Examining the Pre-Packaged Insolvency Resolution Process in India,

Abstract

The shift from the contemporary insolvency law towards a corporate rescue mechanism has been well incorporated in the Insolvency & Bankruptcy Code 2016 (hereinafter “the Code”). In a short span of six years, the Code has brought sweeping reforms in the insolvency landscape of India. The Code provides a comprehensive and time-bound insolvency resolution process for the corporate debtor offering their creditors the legal right to press claims for recovery of default. The recovery mechanism under the Code either results in corporate rescue or liquidation of the corporate debtor. The purpose of the Code is to rehabilitate and revive the financially troubled corporate debtor and prevent the extreme liquidation route. The Code has undergone various amendments since its inception. An innovative approach to corporate restructuring that has emerged over the years is the pre-pack mechanism which incorporates the virtues of formal judicial proceedings and informal out-of-court settlement. The pre-pack method of insolvency resolution has been prevalent in various developed nations like the United Kingdom and the USA. It was recently introduced in India through Chapter IIIA on the Pre-Packaged Insolvency Resolution Process (hereinafter “PPIRP”) in the Code. The essence of pre-pack is formulating a restructuring or resolution plan before the commencement of insolvency. It offers a hybrid ‘debtor-inpossession’ and ‘creditor-incontrol’ model for the Micro, Small, and Medium Enterprises (hereinafter “MSME”). The paper analyses the provisions of PPIRP under the Code and whether it can provide an efficient and effective insolvency regime to the MSMEs. The paper further examines the impact of prepacks on the insolvency framework in India.