Pre-packaged resolution plan to help expedite insolvency process: Experts

Pre-packaged corporate insolvency resolution plan will help expedite resolution process for stressed assets as well as reduce the number of insolvency-related cases before the National Company Law Tribunal (NCLT), according to experts.

The Insolvency and Bankruptcy Code (IBC) provides for a time-bound and market-linked resolution framework. An insolvency resolution has to be approved by NCLT.

As part of efforts to fast-track processing of cases, the government has been mulling introduction of the provision for pre-packaged (pre-pack) corporate insolvency resolution plan wherein a restructuring plan would be agreed upon in advance between the company and its creditors.

Last year, the corporate affairs ministry sought comments on pre-packaged resolution plans but a final decsion on the provision is awaited.

"Pre-pack process will cut short time spent at the NCLT, and the consequent delay in implementation of a workable resolution plan.

"If a pre-pack is properly implemented and the court intervention is reduced, it is likely to bring efficiency in the resolution process and in turn have a positive effect on the value maximisation for the creditors," Punit Dutt Tyagi, Executive Partner at Lakshmikumaran & Sridharan Attorneys said.

Under the pre-packaged process, he said main stakeholders like creditors, shareholders and the existing management/ promoter can come together to identify a prospective buyer and negotiate terms of a resolution plan, before submitting it to NCLT for formal approval.

Observing that out of an estimated 3,300 cases admitted under the insolvency process, less than 200 have found a resolution, Sanjeev Krishan, Partner & Leader (Deals) at PwC India said the situation was likely to worsen in the backdrop of disruption of normal business activities on account of COVID-19.

"Under these circumstances, pre-pack would be a good option as at the minimum it would allow for a quicker assessment of what resolution may be possible.

"Stressed businesses would be at greater risk in COVID-19 times to lose further business value, which could further impact downstream businesses as well as employment generation," Krishan said.

According to Rachit Sharma, DGM at Taxmann, the pre-packaged insolvency resolution scheme would drastically reduce the timeline for corporate insolvency resolution process thereby saving time, money and resources.

"The workload of overburdened NCLT would be significantly reduced as there would be reduction in unnecessary pleas from stakeholders during proceedings," Sharma said.

A pre-packaged insolvency scheme can be amazing in the current scenario and in the future, opined Kapil Rana, Chairman and Founder of HostBooks Limited, a firm providing cloud-based business solution for accounting and financial services.

"Post the pandemic, there will be an urge to close the pending cases and there will be significant increase in new stressed cases. Introducing the pre-packaged IBC at this time will boost the economy and allow quick closure of the pending and upcoming cases," Rana said.