Pre-packaged insolvency process under Indian bankruptcy code is positive but limited in its scope, feel experts

Amid a growing perception that India’s three-year-old insolvency resolution system has been less than productive in saving businesses and aiding lenders to recover their assets, the government has amended the Insolvency and Bankruptcy Code (IBC) through an Ordinance to provide for a so-called pre-pack resolution scheme for micro, small and medium enterprises (MSMEs).

The scheme, where only the debtor will get to trigger the bankruptcy process, is expected to yield much faster resolution than the extant corporate insolvency resolution process (CIRP) and cut costs, analysts reckon. It could also reduce litigation, often triggered by defaulting promoters to retain control of their firms, and help thousands of MSMEs struggling to cope with the havoc wrought by the Covid-19 pandemic.

A pre-pack scheme for larger companies could be notified later, once the latest one is tested for resilience and efficacy, sources said.