Pre-pack resolution route needs incentives

Given that most MSMEs are informally organised, they may be averse to an insolvency resolution mechanism which displaces their founders

An amendment to the Insolvency and Bankruptcy Code (IBC 2016) recently received the President’s assent. It replaces an ordinance promulgated earlier this year, and provides for a pre-packaged insolvency resolution process (PIRP) for micro, small and medium enterprises (MSMEs). This comes in the backdrop of the financial stress caused by Covid-19 to MSMEs, and envisages a hybrid mechanism of negotiated debt restructuring, which, upon approval of the National Company Law Tribunal (NCLT), becomes binding on all stakeholders.

MSMEs account for about 30 per cent of the gross domestic product, employ over 110 million Indians, and are key to economic growth. A