A clauses (c) to (h)5 in the event that the corporate debtor is an MSME,
was also included by the modification. Additionally, it gives the Central Government the
authority to issue specific guidelines for their applicability and/or modification in the case of
MSMEs.

Through an Ordinance this year, a new Chapter III-A in the Insolvency and Bankruptcy Code,
2016 ("IBC") was also introduced. This chapter allows corporate debtors who meet the
requirements of the Micro, Small and Medium Enterprises Development Act, 2006 for "MSME"
to receive a PIRP. To put it briefly, the Ordinance has changed the Code and given the Central
Government the authority to notify such pre-packaged processes for defaults of up to Rs 1 crore.6

Specifically, the IBC (Amendment) Act, 2021 was passed by the Central Government on August
11, 2021, so it was believed to have entered into effect on April 4, 2021. Under Chapter III-A,
S.54A to S.54P of the Code 7, this act established the Pre-packaged Insolvency Resolution
Process [PPIRP] for corporate MSMEs with a minimum threshold of INR 10 lakh. It outlines the
procedure and framework for submitting an application to begin PPIRP. IBBI also published the
IBBI (Pre-packaged Insolvency Resolution Process) Regulations, 2021 and the Insolvency and
Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Rules, 2021.In the
Act, "pre-packaged" refers to the procedure by which a debtor of an MSME business develops a
reorganization plan after consulting with creditors and then files an insolvency petition with the
Adjudicating Authority.The primary objective of the new provisions, which are noteworthy
because they are exclusive to corporate entities that are classified as MSMEs, is to offer a
quicker and more cost-effective way to resolve insolvency with a lesser impact with an MSME's
business operations than is feasible through the conventional CIRP process.

5
supra note 4

6
Jyotsna Chaturved ,The Insolvency And Bankruptcy Code – Respite To MSME(27 Sept 2021)

< https://www.livelaw.in/law-firms/law-firm-articles-/insolvency-and-bankruptcy-code-msme-mahershwari-co-182519
>accessed on 3/12/2024

7
Supra note 4
In order to initiate PPIRP, the following prerequisites must be fulfilled:

By providing its "Udyam" registration details or information about plant and

machinery/equipment investments and turnover in accordance with the new MSMEs definition
criteria outlined in the MSME Ministry'sAfter being notified on June 26, 2020, the corporate
debtor can prove that it is an MSME. Moreover, corporate debtors are not permitted to initiate a
PPIRP if they would not be qualified to submit a resolution plan under section 29A.

This is because section 240A provides specific exemption for MSME promoters. After making
sure the aforementioned requirements are fulfilled, PPRIP, among other things, calls for
corporate debtors to finish a few steps before submitting an application to NCLT to start PPRIP.
These steps are as follows:

In order to approve the beginning of the process, the members of the corporate debtor must pass
a special resolution approved by at least 75% of the total number of members, or 3/4 of the total
number of partners.

Corporate debtors that qualify for the PPIRP under this new regime must work with their
creditors to develop a "base resolution plan." The commercial debtor is needed to call a meeting
of the unconnected fiscal creditors, and the operation must be approved by at least 66 % of
the unconnected fiscal creditors.8

The Pre-Pack procedure would then usually go through the following steps:

Within seven days after the process's admission, the RP must form the committee of creditors
("CoC") and present it with the corporate debtor's list of claims. Within 14 days following its
admission, the RP must complete the information memorandum and deliver it to the CoC
members.

Subject to action under Section 54J of the Code, the Board of Directors of the Corporate Debtor
will continue to have management authority under the terms of Section 54H.After being
admitted, the corporate debtor has two (two) days to deliver the Base Resolution Plan to the
Resolutional professionals The Base Resolution Plan may be approved for further submission to

8
Ibid.4

[Type text]
the AA by the CoC if it does not affect the claims payable to the operational creditors. In any
other case, the resolution specialist will start the invitation process for resolution plans to
compete with the base resolution plan .9

The development of the IBC (Amendment) Ordinance 2021's10

introduction

In the seventy-second year of the Republic of India, the President of India published an
ordinance to revise the IBC in response to the COVID-19 pandemic's extensive effects on
international businesses, financial markets, and economies, including micro, small, and medium-
sized firms in India. Acknowledging the extreme financial hardship brought on by the pandemic,
the government took steps to assist impacted companies. These included increasing the minimum
default amount needed to start corporate insolvency resolution procedures (or "CIRPs") to Rs. 1
crore and halting the start of that such procedures for defaults that happened in the year
beginning on March 25, 2020. The suspension was lifted on March 24, 2021.11

