Govt proposes easier exit norms for MSME units

17 November 2014

The government has proposed amendments to the MSME Act to allow a unit to voluntarily file an application for time-bound exit or revival of loss-making units to help them consolidate their businesses and re-deploy capital in other greenfield ventures.

Under the proposed policy, a loss-making unit in the micro, small and medium enterprises sector can seek exit if accumulated losses equal or exceed 50 per cent of its entire net worth of the previous financial year and the unit apprehends business failure.

The proposed amendments to the MSME Act 2006 are intended to help sick units reduce their non-performing assets, even as it offers a new exit policy and a new definition for micro, small and medium enterprises (MSMEs).

The draft amendment proposes to change the existing definition of MSMEs in the manufacturing sector based on investment in plant and machinery to Rs50 lakh from Rs25 lakh for micro units, up to Rs10 crore against the existing Rs5 crore for small units and up to Rs30 crore against Rs10 crore for medium enterprises.

The objective is to provide time-bound exit and revival for loss-making units so as to help them consolidate businesses and re-deploy capital profitably.

In a background note prepared by the MSME ministry to the recommendations of the prime minister's task force, has proposed replacement of the Provincial Insolvency Act 1920 to enable 'time-bound revival and exit' for unincorporated firms.

''The MSME facing insolvency/bankruptcy should be provided legal opportunities to revive it units,'' says the note, adding that this could be by way of a ''reorganisation or rehabilitation scheme with comfort to creditors…''

Under the proposed changes, an aggrieved enterprise / creditor should file the first appeal before the appellate authority within 30 days, while the second appeal against the appellate authority's order would lie before the Supreme Court said.

The ministry has invited suggestions in relation to the proposed changes with a view to formulate a policy in this regard.

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