The government is weighing the idea of a pre-pack resolution framework for slightly bigger companies under the umbrella of Insolvency and Bankruptcy Code (IBC) to speed up the resolution process.
The government is in discussion to bring a pre-pack resolution for slightly bigger companies now. There will be a threshold for companies, likely at Rs 500 crore, such a mechanism now exists only for micro, small and medium enterprises (MSME).
The pre-pack resolution is designed to speed up the resolution process with a deadline for submission of the plan set at 90 days and the next 30 days are fixed for the National Company Law Tribunal (NCLT) to approve it. In contrast, the corporate insolvency resolution process (CIRP) stipulates 270 days for completion.
The aim is to considerably reduce the resolution time period like in the case of MSMEs. The cost-effective scheme also aims to save the small corporates who have limited resources from the lengthy insolvency process. Under the pre-pack resolution, another advantage is that the existing management is not suspended.
The pre-pack mechanism will provide an alternative to the CIRP resolution process for slightly bigger companies. The MSME pre-pack was introduced in 2021 under which the debtor initiates the process with the approval of creditors. Promoters then submit a resolution plan which, if backed by 66 percent financial creditors, is presented before the NCLT.
As the resolution under CIRP is mostly delayed because of litigations which are initiated by defaulting promoters, the pre-pack is initiated by debtors themselves makes the resolution faster.