While Insolvency Bankruptcy Code would remain suspended for fresh cases, it becomes relevant that alternative solutions in the system be explored. Comment (200 Words)
Refer - Financial Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 4 years
KEY POINTS
· A pre-pack is a mix of an out-of-court restructuring scheme and formal insolvency process where the terms of sale are pre-negotiated and finalised with approvals of creditors prior to filing for insolvency with the court.
· Pre-Pack is strongly built around the tenets of value preservation and timely resolution, which form the lifeblood of any insolvency law.
· The current insolvency regime, although a great improvement over its predecessors, leaves a lot to be desired with respect to recovery rate, swiftness, and ease of resolution. A pre-pack, on the other hand, would check perverse behaviour and give incentive to the existing management to revive the company while ensuring business continuity, which would help preserve value and maximise recovery for the lenders.
· Pre-pack will cut these timelines significantly, while also cutting down costs of litigation and administration, and will decongest the overburdened NCLTs.
· Introduction of pre-pack would, however, be a fundamental shift from the current “creditor in control” model, and brings with it its own set of challenges, which would necessitate significant changes to the framework.
· Legislation would have to be brought in to address the risk of lack of transparency and cramdown on the unsecured creditors or operational creditors as they would not be parties to the dialogue preluding the submission of plan.
· Principles of equity and transparency would also have to be built into the Code, taking care not to shackle it to the point of inefficiency. Regulatory framework around the insolvency professionals would also need to be strengthened further to check the exercise of what could be significantly more power in the hands of insolvency professionals in a pre-pack.
Sanjeev Kumar Singh 4 years
Please review
IAS Parliament 4 years
Try to elaborate about pre-packaged insolvency. Keep Writing.
Sanjeev Kumar Singh 4 years
How to post copy, kindly tell me sir.
IAS Parliament 4 years
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Aradhana Tiwari 4 years
To address the hardship of businesses which risk being dragged into bankruptcy due to pandemic-fuelled distress the Union Cabinet has decided to put the Insolvency and Bankruptcy Code, 2016 (IBC) in abeyance by suspending the admission of new cases into insolvency for the next six months and the suspension time can be extended up to one year.
>>> Benifits of IBC suspension :
- would pave the way for banks to restructure loans.
- is a major relief for corporate borrowers in repaying their loans
The coronavirus outbreak and the nationwide lockdown to curb spreading of infections have significantly impacted economic activities in such situation, it becomes pertinent that alternative solutions to address the stress in the system be explored.
>>> Alternative solutions :
* Pre-packaged insolvency - where the terms of sale are pre-negotiated and finalised with approvals of creditors prior to filing for insolvency with the court,
* allows an exhaustive list of people from acquiring companies under pre- pack insolvency,
* incentivise the promoter to contribute positively towards the process of pre-pack,
* give incentive to the existing management to revive the company while ensuring business continuity,
* cut down costs of litigation and administration, and also decongest the overburdened NCLTs.
* Legislation would have to be brought in - to address the risk of lack of transparency on the unsecured creditors
* Fundamental shift from the current “creditor in control” model is the need of the hour.
>>> Conclusion :
In unprecedented and distressed times like these Corona crisis, when insolvencies are bound to increase, the introduction of alternative solutions becomes more necessary than ever.
IAS Parliament 4 years
Good attempt. Keep Writing.
