Centre plans to bring pre-packaged insolvency resolution

MUMBAI: The government is considering a phased rollout of pre-packaged insolvency resolution process, a senior government official said. "The process has been designed so that it can be applied across the board. However, it is likely to be rolled out for micro, small and medium enterprises first," the official told Informist.

A "pre-pack" is a restructuring plan which is agreed to by the debtor and creditors prior to the filing of insolvency, and then sanctioned by the court on an expedited basis.

The phased rollout is in line with the report of the sub-committee of the insolvency law panel on prepackaged insolvency resolution process.

The sub-committee had recommended making available pre-pack for all corporate debtors in a phased manner.

It had suggested starting with defaults from 100,000 rupees to 10 mln rupees and COVID-19-related defaults.

The report had said that a pre-pack resolution mechanism could be a pressing need for micro, small and medium enterprises, which have simpler corporate structures and fewer liabilities but do not have the stamina to survive a prolonged insolvency process.

In the Budget for 2021-22 (Apr-Mar) Finance Minister Nirmala Sitharaman said the government will introduce alternate methods of debt resolution and special framework for micro, small and medium enterprises.