The Ordinance 2021 of the IBC (Amendment)

On July 26, 2021, the IBC (Amendment) Bill 2021 was put forward to the Lok Sabha, and on
April 4, 2021, it became a law. Insolvency, which occurs when people or businesses are unable
to pay back their outstanding debt, is covered by the IBC. It offers the CIRP, a time-bound

9
Supra note 8.accessed on 4/12/2024

10
Ministry of Finance ,The Insolvency and Bankruptcy Code (Amendment) Bill, 2021(PRS ,legislative research)
<https://prsindia.org/billtrack/the-insolvency-and-bankruptcy-code-amendment-bill-2021#:~:text=The%20Insolvency%20and
%20Bankruptcy%20Code%20(Amendment)%20Bill%2C%202021%20was,to%20repay%20their%20outstanding%20debt.>
accessed on 6/12/2024

11
Pratima Ajmera, A New Dawn for MSMEs: The IBC's Strategic Insolvency Framework (meta legal advocates july 20)
<https://www.mondaq.com/india/insolvencybankruptcy/1495794/a-new-dawn-for-msmes-the-ibcs-strategic-insolvency-
framework#:~:text=240A%20of%20the%20IBC%2C%20exempting,bid%20for%20the%20MSME's%20Plan> accessed on
5/12/2024.
procedure for resolving corporate debtor (or "CD") insolvency, which has a 330-day deadline.
For defaults of at least Rs. 1,00,000, the debtor or creditors may start CIRP. A committee of
creditors (the "CoC") will decide on the resolution plan, which may include debt settlement
through merger, acquisition, or restructuring. The company is liquidated and its affairs are
managed by a resolution professional ('RP') under CIRP if no resolution plan ('Plan') is approved
within the allotted time. The company is liquidated and its affairs are managed by a resolution
professional ('RP') under CIRP if no resolution plan ('Plan') is approved within the allotted time.
12

The Detrimental Effects on the Economy caused by the absence of an effective insolvency
framework for MSMEs

The insolvency framework's unappealingness to MSMEs can have a number of negative social
effects. Ex post, it can impede the rehabilitation of honorable but unfortunate entrepreneurs and
the restructuring of numerous viable MSMEs. Similarly, non-competitive MSMEs' assets aren't
available for more profitable endeavors. Therefore, money, jobs, and growth may be destroyed
by an unappealing insolvency structure for MSMEs. Ex ante, the absence of a desirable exit for
businesses and sincere but unlucky entrepreneurs may deter reasonable risk-taking,
entrepreneurship, and the use of debt.Therefore, entrepreneurship, innovation, and financial
access may all be negatively impacted by an unappealing insolvency structure for MSMEs.
Furthermore, an unappealing insolvency structure for MSMEs may make lenders less inclined to
offer credit from an ex ante standpoint since the debtor's assets will not be effectively distributed
ex post. As a result, this circumstance will make it more difficult for many MSMEs to secure
outside funding.13

CHALLENGES FACED BY MSEs UNDER INSOLVENCY

The bulk of businesses in economies worldwide are small, and medium-sized firms (SMEs),
which support entrepreneurship, innovation, supply chain development, employment creation
and preservation, and the general economic and social well-being of society. Being in the micro-

12
Ibid.11.accessed on 5/12/2024
13
World Bank, “Report on the Treatment of MSME Insolvency” (2017), accessed on 25/11/2025

[Type text]
and small-sized range, MSEs rely largely on client payments and typically have a somewhat
undiversified client, supplier, and creditor base. Because of this, they frequently have cash flow
issues and increased default risks after losing a key business partner or when their clients fail to
make payments on time. MSEs also have to deal with a lack of operating capital, increased
lending rates, and more stringent collateral requirements, all of which make it difficult, if not
impossible, for them to raise financing, particularly during times of financial
difficulty14.Insolvency systems that are complicated SME insolvency presents particular difficulties
and problems.

1. SMEs are discouraged from using formal procedures to address financial difficulties by complex
insolvency regimes. Inexperienced SMEs find it difficult to recognize this complexity, which
deters SMEs from using insolvency in a timely manner.

