In an effort to help SMEs combat the rather common issue of delayed payments by large businesses, the Insolvency and Bankruptcy Board of India (IBBI) has now made it compulsory for the buyers of SME products to confirm the pending invoices from their operational creditors based on the queries received by information utility (IU) companies; said Vinod Kumar, President at India SME Forum.
The new system that is in place will have SMEs upload their bills; for which if the closure will not be filed in required time then automatically that information will be relayed to the IU National E-Governance Services Limited (NeSL) so that large businesses not paying continuously can be bracketed.
NeSL, registered with IBBI, will then make the names of such organisations defaulting on payments public. This method will likely raise some eyebrows from lenders when said companies approach them for raising capital.
The tactic of naming and shaming is being used to great effect in countries like the UK, said a UK Sinha Committee report on SME growth. The report added that the filing of default by the operational creditors and submission of information to IU serves as an early warning signal to other financial or operational creditors who are exposed to a defaulting debtor.
“There is a section in the Insolvency and Bankruptcy Code that mandates the financial creditors to submit financial information on defaults to an IU in bankruptcy cases before admission of cases in National Company Law Tribunal (NCLT). It is desirable that the claims they make should be sacrosanct. The process should move faster. Hence, the admission will be quicker in the NCLT as it doesn’t need to have an elaborate hearing to decide if there is a default or not with IU having the details of the defaulting firm,” Dr M.S Sahoo, Chairperson at IBBI told Financial Express Online.