The Central Government has introduced an ordinance for a pre-packaged insolvency resolution process for micro, small and medium enterprises (MSMEs), which will be completed within 120 days.
- The ordinance was promulgated to amend the Insolvency and Bankruptcy Code (IBC) on April 4, 2021.
- The pre-packaged, called ‘pre-pack’, will operate under the Insolvency and Bankruptcy Code and is used in overseas jurisdictions like UK, US & Singapore.
- A pre-pack is the resolution of the debt of a distressed company through an agreement between secured creditors and investors instead of a public bidding process.
- Under this system, financial creditors will agree to terms with a potential investor and seek approval of the resolution plan from the National Company Law Tribunal (NCLT).
- In contrast to Corporate Insolvency Resolution Process (CIRP), the pre-pack is limited to a maximum of 120 days with only 90 days available to the stakeholders to bring the resolution plan to the NCLT.
- The existing management retains control in the case of pre-packs while a resolution professional takes control of the debtor as a representative of financial creditors in the case of CIRP.
