Prepack insolvency logged slow pick-up, only 13 cases till September

Govt may widen scope of schemes for larger companies and not just MSMEs

Prepackaged insolvency applications have seen a slow pick up with total cases nearly doubling to 13 till September 2024 compared to six admitted cases till the corresponding period last year, according to Insolvency and Bankruptcy Board of India (IBBI) data.

 

Pre-packaged Insolvency Resolution Process (PPIRP) for micro, small and medium enterprises (MSMEs) came into force on April 4, 2021 (during Covid), to help smaller companies avoid bankruptcy.

 

Prepackaged resolution is a fast-track process that identifies a resolution plan before admission of the process by the National Company Law Tribunal (NCLT).

 

It is an arrangement where the promoter of the stressed company proposes a resolution plan to the creditors before the firm can be taken to bankruptcy proceedings.

   

The purpose of this scheme is not just to have a timely and faster resolution mechanism but also to give legal sanction to a plan agreed among banks, promoters and the buyer. 

 

Of the 13 admitted cases so far one has been withdrawn and resolution plans have been approved in five cases, including Amrit India Limited, Sudal Industries Limited, Shree Rajasthan Syntex Limited, Enn Tee International Limited and GCCL Infrastructure and Projects Limited, IBBI data showed.

 

“The prepackaged scheme has not been as successful as the corporate insolvency resolution process (CIRP) because bankers are not very comfortable with it. They feel it is a less regulated process and find it better to go through the CIRPs,” said Manoj Kumar, partner, Corporate Professionals.

 

The government is considering widening the scope of the prepackaged schemes for larger companies and not just MSMEs.

 

“Bigger companies may be in a better position to take support of external agencies to implement a prepack scheme compared to the MSMEs,” Kumar added.

 

Under the CIRP, creditors have realised around 31 per cent against the admitted claims.

 

While the latest data for recovery under prepackaged scheme is not known, as of May 2024, only 25 per cent of admitted claims had been recovered, according to IBBI.

 

It is felt that compared to CIRP — where the recovery for creditors has been around 32 per cent despite a large number of creditors and disputed claims — the pre-pack regime with its fast-track and consent-based model should lead to much higher realisations by creditors, the IBBI said.