2. Creditor behavior , When there is no system in place to handle insolvent SMEs, creditors are not
very motivated to use the legal system to deal with SME debtors. When creditors balance the
time and money required to participate in the insolvency process against the amount they believe
they will receive, creditor apathy frequently results. It makes sense for creditors to stay out
of the situation if the costs are greater than the benefits. The first indication of financial trouble
for secured creditors is usually the enforcement of security.

3. The SMEs' poor record-keeping practices are another significant flaw that impedes the
sector's expansion.

4. After-insolvency funding Financing after insolvency is scarce. SMEs depend on their friends
and family for support. SMEs frequently lack the funds necessary to pay for the fees and
expenses associated with a formal insolvency process.

5. For SMEs, the insolvency procedure itself can be difficult. Smaller SMEs might not have the
resources to pay for an insolvency procedure or might not create a sense of expectation that
unsecured creditors will get any compensation.

6. Individual debts MSMEs are frequently funded by a combination of personal and business
debt that is obtained by the 286 MSME insolvency treatment under For MSMEs, the
14
World bank group , Small and medium enterprises (SMEs) Finance , (16 oct 2019)
<https://www.worldbank.org/en/topic/smefinance> accessed on 27/11/2024
 insolvency procedure itself can be difficult. Smaller MSMEs might not have the resources to
pay for an insolvency procedure or would not be able to raise expectations for unsecured
loans. 15

Insolvency causes a number of economic issues that are mostly the same for businesses and
sectors. For instance, creditors have the right to enforce their claims and eventually take
possession of the debtor's assets when they are unable to pay their debts. As a result, their
separate enforcement activities can ultimately undermine economically viable enterprises' going
concern value. Second, a state of insolvency may encourage suppliers, employees, and lenders to
sever their commercial and contractual ties with the company, making it impossible for it to
continue operating and obtain new funding. Third, the shareholders—or the directors acting on
their behalf—may be motivated to take a number of opportunistic actions when a debtor
experiences financial difficulties.His opportunistic actions could be giving assets to family
members, taking on reckless debt, making investments in risky ventures in a final effort to save
the company, or just choosing to sustain non-viable businesses. Fourth, it might be expensive to
negotiate with creditors. Issues with collective action, information asymmetry, transaction
expenses, and holdouts can all hinder debtors from reaching a deal that benefits creditors as well.
The majority of nations have responded to these issues by offering a range of regulatory
approaches that are typically incorporated within insolvency laws.16

Legal Defense for Investors and Business Owners in MSMEs Who Experienced Severe
Bankruptcy Owing to Force Majeure

Everyone has the right to legal protection, which is granted by the law so that they can defend it
without interference from those who would harm them. There are two types of legal protection
available to investors in MSMEs. The two types of legal protection are repressive and
preventive. The goal of preventive legal protection is to stop investor rights abuses before they
happen. Provisions or standards that require oversight, support, and education from the
supervisory exchange authority are indicative of preventive investor protection. Following a

15
Prachi Apte and Sushanta Kumar Das , Treatment of insolvency under IBC
<https://ibbi.gov.in/uploads/resources/b7dfd3332bc133fde5783cf70b9371a1>.pdf.acessed on 29/11/2024.

16
Gurrea-Martínez, A. (2021). Implementing an insolvency framework for micro and small firms. International Insolvency
Review, 30(S1), S46–S66.

[Type text]
breach of investor rights, repressive protection is usually authorized.The Financial Services
Authority (OJK) will provide legal defense to investors whose rights have been violated in the
lawsuit that was filed. The form of legal defense is often an instruction to financial services
institutions to handle consumer lawsuits that have received losses and demand compensation for
their losses.17

MEASURES TAKEN BY GOVERNMENT OF INDIA FOR MSMEs :

Indian MSMEs will be crucial to the country's transition to self-reliance. India is putting a lot of
focus on MSMEs going "from local to global." The COVID-19 pandemic will have a significant
impact on Indian MSMEs. It is essential to the creation of jobs in India. The Indian government
has taken a number of actions to fortify the base of Indian MSMEs and realize the goal of a self-
sufficient India.
1. Modifying the MSME definition: The low threshold limit in the MSME definition has caused
anxiety, and they have refrained from growing their business because they believe that doing so
will disqualify them from receiving MSME advantages. The government has finally updated the
definition of an MSME after much delay.18

2. Collateral-free Automatic Loans: Up until October 31, 2020, the government has announced 3
lakh crores in collateral-free loans to cover operational liabilities, purchase raw materials, and
resume operations. Forty-five lakh units will start up again and protect jobs. MSMEs that have a
turnover of up to Rs 100 crore and an outstanding amount of up to Rs 25 crore are eligible for
this incentive.

