The Government is likely to amend the Insolvency and Bankruptcy Code (IBC) to introduce pre-packs as a resolution mechanism. This insolvency scheme will allow honest promoters to submit resolution plans for their stressed companies and it is available for all corporate debtors and for any stress-pre and post default.
A pre-pack is an agreement for a distressed company’s debt resolution between secured creditors and investors instead of a public bidding process, as under the Corporate Insolvency Resolution Process (CIRP) of the IBC.
Non-adherence of prescribed timelines under the IBC is a key criticism that the government is seeking to address through the inclusion of pre-packs under IBC, with 1,442 of a total 1,942 ongoing insolvency proceedings having passed the 270-daymark.
Under this scheme, the market participants will be provided 90 days to submit the resolution plan to National Company Law Tribunal (NCLT), that will have 30 days to approve it.
“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,” said Rajiv Chandak, partner at Deloitte India, adding 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.
Neeraj Dubey, partner at law firm Singh and Associates, said the pre-pack process would be more streamlined with lower involvement from the NCLT, but noted that “parties need to focus on good corporate governance and not try to circumvent any of the processes defined under pre-pack regulations” as this would bring increased scrutiny from NCLTs and defeat the purpose of pre-packs. Dubey also noted that pre-packs may assume greater importance if the government decides to extend the suspension of insolvency initiation beyond March.