IBBI Proposes to Amend Reg. 36 of CIRP Regulations to Make Disclosures About CD’s Status, Registered or Not as MSME

Discussion Paper; Dated: 23.08.2024

The IBBI has released a discussion paper on the MSME Registration and Disclosure Framework under the CIRP. Micro, small and medium enterprises (MSMEs) play a vital role in the Indian economy, contributing significantly to employment generation and gross domestic product.

Regulation 36 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) specifies the contents of the Information Memorandum (IM) that must be prepared by the resolution professional. The IM serves as a comprehensive document providing key information about the corporate debtor to prospective resolution applicants. While Regulation 36 mandates the inclusion of certain details in the IM, it does not currently require disclosure of the status of corporate debtor’s as an MSME.

The MSME status of a corporate debtor has important implications for the insolvency resolution process, particularly regarding the eligibility criteria for resolution applicants under Section 240A of the IBC. However, this crucial information is not currently required to be explicitly disclosed in the IM.

There have been instances where the classification of a corporate debtor as an MSME has been contested during the insolvency resolution process. This uncertainty can lead to complications and potential delays in the resolution process. Therefore, greater clarity is needed in this respect.

Accordingly, the IBBI has now proposed amending Reg. 36 to make disclosures about the corporate debtor’s status, whether registered or not, as an MSME, in accordance with the provisions of the Micro, Small and Medium Enterprises Development Act, 2006.

Further, if available documents with the resolution professional indicate that CD falls within the category of MSME, he may get the Udyam Registration Certificate generated on a case-to-case basis before making such disclosure in the IM.

The proposed amendment is expected to reduce information asymmetry in the resolution process for MSMEs. Further, it may encourage greater participation from potential resolution applicants who might have otherwise been uncertain about their eligibility. Comments on these proposals may be submitted by September 12, 2024.

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