3. Subordinate Debt for Stressed MSMEs: Twenty thousand crore has been set aside for stressed
MSMEs' subordinate debt. It is anticipated that about 2 lakh MSMEs will profit. This incentive
will be available to MSME that are stressed or non-performing assets.

17
Kadek Yudi Astrawan, Ni Luh Made Mahendrawati, and Putu Ayu Sriasih Wesna, “Perlindungan Hukum Bagi
Investor Terhadap Pelaku Usaha Yang Melakukan Bisnis Online Secara Ilegal,”Jurnal Analogi Hukum4, no. 2
(2022).

18
Measures to boost the MSME sector in the country (PIB delhi 05 AUG 2024)
<https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2041690 >acessed on 12/12/2024 19:31
4. Equity infusion through Fund of Fund: For MSME, obtaining financing is always a major
challenge. A fund of funds has been established to provide an equity investment of Rs 50000
crore for MSME in order to address this issue. A fund will be established with a corpus of Rs
10,000 crores. It will encourage MSMEs to list on the main board of the stock exchange and aid
in increasing their size and capabilities. 19
5. In order to combat unfair competition from foreign enterprises, global tenders will be
prohibited up to 200 crore. Supporting Made in India and achieving self-reliance in India will be
greatly aided by this.

6. Marketing and liquidity support: e-market connectivity for MSMEs has been marketed as a
substitute for exhibits and trade shows. Fintech will leverage the data produced by the e-
marketplace to improve transaction-based lending. Within 45 days, MSME receivables will be
released.
7. 2500 crore EPF support for workers and businesses for a further three months: For the salary
months of March, April, and May 2020, 12% employer and 12% employee contributions were
previously deposited into EPF accounts under the Pradhan Mantri Garib Kalyan Package
(PMGKP). An additional three months will be added to this support for the 2020 s

8 . EPF contribution reduction: In order to increase output in the upcoming quarter, the statutory
PF contributions of the employer and employee have been lowered from the current 12% to 10%
each for the following three months. Workers who are not qualified for the PM Garib Kalyan
Package's 24% EPF support will be covered by this initiative. Over the course of three months,
this will give employers and employees 6750 crore in liquidity.
9. Liquidity through reduction of TDS/TCS rates: To increase the amount of money available to
taxpayers, the rates of TDS (tax deduction at source) for non-salaried specified payments made
to residents and the rates of TCS (tax collection at source) for the specified receipts will be
lowered by 25%. As a result, liquidity will be released of 50,000 crore rupees.20

19
National Institute for Micro, Small and Medium Enterprises (ni-msme)
(An organisation of the Ministry of MSME, Govt. of India, Yousufguda, Hyderabad )<https://msme.gov.in/sites/default/files/Sch-
vol1-151214>.pdf-sri.pdf acessed on 14/12/2024 20:20

20
Supra.19acessed on 13/12/2024 accessed on 12:20

[Type text]
10: Direct tax measure: All outstanding refunds to noncorporate enterprises and professions,
such as proprietorships, partnerships, limited liability partnerships, and cooperatives, as well as
charity trusts, must be made right away. • All income-tax returns for FY 2019–20 will have their
due dates extended from July 31 and October 31, 2020, to November 30, 2020, and the tax audit
will take place from September 30, 2020, to October 31, 2020.
Three main recovery scenarios—a V-shaped, U-shaped, and L-shaped recovery—will determine
whether India can escape a significant economic downturn or not. According to IMF projections,
the RBI governor anticipates that India's recovery could take the form of a V in 2021–2022.21

