The Centre must extend the facility of pre-packaged insolvency to all corporates and not only MSMEs as is the case now, Union Labour Minister Bhupender Yadav suggested on Saturday.

This will allow lenders to improve their rate of recovery which remains a major concern, Yadav said in his virtual address at an international conference on Insolvency and Bankruptcy Code (IBC), organised jointly by the Indian Institute of Insolvency Professionals of ICAI (IIIPI) and insolvency regulator IBBI.

‘Need of the hour’

“The most pressing need right now is to bring in force the pre-pack insolvency concept which allows players to decide on a plan and zero-in on a buyer ahead of the corporate insolvency process. Although this approach can be used in India for MSMEs as of now , the need of the hour is to allow players to use it for all corporate debtors,” said Yadav.

It maybe recalled that the Centre had last April taken the ordinance route to introduce the pre-packaged insolvency resolution process (pre-pack) for companies classified as micro, small and medium enterprises (MSMEs).

A pre-packaged insolvency — in the Indian framework context — is an arrangement where the resolution of a company’s business is negotiated with a buyer before the appointment of an insolvency professional. It is a blend of informal and formal mechanisms, with the informal process stretching up to NCLT admission, followed by an existing NCLT supervised process for resolution, as specified under the Insolvency and Bankruptcy Code (IBC).

MSME pre-packs

However, the government had deemed it fit to first introduce pre-packs for MSMEs as they are critical for the country’s economy and contribute significantly to India’s gross domestic product besides providing employment to a sizeable population. In addition to this, they relatively suffered the most during Covid-19.

The objective of introducing pre-pack for MSMEs is that it is a cost effective mechanism and quickens the resolution process.

Yadav, one of the architects of the IBC and Chair of the joint committee of parliament on the bill, said that the over five-year old IBC is gearing up for the next phase comprising of cross border insolvency, pre-pack, individual and group insolvency framework. 

“However, in my opinion, given the high degree of globalisation in recent times together with successful implementation of proposed developments of the existing IBC code, it is also imperative to align the Indian insolvency system with best international practices for managing cross border insolvency,” he said. 

Stating that opportunities for Insolvency Professionals (IPs) are immense, he said that despite all odds and associated challenges, the IBC has emerged as one of the most successful reforms and the scheme has helped ease of doing business, particularly in a Covid environment. 

“Over next five years, IBC will continue to evolve in sync with emerging market realities and reach more pivotal milestones to discuss around its tenth anniversary,” he said.

Paul Bannister, Head – Policy, Insolvency Services, Government of United Kingdom, said that “as we emerge from the pandemic, the priority (for UK) would be to restore insolvency framework as we remove many of the temporary measures we had in place, and to promote economic recovery. For all of us, that task is becoming even more difficult with the economic shocks in energy markets that are coming due to geo political developments related to Ukraine.”

The ongoing geo-political developments in Ukraine and the resultant economic shocks is leading to cost of living crisis that will further test corporate and personal insolvency regimes, he said.

UK will soon review its own personal insolvency framework, including its underlying purpose, he added.

Ashok Haldia, Chairman, IIIPI, said that IIIPI has been the largest insolvency professional agency in the country with over 60 per cent of IPs as its members. They have handled over 75 per cent of insolvency assignments under the IBC. 

IIIPI’s three documents — Background Guidance on Code of Ethics for IPs, Peer Review Policy, and Background Guidance on Quality Control by IPs — were formally released by CA Institute President Debashis Mitra.