A government-appointed panel to recommend a framework for pre-packaged insolvency under the current insolvency regime in the country will submit its report this month end. A pre-pack is an agreement between secured creditors and investors instead of going in for any public bidding process.

Speaking at Assocham organised summit on the future of Insolvency and Bankruptcy Code post pandemic, MS Sahoo, Chairman of Insolvency and Bankruptcy Board of India (IBBI), clarified that the entire IBC has not been suspended for six months due to Covid-19, but only a tiny fraction of the code (Sections 7, 9 and 10 of IBC).

“For some of us absence of something is larger than presence of many things. What has been suspended is that portion where a very microscopic keyhole surgery has been done under IBC. But it is being perceived that entire IBC has been suspended or complete ban is there,” Sahoo said.

Sahoo also said that IBC has to remain focussed on saving viable companies and serving the economy. “Bankruptcy law is needed to serve the economy and we should do that,” he added.

The IBBI Chairman also indicated that MSME promoters will continue to stay in charge of the enterprise during the resolution process and this would be enabled in the proposed special insolvency framework for MSMEs.

The Corporate Affairs Ministry had in March this year set up a sub-committee of the Insolvency Law Committee to propose a detailed scheme for implementing pre-pack and prearranged insolvency resolution process. This 7-member panel was also asked to look into pre-requisites for initiation of Pre-packaged insolvency resolution process (PPIRP) in terms of default and threshold, appointment of insolvency professional, role and responsibility of committee of creditors, moratorium, expected cost of process timelines for completion of process.

Having a pre-pack like those in developed jurisdictions will help in achieving faster insolvency resolution under the IBC. The process would likely be completed much faster than the traditional Corporate Insolvency Resolution Process. Having a pre-pack framework would act as an important alternative resolution mechanism to the CIRP and would help lower the burden on National Company Law Tribunal, say insolvency experts. Also, in a pre-pack the incumbent management retains control of the company until a final agreement is reached. There are some drawbacks in pre-packs such as reduced transparency.