The government is weighing a proposal to decrease by extra than a half the time limit for the resolution of stressed assets below a so-named ‘pre-pack’ insolvency scheme. Any such move would not just expedite the resolution of poor debt but also reduce charges. The “pre-pack” scheme will demand amendments to the Insolvency and Bankruptcy Code (IBC) to take impact, and the government could introduce a Bill to this impact as early as the subsequent session of Parliament, sources stated. 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.
At present, below the IBC, the corporate insolvency resolution procedure has to be wrapped up inside a maximum of 270 days. Of course, in quite a few instances, particularly the significant ones advisable by the central bank that integrated Essar Steel and Bhushan Steel, the resolution procedure dragged on for months, far exceeding the mandatory time-frame. But that was mostly due to litigation.
While information are becoming worked out, the “pre-pack” scheme will usually permit a stressed firm to prepare a economic reorganisation program with the approval of its at least two-thirds of creditors (and share-holders). The resolution program so reached can then be placed prior to the NCLT for approval and subsequent implementation. However, the fineprint of the scheme will be essential to its accomplishment, analysts have stated.
Under the extant IBC norms, a creditor can drag a debtor to the NCLT if the default quantity is `1 crore or extra. Once the creditor’s application is admitted by the NCLT, the resolution procedure begins and it has to be wrapped up in 180 days, which can be extended by a maximum of 90 days. “The time limit may be reduced to just 3-4 months under the ‘pre-pack’ scheme. The government is in the process of finalising the changes,” a single of the sources stated.
Data accessible with the Insolvency and Bankruptcy Board of India (IBBI) show, of the two,108 ongoing instances as of June 2020, the resolution of as quite a few as 1, 094 has been dragging on beyond the mandatory 270 days. Analysts have attributed this delay to the legal hurdles posed mostly by defaulting promoters’ dogged pursuit to hold on to their businesses.
Earlier, the government had set up a committee below IBBI chairman MS Sahoo to submit a report on ‘pre-pack’ insolvency. The planned amendments are anticipated to be primarily based on the Sahoo panel report. Since a resolution program below a “pre-pack” arrangement is currently endorsed by the lenders, it will efficiently bypass several needs and interventions by the NCLT at distinct stages below the usual IBC procedure, as a result, lowering litigation charges and delays. It will also support decongest the more than-burdened NCLTs, particularly soon after the lifting of the suspension of insolvency instances against fresh Covid-connected defaults.
The government has currently extended the suspension by 3 months from September 25, upon the expiry of a six-month deadline final week. The concept was to support money-strapped firms tide more than the Covid effect without the need of the fears of acquiring dragged to the NCLT.