Insolvency: Pre-IBC facility likely to speed up resolution | Business News, The Indian Express

The government is exploring the feasibility of implementing a so-called “pre-packaged” bankruptcy scheme, prevalent in countries like the US, in India to aid the existing insolvency framework and cut costs and time of the resolution process.

The planned scheme, if implemented, will be a “pre-IBC (Insolvency and Bankruptcy Code) window for the resolution of stressed assets, which will complement the existing framework and not substitute it,” Corporate Affairs Secretary Injeti Srinivas said on Monday. The secretary has asked the Insolvency and Bankruptcy Board of India to weigh the proposal and see if it can be adopted.

Explaining the idea of the proposed scheme, Srinivas pointed out that it won’t seek to dilute the existing IBC framework in any way and creditors can still tap the current IBC window if they don’t want any pre-IBC negotiations with debtors. The proposed scheme will only be an additional tool at disposal in case both creditors and debtors wish to avoid the usual litigations and rigour of the resolution process under the current IBC framework, which has been, in any case, immensely successful.

The “pre-packaged bankruptcy scheme” will typically allow a stressed company to prepare a financial reorganisation plan with the approval of its at least two-thirds of creditors (and share-holders) before the filing of an insolvency application by any party at the National Company Law Tribunal (NCLT). The resolution plan so reached can then be placed before the NCLT for approval, so that it can be implemented.

Since the plan is already endorsed by the lenders, it will effectively bypass various requirements and interventions by the NCLT at different stages under the usual IBC process, thus reducing litigation costs and delays. It will also help to decongest the over-burdened NCLTs.

Since any such change in the insolvency framework needs a legal backing for it to be effective, it will be part of the IBC.

via Insolvency: Pre-IBC facility likely to speed up resolution | Business News, The Indian Express