In the three years since its launch, the prepackaged insolvency resolution process (PIRP) has had a slow start, with limited interest from micro, small, and medium enterprises (MSMEs) and lower recoveries than the normal corporate insolvency resolution process.
- In 2021 when the country was reeling from the Covid-19 pandemic, the government promulgated an ordinance and amended the insolvency law to help MSMEs avoid bankruptcy. However, the prepack scheme has not attracted many takers due to lack of advocacy, awareness, and a structure more formal than intended.
Key points
- Insolvency is a state when a business or a person is unable to pay debts on time. And it often leads to a bankruptcy filing.
- Pre-packaged insolvency process is an alternate and speedier resolution mechanism for micro, medium and small enterprises in financial distress.
- In the wake of Covid pandemic, a pre-packaged insolvency resolution was introduced in April 2021 to deal with stress of these small and mid-sized companies.
- The idea was that resolution of distressed MSMEs requires different treatment due to the unique nature of their businesses.
- The entire resolution process has to be completed in 120 days from the date of initiation. If the default amounts range anywhere between Rs 10 lakh to Rs 1 crore, the pre-packaged insolvency process kicks in.
- If the defaults are higher than the said amount, a corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 would be initiated.
- Unlike in the corporate insolvency process, the pre-packaged insolvency process allows for an informal understanding between creditors and debtors.
