In this paper, we present a framework within which to think about the resolution of small firms that become financially stressed. We start with an attempt to understand small firms in India by comparing some empirical features about a sample of these firms and their financing patters with similar features of larger firms that are better studied by academics and financial sector analysts. We find that the financing features of small firms tend to differ from large firms, suggesting that these firms may benefit from a wider range of approaches in resolution than is used for large firms. This includes allowing a more explicit role for debtors in resolution with the insolvency resolution professional and for a more urgent deployment of information utilities to reduce information asymmetry about the assets and liabilities of the firm during the resolution process. We review the UNCITRAL framework for the micro, small and medium enterprises for small firm resolution and find similar recommendations.
Citation: New thinking on resolution of small firms, K. P. Krishnan, Ajay Shah and Susan Thomas in Insolvency and Bankruptcy regime in India, A Narrative, published by IBBI, October 2020, Chapter 29, pages 267-273.