As per the reports, a pre-packaged insolvency or a pre-pack is a pre-planned process in which a financially distressed company and its creditors tries to reach an agreement with a buyer for its sale prior to initiating insolvency proceedings. This is done by an insolvency practitioner or an Insolvency Resolution Professional (IRP) who is appointed as the administrator/ bankruptcy trustee of such company. The sale takes place on the date of initiation of insolvency proceedings or the appointment of administrator/ insolvency professional, and then the sale proceeds are distributed amongst stakeholders in the order of priority.
Pre-packs helps to avoid lengthy negotiations with creditors of the company after the commencement of insolvency proceedings, enabling insolvency resolution in an expeditious manner with minimal or zero involvement of courts and tribunals. Pre-pack would not only reduce the time taken for insolvency resolution and will permit greater value maximization, but will also substantially reduce the burden on the tribunals. The challenge is to co-join the pre-pack mechanism with the existing insolvency resolution mechanism under the Code, so that necessary statutory compliances and safeguards for ensuring transparency and protection of stakeholders are not left behind. A suitable set of Regulations will be introduced for this purpose. Few guidelines relating to Pre-Pack mechanism are as follows:
Since, the resolution plan has the prior approval of the CoCs, there should be no need for NCLT to intervene at various stages during the Insolvency Resolution Process. Once the resolution plan is filed before the NCLT, a moratorium under the I&B Code may be imposed. During this period, claims and objections to the resolution plan should be invited from all creditors of the corporate debtor. This would ensure that operational creditors and other creditors who were not involved at the pre-filing stage gets an opportunity to present their objections, if any.
After duly hearing such objections and ensuring proper compliance with statutory requirements, the NCLT should approve the resolution plan. Pre-pack mechanism, if implemented well, will help in promoting early debt restructuring in a manner that best achieves the objectives of the Code.
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