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The proposal to have pre-packs for debt resolution will help in expediting the insolvency resolution, but the government should consider creating specific benches to deal with pre-packs to ensure that such cases are not delayed due to the heavy case load of NCLTs, according to experts.
The government has proposed to roll out a so-called pre-pack insolvency scheme that will allow honest promoters to submit resolution plans for their stressed companies.
Similar to OTS scheme
A top public sector banker told BusinessLine that a pre-pack for smaller debtors is just like one-time settlement (OTS) scheme. “Currently, resolution under the Insolvency and Bankruptcy Code (IBC) entails Corporate Insolvency Resolution Process, which takes time as there is a bidding process and all that. Promoters are not permitted to buy their own asset in terms of Section 29A of IBC. Under pre-pack, which is like filing a scheme of arrangement or a compromise before the High Court, resolutions can happen faster as the promoter comes to the table for settlement of dues,” the banker said.
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IBBI Chairman recommends the simplest variant of pre-packaged insolvency resolution processAs per the draft pre-pack scheme, put out by the Corporate Affairs Ministry, the government may begin by allowing this scheme for defaults from ₹1 lakh to ₹1 crore and Covid-19 defaults. This can be followed by defaults above ₹1 crore, and then defaults from ₹1 to ₹1 lakh.
Rajiv Chandak, Partner Deloitte India, said: “The inclusion of pre-packs should certainly help in expediting the insolvency resolution, which has significantly exceeded prescribed timelines in many cases under the CIRP. The government may consider creating specific benches to deal with pre-packs to ensure that such cases are not delayed due to the heavy case load of NCLTs.”
“The IBC adopting the pre-pack mechanism would facilitate the framing of a resolution plan before any formal proceedings are even initiated. The entire process can be initiated with a simple majority of the financial creditors and contemplates a time-bound mechanism. The process gives legal sanctity to a plan agreed between creditors, promoters, and the resolution applicant, which is intended to result in resolution rather than liquidation. This will help reduce time and money spent on court proceedings, while balancing the interests of the creditors and protecting the company from liquidation,” said Sushmita Gandhi, Partner, IndusLaw.
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