15C
Delhi
Wednesday, January 27, 2021

Govt proposes pre-packaged insolvency resolution framework under IBC

- Advertisement -

Amendment made to insolvency norms for corporate personsNew Delhi, Jan 10 (IANS) The Ministry of Corporate Affairs has proposed a pre-packaged insolvency resolution framework under the Insolvency and Bankruptcy Code (IBC).

The ministry has sought comments on the recommendations of sub-committee of the Insolvency Law Committee by January 22.

Government constituted the sub-committee in June last year to prepare a detailed scheme for implementing pre-pack and prearranged insolvency resolution process.

As per the report, the framework must be within the basic structure of IBC. It should have the rigour and discipline of IBC and pursue the same objectives as the Code does.

It should not impair rights of any party beyond what is provided in the Code and should have adequate checks and balances to prevent any abuse. It should enjoy the same regulatory benefits as are available to CIRP, it said.

“The Code may be amended quickly, preferably by an Ordinance, to provide for formal part of pre-pack. The Code may make a skeletal provision enabling pre-pack, while informal part could be left to market practice or guided by self-regulation, guidelines, best practices, etc,” said the report, by the IBBI Chairman M.S. Sahoo-led sub-committee

As per the panel, pre-pack should be available for all corporate debtors and for any stress — pre-default and post-default.

Depending on policy objective, capacity of the NCLT and availability of SIRP for MSMEs, the implementation could be phased. It may commence in respect of defaults from Rs 1 lakh to Rs 1 crore and Covid-19 defaults for which CIRP is not available currently, followed by default above Rs 1 crore, and then default from Re 1 to Rs 1 lakh.

READ ALSO:  PE investment in Indian real estate likely to revive in 2021

Pre-pack in respect of pre-default may be considered with consent of higher threshold of all creditors, after successful implementation of post-default resolutions, said the report.

As per the recommendations, the debtors shall initiate pre-pack with consent of simple majority of unrelated financial creditors and its shareholders.

“No two proceedings – pre-pack and CIRP – shall run in parallel. There shall be a cooling off that a pre-pack cannot be initiated within three years of closure of another pre-pack,” it said.

The moratorium under section 14 shall be available from the pre-pack commencement date (PCD) till closure or termination of process, whether by approval of resolution plan or otherwise. It shall not, however, cover essential and critical services.

The report noted that the pre-pack should start with a base resolution plan, which will face swiss challenge. This should come from the promoters if they are eligible and interested.

Otherwise, the CoC may arrange a base plan, it recommended, adding that the pre-pack should offer two optional approaches, namely, without swiss challenge but no impairment to operational creditors (OC), and with swiss challenge with rights of OCs and dissenting financial creditors (FC) subject to minimum provided under section 30(2)(b).

READ ALSO:  Economic 'Green Shoots' visible, govt open to taking more steps: FM
READ ALSO:  Economic 'Green Shoots' visible, govt open to taking more steps: FM

The report by the committee noted that since pre-pack is relatively new, there is a suggestion to experiment it in a controlled regulatory sand box environment before a full-fledged plan is rolled out.

“However, given the limitations of ‘one size fits all’ standard CIRP, which is also not available in respect of Covid-19 defaults and defaults less than Rs 1 crore at this hour when the economy needs to recover fast, one may substitute sand box experiment by a careful design of pre-pack based on learning from experiment of pre-packs in other jurisdictions,” it said.

The report noted that the starting point could be a variant of pre-pack which requires the least preparation and can be rolled out within the existing ecosystem. It is important that it is made available.

“It is the right time to introduce pre-packs under insolvency law in India,” it said.

Commenting on the development, Rajiv Chandak, Partner, Deloitte India said: “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.”

He noted that the government may 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.

“The inclusion of a swiss challenge will prevent future litigation from operational creditors who receive marginal recoveries under the insolvency resolution process,” Chandak said.

Source: IANS

India Updates
India Updates is an independent news & Information website. Follow us for regular updates on News and Information.

Follow Us On

Related News

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Trending Topics In India

Covid 19 India Updates

Trending News In India

Trending Showbiz

Trending Sports

Latest Trending News In India

Congress demands sacking of Home Minister over Delhi violence

New Delhi, Jan 27 (IANS) A day after violent clashes broke out between the police and the protesting farmers in the heart of the...

Cryptocurrency industry hopeful as RBI mulls over digital currency

New Delhi, Jan 27 (IANS) With the Reserve Bank of India (RBI) now saying that it is exploring the need for a digital version...

45 buses damaged in Jan 26 violence, says DTC

New Delhi, Jan 27 (IANS) At least 45 Delhi Transport Corporation (DTC) buses were damaged in the violence on Republic Day as section of...

Tractor rally violence: Plea in HC seeks removal of Delhi top cop

New Delhi, Jan 27 (IANS) A petition has been filed in the Delhi High Court seeking removal of Delhi Police Commissioner S.N. Shrivastava from...