INTRODUCTION

The government has amended the insolvency law to incorporate a pre-packaged resolution mechanism for stressed MSMEs in order to have a faster and more value-maximizing outcome.[1] This resolution plan is primarily aimed at MSME to seek relief from the debt. The ordinance was promulgated on April 4 to amend the IBC code. The coronavirus pandemic has affected many MSMEs, and experts say the new reform, which comes less than two weeks after the suspension of some IBC provisions ended, is a positive step. Due to procedural hurdles and the current outbreak of the Covid 19 pandemic, an alternative choice for out-of-court negotiations is urgently needed, consequently the innovative idea of “pre-packaged plans” is the talk of the town in these times of crisis.

WHAT IS PRE PACKED INSOLVENCY PLAN?

Pre-packaged plans, also known as “pre packs,” are an out-of-court process in which the debtor and creditor reach an agreement and discuss the terms of the settlement dues. According to the book definition in prepack insolvency, “a distressed corporation and its creditors enter into an arrangement in advance of statutory administration procedures that allows statutory procedures to be enforced at full speed,”.[2] Pre-packs are still in their infancy in India, but they are widely recognized procedures in countries such as the United Kingdom, the United States of America, and Germany. It is an informal process in which a proposal is decided upon, approved, and then submitted to the court for approval; thus, it can be defined as a hybrid process involving the two parties as well as the court to a limited extent.

IMPORTANCE OF PRE PACKS IN THESE TESTING TIMES OF COVID-19

Since 2019, the Ministry of Corporate Affairs (MCA) has been considering the introduction of pre-packaged insolvency plan. Prior to the discussion of prepacks, the RBI had implemented Corporate Debt Restructuring (CDR) and Strategic Debt Restructuring (SDR) with the aim of giving stressed assets a boost, but the mechanisms failed to deliver. In India, the Bankruptcy Law Report Committee (BLRC) advocated for hybrid rescue strategies such as “pre-packed rescues.” In addition, the informal out-of-court debt restructuring process was proposed in the Insolvency Law Committee’s Report for the purpose of protecting MSMEs and rehabilitating debtors. However, the out-of-court settlement process was not implemented after that. The introduction of prepacks is currently being discussed again due to the six-month suspension of sections 7, 9, and 10 of the IBC. In this period of pandemic, it is also expected that prepacks will aid in preserving the business value of debtors, especially MSMEs, boosting the economy, lowering the burden of NCLT, and dramatically assisting in debt restructuring. There will be a huge rise in stressed assets after the pandemic, as there will be a temporary ban on taking any action after March 25, 2020. As a result, there is a pressing need in India to implement a pre-packaging process that is compatible.

ROLE IN FULFILLING THE SDG GOAL OF INCLUSIVE AND EQUITABLE FINANCE. 

The pandemic has had a significant effect on the achievement of SDG 8, which calls for decent work and economic growth. As a developing nation, increasing economic growth appears to be the most critical factor in achieving long-term development goals. It aims to create a resilient and healthy community for all people and their well-being. The agenda for this target was for the least developed countries to have a 7% economic growth rate by 2030[3], as well as complete and sustainable jobs, for both men and women in the coming 15 years.[4] At this point, having an insolvency ordinance in place assists India in coping with economic growth while also achieving the SGD target of inclusive and egalitarian finance. UNCDF, for example, contributes to the same cause by assisting banks, microfinance agencies, cooperatives, money transfer firms, and a variety of other operators. It provides MSMEs with affordable financial products for a long-term future.[5] The Indian economy must be stabilized by selling strained assets that can be used for other purposes.

CONCLUSION

Prepack is an up-and-coming tool for out-of-court debt restructuring, especially in these times of pandemic. It is an appropriate remedy for overburdened NCLT cases, and it usually takes less time than litigation. If prepack is correctly introduced, the issue of litigation delay and cost savings can be effectively addressed. Furthermore, the pre-packaging process will lead to less stigmatization of the stressed organization and no change in management strategy, as the entire management can continue to conduct its day-to-day operations. Fairness, openness, and the resolution of disputes among different stakeholders are all made possible by a pre-packaged process. Since the IBC would be amended, implementing pre-packs can be a time-consuming process. Prepacks, on the other hand, may be implemented in the current scenario with the aim of increasing asset valuation.

[1] https://www.livemint.com/news/india/govt-amends-insolvency-law-introduces-pre-packaged-resolution-process-for-msmes-11617638457411.html <accessed on 16, April, 2021>

[2] https://www.phdcci.in/wp-content/uploads/2020/07/Booklet-PHD-Chamber-Journal-of-Ideas-forweb-27-July.pdf <accessed on 16 April, 2021>

[3] https://taxguru.in/corporate-law/insolvency-ordinance-pre-packaged-deals-lifeline-havoc.html <accesed on 16 April 2021>

[4] SDG 8: Decent Work And Economic Growth United Nations, https://in.one.un.org/page/sustainable-development-goals/sdg-8/ (last visited Apr 16, 2021)

[5] COVID-19 Financial Inclusion and the SDGs – UN Capital Development Fund (UNCDF), https://www.uncdf.org/financial-inclusion-and-the-sdgs (last visited Apr 16, 2021)

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