Given that a V-shaped recovery is not a given, India's public and commercial sectors should plan
for the best and be ready for the worst.However, the severity and length of the outbreak—which
are still unknown—will determine the true damage. The Indian economy might lose INR 8.76
lakh crore as a result of the COVID-19 lockdown. According to former RBI governor Raghuram
Ragan, the recovery will differ depending on the industry and could be V-shaped (sharp quick
growth) or U-shaped (slow comeback). The recovery curve will be determined by how the
organization changes its work procedures and how the consumer's consumption habits change
following the lockout. The recovery curve will be determined by how the organization changes
its work procedures and how the consumer's consumption habits change following the lockout.
Advanced economies including the US, UK, Italy, Germany, and Spain, as well as WHO, UN,
IMF, and ADB, are keenly monitoring and appreciating India's handling of the COVID-19
pandemic. 22

Global Customs

Different approaches to company restructuring and debt management are demonstrated by the
wide variations in international procedures in bankruptcy proceedings between jurisdictions:

US

21
Impact of COVID-19 pandemic on Indian Economy with special reference to Indian MSME Ramesh Prasad, Research Scholar,
Department of Commerce, SKB UniversityDr. Amitava Mondal, Associate Professor, Department of Commerce, SKB University

22
Ibid. 21
Chapter 7, 9, 11, 12, 13, and 15[vi] of the US Bankruptcy Code enable individuals and
businesses to submit a petition for relief. MSMEs and SMEs are not specifically defined in the
US Bankruptcy Code, which only lists "small business debtors." Chapter 11 bankruptcy allows
individuals, companies, partnerships, and sole proprietorships to reorganize their obligations and
assets. If a firm's financial status permits debt restructuring, the main goal of declaring chapter
11 bankruptcy is to keep the company from closing down for good.23

Britain

The notion of 'phoenixing,' which permits promoters of insolvent companies to bid for their
assets without taking on preceding debts, is used in the UK [vii]. If they are not personally
insolvent or ineligible to manage a company, directors and staff of insolvent companies are
permitted to start new businesses. Court-supervised legal systems such as individual voluntary
arrangements (IVAs) and business voluntary arrangements (CVAs) provide structured repayment
schedules outside of bankruptcy.24

AUSTRALIA :
Under the Bankruptcy Act, Australia provides debt agreements that let borrowers offer creditors
legally enforceable repayment plans. Through planned payments supervised by the designated
receiver, this bankruptcy substitute assists debtors in fulfilling their obligations without suffering
dire financial repercussions. As an alternative to bankruptcy, debt agreements were created to
give borrowers a more affordable means of negotiating terms with their creditors without having
to face the harsher repercussions of filing for bankruptcy. Part IX of the Bankruptcy Act of 1966
describes these legally binding agreements, which enable insolvent debtors to provide their
creditors legally binding repayment arrangements. After the proposal is approved by the
creditors, the debtor is released from the related obligations after making the agreed-upon
payments.25

23
11 U.S.C. Chapter 11, Subchapter V: Small Business Reorganization Act of 2019.
24
John Smith & Laura Johnson, Insolvency and MSMEs in the UK: Challenges and Opportunities, 45 J. BUS. L.
123, 125 (2021).

25
Treasury Department, Australian Small Business and Family Enterprise Ombudsman: Annual Report 2022-23
(2023).

[Type text]
CONCLUSION :

The proposed Directive does not directly address the needs of SMEs. The analysis suggests that
specific laws may be needed for a subset of SMEs, such as micro and tiny businesses or
microenterprises. MSME creditors should be protected from a stay or restructuring plan that
would negatively impact them. MSME debtors should have access to low-cost advising
institutions during a business crisis, rather than just a model restructuring plan in a brochure.
They may benefit from a short minimum stay of one or two weeks. This analysis suggests greater
flexibility in allowances for stay and restructuring plans.The PPIRP is a revolutionary concept
launched in India, drawing on successful implementations in France, the United Kingdom, the
United States, the Netherlands, and Germany. This technique provides a quick, cost-effective
alternative to traditional CIRP, especially for MSMEs. Effective implementation necessitates
insolvency professionals performing their tasks independently, with regular monitoring and
adherence to the high professional standards established by the Insolvency and Bankruptcy
Board of India (IBBI). While the plan offers major benefits, such as rapid resolution of troubled
enterprises and cost savings, it also has drawbacks. Critics believe that the scheme's impact may
be limited because MSMEs often have lesser credit amounts. Despite these obstacles, the
adoption of PPIRP brings a new dimension to India's bankruptcy processes.