The government has proposed to roll out a so-named “pre-pack” insolvency scheme that will enable sincere promoters to submit resolution plans for their stressed firms and it could be obtainable for all corporate debtors and for any strain — pre and post default.
As per a draft pre-pack scheme, place out by the corporate affairs ministry, the government may possibly start by permitting 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 from Rs 1 to Rs 1 lakh.
A corporate debtor will have to initiate pre-pack with the consent of a basic majority of unrelated economic creditors and shareholders. While eligible promoters will be permitted to bid, there will be no dilution of provisions of Section 29A disqualification criteria. Under the scheme, industry participants will be permitted 90 days to submit the resolution program to the adjudicating authority, which shall have 30 days to approve the program.
Pre-pack will ordinarily see resolution and not finish up with liquidation, except when the creditors determine to liquidate the corporate debtor with a 75% voting share.
The scheme will call for amendments to the IBC, and the government may possibly introduce a Bill to this impact as early as the Budget session of Parliament. If adopted early, it will be a essential tool at creditors’ disposal as soon as the government lifts a suspension of the IBC procedure against Covid-connected defaults from March 25, 2021, which may possibly lead a sudden rise in insolvency situations.
As reported by FE earlier, the “pre-pack” scheme will be a pre-IBC window for resolution of toxic assets, which will only complement the current framework but not substitute it.
Data obtainable with the IBBI show, of the 1,942 ongoing situations as of September 2020, the resolution of as numerous as 1,442 has been dragging on beyond the mandatory 270 days. In numerous situations, analysts have attributed this delay to the legal hurdles posed mainly by defaulting promoters’ dogged pursuit to hold on to their firms. As numerous as 1, 025 firms have gone for liquidation.