Pre-packaged bankruptcy scheme to speed up insolvency resolutions before IBC

The government is investigating the possibility of implementing a so-called "pre-packaged" bankruptcy system, which is widespread in countries such as the United States, India, to help the existing insolvency framework and reduce costs and the duration of the resolution process

. Injeti Srinivas, secretary for corporate affairs, told FE on Monday in FE. The secretary asked the Indian Insolvency and Bankruptcy Council to evaluate the proposal and see if it could be pbaded.

Explaining the idea of ​​the proposed plan, Srinivas pointed out that she would not seek to dilute the existing IBC framework in any way and creditors can still exploit the window Current IBCs do not want prior IBC negotiations with debtors. The proposed regime will only be an additional tool available in the event that creditors and debtors wish to avoid the usual litigation and rigor of the resolution process under the current IBC framework, which has in all cases encountered a immense success.

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The "pre-packaged bankruptcy system" usually allows a stressed business to prepare a financial reorganization plan with the approval of at least two-thirds of its creditors ( and its shareholders) filing an insolvency application by any party with the National Company Law Tribunal (NCLT). The resolution plan thus achieved can then be submitted to the NCLT for approval, so that it can be implemented.

Since the plan is already approved by the lenders, it will effectively bypbad various NCLT requirements and interventions at different stages. usual IBC process, thereby reducing litigation costs and delays. This will also help to decongest the overloaded NCLTs.

Such a change in the framework governing insolvency needing legal support to be effective, it will be part of the IBC.

Under the current IBC framework, a creditor can drag a debtor to the NCLT if he defaults to a refund of Rs.1 Lakh or more. Once the creditor's request is accepted by the NCLT, the resolution process begins and must be completed in a maximum of nine months. A stressed business goes into liquidation if a resolution plan is not approved by two-thirds of its creditor committee, usually consisting of financial creditors. NCLT is involved at various stages of the process, from approving requests to approving resolution plans, to even extending the resolution period to no more than three months.

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The opinions of badysts on the prepackaged arrangement are divided. Sumant Batra, Managing Partner and Head of Insolvency Proceedings at Kesar Dbad B & Associates Law Firm, said: "Prepack will bring greater certainty and greater predictability to the resolution process of the company. Insolvency because the resolution plan would have been pre-negotiated and agreed with the financial creditors would form members of the creditors' committee. Lenders will also ensure that the plan meets the parameters set out in the Code and Regulations in order to avoid any blockages in NCLT.

However, Manoj Kumar, Manager (Mergers & Acquisitions, Transactions and Insolvency) of Corporate Professionals Capital, said: "Although the concept of pre-packaged insolvency resolution is highly relevant to the extent that it provides certainty of resolution and drastically reduces delays, but in the Indian context where the insolvency law and the eco-system around it are still evolving and where the resolution is challenged before the contracting authority, it may be premature to introduce this concept now. "

The CIB is already a very powerful law. Last week, Srinivas said that she had catalyzed the recovery of nearly 3 million korean crowns from several default cases, directly or indirectly, since its inception in 2016. The average recovery of some 60 cases in the past year has been the result of the Srinivas case. In the past, two years have been in the order of 46%, compared to only 26% under the previous regime of the Council for Industrial and Financial Reconstruction (BIFR).