Pre-packaged resolution is a plan good concept, says IBA CEO Sunil Mehta

Indian Banks' Association Chief Executive Officer Sunil Mehta on Thursday said pre-packaged resolution plan is a good concept which will help in speedier resolution of debt-ridden companies.

Under the current Insolvency and Bankruptcy Code (IBC), a time-bound and market-linked resolution framework is permitted. An insolvency resolution has to be approved by the National Company Law Tribunal (NCLT).

As part of efforts to fast-track such cases, the government is considering introducing the provision of pre-packaged (pre-pack) corporate insolvency resolution plan wherein a restructuring plan would be agreed upon in advance between the company and its creditors.

The government has already floated draft framework for pre-packaged insolvency resolution process (PPIRP).

"As you have seen the law of IBC evolved during course of its implementation...pre-packaged insolvency process may also need certain amendment or changes even at the time of formation or post implementation," he said.

As per a draft pre-pack scheme, put out by the corporate affairs ministry, the government may begin by allowing this scheme for defaults from Rs 1 lakh to Rs 1 crore and COVID-19 defaults. This can be followed by defaults above Rs 1 crore, and then defaults up to Rs 1 lakh.

Mehta further said one of the major challenges of the pre-packaged plan would be as to who will be the eligible candidate.

The other challenge would be bringing investors to the company at initial stage of problem rather than when there is a complete disruption, he said at a virtual conference organised by Assocham.

The process has a different evolution matrix, he said, adding, the Insolvency and Bankruptcy Board of India (IBBI) not only worked on several aspects of this segment but also organized series of such awareness programmes especially for the investors.