📈 New Sri Lankan MSME Insolvency Law Passed

• Overall Change: Sri Lanka has enacted the Rescue, Rehabilitation and Insolvency Act, No. 12 of 2026 (certified June 17, 2026). It shifts the national framework from a "liquidation-first" regime to one focused on rescue and rehabilitation, retiring the 1853 Insolvency Ordinance. • The MSME Mechanism: Part XI introduces a standalone Debt Restructuring Arrangement. It allows small businesses to avoid expensive administration or liquidation by negotiating flexible repayment plans using the cash-flow insolvency test (pre-emptive entry allowed before actual default). • Key Eligibility & Figures: Outstanding debt threshold must not exceed Rs. 50 million at submission. Financial structures of related MSME companies can be bundled together. Requires approval from creditors holding two-thirds (66.7%) in value of the claims voting. • Key Operational Rules: Mandates the appointment of a registered personal insolvency proposer to investigate affairs and build proposals. Employs a striking "Silence is Consent" rule—creditors who do not attend or vote are deemed to approve. Confirmed plans grant a protective shield, barring legal actions, asset repossessions, and utility terminations. • Implementation Timeline: Institutional provisions establishing the Insolvency Regulatory Authority are active immediately. All other mechanics come into operation in mid-December 2026 (6 months post-certification), with ministerial powers to extend up to mid-2028.