Business enterprises may have to wait for some time to use the concept of “pre-packs” as part of the insolvency regime, Insolvency and Bankruptcy Board of India Chairman MS Sahoo has indicated.
“Time has come to think about it (pre-packs). But it is little early to implement it here. Let systems and practices develop little more before we take the step of introducing pre-packs in our insolvency regime,” Sahoo told BusinessLine.
His remarks are significant as it comes on the heels of NCLT President MM Kumar recently making a case for India to consider introduction of “pre-packs” in its insolvency regime.
Pre-packaged insolvency (pre-pack) is a procedure where a company arranges to sell all or some of its assets to a buyer before declaring its insolvency (appointing administrator to facilitate the sale). This would be seen as a powerful, legal way to sell the business to a trade buyer or third party.
Kumar had recently said that “pre-packs” could be a panacea for economies like India.
A pre-pack administration process, as prevalent in the UK, envisions making suitable arrangements by a company which is vulnerable to insolvency or has a threat of winding up of selling its assets to a buyer. It is an efficacious way of selling business to a third party before insolvency petition is admitted.
Meanwhile, Sahoo underscored the need for Committee of Creditors (CoCs) to be “businessmen like”. “I would like the Committee of Creditors to be businessmen, that is, to create value to justify the privilege granted to them under the Code and envisaged by the Bankruptcy Laws Reforms Committee,” he said.
Focus on resolution
Going by the experience on the ground post the enactment of IBC, lenders are mainly focused on recovery and not on resolution, say economy watchers.
The Insolvency and Bankruptcy Code (IBC) envisages insolvency resolution. This necessarily means that the resolution plan must address the root cause of insolvency and then solve the problem. Resolution plan must identify why the corporate debtor has reached this situation and offer solution. This is not currently happening in the Indian system.
If the objective of the resolution mechanism is selling, then the Insolvency Resolution Professional, Committee of Creditors are not required at all, said economy watchers.