Economy

Pre-packaged insolvency regime: India is studying best practices of other nations

Our Bureau New Delhi | Updated on November 30, 2020

The proposed pre-pack mechanism could be a viable alternative to the current corporate insolvency process   -  istock.com/lakshmiprasad S

India may settle for a pre-packaged insolvency regime which is NCLT-facilitated and not entirely outside of the courts’ purview, said Sudhaker Shukla, whole-time member, IBBI. This is unlike the process in advanced jurisdictions like the UK, where the pre-packs are outside the court process.

A pre-packaged insolvency is an agreement between secured creditors and investors in lieu of public bidding. This statement comes even as the IBBI studies the best practices of pre-packs in various developed countries, including the UK.

Likely framework

Addressing a webinar on pre-packs organised by the IBBI and British High Commission, Shukla did not indicate by when India will have the pre-pack regime, but said that regulator was grappling with 10-15 critical questions that would help introduce a workable regime — including what can be the trigger (only after default or even in case of imminent default) for insolvency, who can initiate it and how to handle the ‘Swiss challenger’ method, he added.

A government-appointed panel under IBBI Chairman MS Sahoo had in October submitted a report on introducing the pre-packaged insolvency regime in the country.

Under the proposed framework, the resolution of a company’s business is negotiated with a buyer before the appointment of an insolvency professional. It will be a blend of informal and formal mechanisms, with the informal process stretching upto the NCLT admission, followed by the existing NCLT-supervised process for resolution as specified under the IBC, sources said.

The proposed pre-pack mechanism, if implemented, could be a viable alternative to the current corporate insolvency process and would be significantly less time-consuming and inexpensive as against the formal insolvency proceedings, sources added.

The pre-pack mechanism essentially facilitates the framing of a resolution plan before any formal proceedings. It reduces time and money spent on court proceedings while balancing the interests of the creditors and protects the company from liquidation.

Shukla said that no final call has yet been taken on whether pre-pack regime will be available for promoters who are disqualified under Section 29A of the IBC — the government-appointed panel had proposed that this should not be done.

Published on November 30, 2020

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