Govt may roll out ‘pre-pack’ scheme as IBC remains suspended
Though resolution professional will be appointed, he will only be responsible for smooth running of the pre-pack process, which is supposed to be completed in 90-120 days for filing of resolution plan with the AA plus 30 days for AA to approve it.
The government has suspended the Insolvency and Bankruptcy Code (IBC) till 31 March 2021, but it is in the process of implementing a pre-pack scheme to fill the vacuum during the period.
According to the draft framework, only a company in default can initiate a pre-pack process with simple majority consent of the financial creditors and shareholders. Unlike in the corporate insolvency resolution process (CIRP), where the management of the defaulting company goes into the hands of the resolution professional, who is appointed by the creditors, in pre-pack scheme, the promoters and management will continue to have control of the company.
Though resolution professional will be appointed, he will only be responsible for smooth running of the pre-pack process, which is supposed to be completed in 90-120 days for filing of resolution plan with the AA plus 30 days for AA to approve it. The CIRP takes 330 days for completion.
As per the draft framework, the pre-pack scheme should be available for all corporate debtors and any stress — pre-default and post-default. It recommends phased implementation of the scheme.
“It may commence in respect of defaults from Rs 1 lakh to Rs 1 crore and COVID-19 defaults for which CIRP is not available today, followed by default above Rs 1 crore, and then default from Re 1 to Rs 1 lakh,” says the draft framework.