Analysis on Effect of Pre-Packaged Deals Ordinance Vis-À-Vis Sustainable Development Goal 8

Analysis on Effect of Pre-Packaged Deals Ordinance Vis-À-Vis Sustainable Development Goal 8

Introduction:

The Sustainable Development Goals, also known as the Global Goals, are a set of 17 interconnected global goals aimed at providing a “blueprint for a prosperous and more sustainable future for all.” The United Nations General Assembly adopted the SDGs in 2015, with the aim of achieving them by 2030. The primary objective of these goals is to end poverty, fight inequality and addressing the forthcoming problem of climate change. These goals provide for a roadmap or a handbook to all governments around the world, businesses and the people at large to work as a group and hence build a prosperous world.

Goal 8: Decent Work And Economic Growth

Despite the long-term effects of the 2008 economic crisis and global recession, the number of workers living in severe poverty has decreased significantly over the last 25 years. The middle class now accounts for more than 34% of total jobs in developing countries, a figure that has nearly tripled between 1991 and 2015.

The Sustainable Development Goals (SDGs) encourage long-term economic growth, increased production, and technical advancement. Encouragement of entrepreneurship and job creation, as well as successful steps to end forced labour, slavery, and sex trafficking, are important. With these goals in mind, the aim is for both women and men to have complete and productive jobs, as well as decent work, by 2030.

Goal 8 has the following targets[1]:

• Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries
• Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors
• Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services
• Improve progressively, through 2030, global resource efficiency in consumption and production and endeavour to decouple economic growth from environmental degradation, in accordance with the 10-year framework of programmes on sustainable consumption and production, with developed countries taking the lead
• By 2020, substantially reduce the proportion of youth not in employment, education or training
• Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all
• Increase Aid for Trade support for developing countries, in particular least developed countries, including through the Enhanced Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries

IBC Ordinance:

On April 4, 2021, the President signed the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021[2]. The plan to amend the Insolvency and Bankruptcy Code, 2016 (Code) via the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, which was approved by the cabinet.

The amendments seek to provide an efficient alternative insolvency resolution mechanism for corporate persons classified as micro, small, and medium enterprises (MSMEs) under the Code, in order to ensure faster, cost-effective, and value-maximizing outcomes for all stakeholders, while minimising disruption to MSMEs businesses and job preservation.[3]

The inclusion of a pre-packaged insolvency resolution mechanism for MSMEs in the Code is expected to relieve the distress experienced by MSMEs as a result of the pandemic’s effects. Pre-packaged deals are a novel concept in India, however, it has been prevalent in the US and UK for a long time.

Based on the Insolvency Law Committee’s recommendations, the Amendment Ordinance aims to amend sections 4, 5, 11, 33, 34, 61, 65, 77, 208, 239, 240 of the Code, as well as add additional sections 11A, 67A, 77A, and a new chapter IIIA on Pre-Packaged insolvency settlement procedure for MSMEs.[4]

Comparative Analysis Of The New And Old Process

Analysis:

The Corporate Insolvency Resolution Process as we know it, is a cumbersome and costly process in regards to insolvency resolution mechanism. In case of large corporate debtor, it is feasible for the volume of transaction and size of firm involved, in case of a large corporate debtor the creditors are also in large numbers be it operational or financial creditors, thus, due to such large number of stakeholders, CIRP is applicable, however, in case of small corporate debtors, it is a costly process, thus to solve this problem, the ordinance has been promogulated. It is a time and cost-effective process.

The Merits of the Ordinance are:

1) Eases the burned on NCLT

2) Doesn’t disrupt business activity of corporate debtor and hence saves jobs

3) Faster resolution as lesser technicality and procedure involved.

4) Reduces legal costs to a great extent

5) Faster resolution as the entire process is finished in 120 days

6) This shall also further the government’s ease of doing business goals.

Thus, this ordinance is a welcome move for the stressed MSME units who have suffered economic and financial hardships in the pandemic. It shall ensure a constructive signal to the loan market, job security, ease of doing business, and the preservation of enterprise resources.

Notes:

[1] UNDP. 2021. Goal 8: Decent work and economic growth | UNDP. [online] Available at: <https://www.undp.org/content/undp/en/home/sustainable-development-goals/goal-8-decent-work-and-economic-growth.html> [Accessed 13 April 2021].

[2] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1710161

[3] Ibid

[4] Ibid