Pre-pack insolvency scheme takes effect

By: |
April 10, 2021 2:30 AM

The new scheme, which allows only debtors to file for their own bankruptcy with the approval of financial creditors having 66% of voting power, will yield much faster resolution than the extant corporate insolvency resolution process (CIRP) and cut costs, analysts reckon.

The scheme will also reduce litigation, often triggered by defaulting promoters to retain control of their firms, and help thousands of MSMEs struggling to cope with the havoc wrought by the Covid-19 pandemic.The scheme will also reduce litigation, often triggered by defaulting promoters to retain control of their firms, and help thousands of MSMEs struggling to cope with the havoc wrought by the Covid-19 pandemic.

The insolvency regulator on Friday notified regulations for the so-called pre-pack scheme for micro, small and medium enterprises (MSMEs), enable its operationalisation. The regulations are based on an amendment to the Insolvency and Bankruptcy Code (IBC), effected through the promulgation of an ordinance on April 4.

The new scheme, which allows only debtors to file for their own bankruptcy with the approval of financial creditors having 66% of voting power, will yield much faster resolution than the extant corporate insolvency resolution process (CIRP) and cut costs, analysts reckon.

The scheme will also reduce litigation, often triggered by defaulting promoters to retain control of their firms, and help thousands of MSMEs struggling to cope with the havoc wrought by the Covid-19 pandemic.

The regulations notified by the Insolvency and Bankruptcy Board of India (IBBI) deal with various operational aspects, ranging from the eligibility of resolution professionals to the invitation and submission of resolution plans for stressed MSMEs. Some other key regulations include those on the eligibility of registered valuers; identification and selection of authorised representative; public announcement and claims of stakeholders; meetings of the creditors; competition between the base resolution plan and the best resolution plan; evaluation and consideration of resolution plans and vesting management of corporate debtor with resolution professional.

The IBC (amendment) Ordinance 2021 comes within two weeks of the lifting of a one-year suspension of insolvency proceedings against Covid-related defaults, amid heightened possibilities of a rise in bad loan cases.

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