(MENAFN- KNN India) Kolkata, May 7 (KNN) The pre-packaged insolvency resolution process, introduced through the Insolvency and Bankruptcy Code (Amendment) Act of 2021, has witnessed a measured adoption rate thus far.
This mechanism, tailored for Micro, Small, and Medium Enterprises (MSMEs), offers a hybrid approach allowing corporate debtors and creditors to negotiate and formulate a base resolution plan before initiating formal proceedings.
Data from the Insolvency and Bankruptcy Board of India (IBBI) indicates that as of May 31, 2023, eight applications had been filed to initiate pre-packaged insolvency proceedings, of which six were admitted. One of the admitted cases was subsequently withdrawn before resolution, leaving four active cases, with one successfully resolved.
Lenders have cited potential factors influencing the modest utilisation of this process. B. Sankar, Deputy Managing Director of the Stressed Assets Resolution Group at State Bank of India (SBI), noted that promoters and directors might be hesitant to extend powers to resolution professionals as mandated by the Code.
Additionally, there could be reluctance among debtors to provide declarations regarding avoidance transactions, such as preferential, undervalued, or extortionate transactions.
While the pre-packaged process has seen limited traction so far, financial creditors are optimistic about the proposed creditor-led resolution approach (CLRP) as an alternative avenue for resolving stressed assets.
An expert committee of the IBBI introduced a framework for the CLRP in May 2023, which would allow existing management to continue operating the company as a 'going concern' without transferring management rights to a resolution professional.
Sankar expressed confidence that the CLRP could "help in resolving stressed assets in a more coordinated way within shorter timelines."
The draft framework proposes the approval of a resolution plan within 120 days, with the possibility of a 45-day extension granted by the adjudicating authority.
Sudhakar Shukla, a full-time member of the IBBI, stated that the CLRP could benefit both MSMEs and larger corporates, indicating its potential for widespread application across various business sectors.
As the insolvency resolution landscape continues to evolve, lenders and regulatory bodies are exploring alternative mechanisms to streamline and expedite the process, particularly for smaller enterprises facing financial distress.
(KNN Bureau)
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