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Union Government constituted Vishwanathan committee to provide Bankruptcy code for SMEs

Oct 22, 2014 12:30 IST

Union Government on 20 October 2014 constituted Vishwanathan committee to provide Bankruptcy code for small and medium enterprises (SMEs).  The committee was formed under the Union Finance Ministry.

The committee will be headed by former Lok Sabha secretary-general and former law secretary T K Vishwanathan. The committee will prepare a report on corporate bankruptcy framework for SMEs by February 2015.

The formation of the committee is the first step to provide small and medium enterprises (SMEs) with an exit option in case of bankruptcy. The announcement is in tune with a budget promise made by Union finance minister Arun Jaitley to introduce an entrepreneur-friendly legal bankruptcy framework.
Terms of Refrence

  • The Vishwanathan committee will go into a whole gamut of bankruptcy issues including early detection and resolution of financial distress and protection of stakeholders’ interest.
  • It will also suggest liquidation procedure for smaller firms and necessary reforms required to the rescue mechanism.

Comment 
A recent study by industry body Assocham said 74 per cent of sick SMEs in India attributed their sickness and lower capacity utilisation to low availability of fund as 92 per cent of all SMEs remained dependent on personal and family savings and many even sustained money borrowed from friends and relatives at higher rates of interest.

A study shows 79 small business units are turning financially unviable in India every day or three units every hour.
According to data compiled by the Micro, Small and Medium Enterprises Development Institute, of the 1.33 crore SME units, more than two lakh are sick now. Around 29000 units are being added to the sick list every year. This has led to an outstanding bank credit of over 7000 crore rupees.
For long, SMEs have been demanding a framework. The banking industry has also become skeptical about funding SMEs against their receivables.

SMEs industries account for 40 per cent of the GDP of India and 45 per cent of over 300 billion US dollar annual exports.

 

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