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Prepack for MSMEs – A Vaccine that doesn’t Work?

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– Megha Mittal

(resolution@vinodkothari.com)

The Insolvency and Bankruptcy (Amendment) Ordinance, 2021 (‘Ordinance’)[1] was promulgated on 5th April, 2021 to bring into force the prepackaged insolvency resolution framework for Micro, Small, Medium Enterprises (MSMEs). While the Ordinance put forth the structure of the prepack regime, a great deal was dependent upon the relevant rules and regulations. On 9th April, 2021, the Insolvency and Bankruptcy (Pre-packaged Insolvency Resolution Process) Regulations, 2021 (“Regulations”)[2] as well as the Insolvency and Bankruptcy (Pre-Packaged Insolvency Resolution Process) Rules, 2021 (“Rules”)[3] have been notified with immediate effect.

As one delves into the whole scheme of things, including the complicated provisions of the Ordinance and the even complication regulations, one gets to feel that the prepack framework will act only as a consolation for the MSMEs – while efforts aimed to increase the efficacy of insolvency resolution, the proposed Framework seems to do a little towards this end. In the author’s humble opinion, key elements of prepacks – cost and time efficiency and a Debtor-in-Possession approach, have been diluted amidst the micromanaged Rules and Regulations. In this article, we discuss how[4].

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Bringing pre-packs to India: a discussion on the way forward

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“Pre-packs”, though yet to be born, have raised the expectations high. Reasons are obvious – the package is supposed to offer a lucrative combination of all the benefits of a ‘reorganisation/resolution plan’ as otherwise available only under formal insolvency proceedings with the added benefit of ‘speed’.

Pre-pack framework, as studies show, is not always contained in the statutory machinery. One of the close examples is UK. There the pre-pack arrangement is guided by insolvency practice statement, rather than a legislative framework.

In the Indian context, with some unique features, our insolvency regime stands differently from other jurisdictions – say, section 29A, and more importantly, section 32A.

Also, we already have certain debt restructuring tools in vogue – schemes of arrangement, and the apex bank’s framework for resolution of stressed framework. So, how do we welcome pre-packs, such that it serves the intended purpose? Surely enough, the pre-pack framework has to imbibe all the ‘good things’ which a formal insolvency framework has, and also offer something ‘over and above’ the existing options of debt restructuring.

The article sees these aspects and proposes what can be the optimal way of adopting pre-packs in India.