Pre-packaged Insolvency Resolution Process

About Pre-packaged Insolvency Resolution Process

• It was introduced in April 2021 in the wake of Covid pandemic, to deal with stress of small and mid-sized companies.
• The idea was that resolution of distressed MSMEs requires different treatment due to the unique nature of their businesses.
• Pre-packaged insolvency process is an alternate and speedier resolution mechanism for micro, medium and small enterprises in financial distress.
• Process
  • It involves the debtor and its creditors negotiating and agreeing on a resolution plan before initiating the formal insolvency process.
  • Once approved by the creditors, the pre-packaged resolution plan is submitted to the National Company Law Tribunal (NCLT) for approval. It is similar to an out-of-court settlement process.
  • The debtor and creditor work on a draft resolution plan before formally initiating the insolvency process.
  • Once finalised and approved by the required majority of creditors, the plan is submitted to NCLT.
• The pre-packaged insolvency process is initiated voluntarily by the debtor.
• Significance: Since the resolution plan is negotiated and finalised before filing with NCLT, it reduces the time taken for resolution compared to the corporate insolvency resolution process, with minimal disruptions.

Q1: What is the National Company Law Tribunal?

 It is a quasi-judicial authority incorporated for dealing with corporate disputes that are of civil nature arising under the Companies Act,2013.

Source: Pre-pack insolvency a success for five companies