Change in IBC paves way for prepack solutions for the MSME sector

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India Friday notified changes to the Insolvency & Bankruptcy Code framework that paves the way for pre-packs for the MSME sector. The notification was issued after the IBC amendment bill approved by the Parliament received presidential assent. ET looks at the provisions closely

WHAT IS PRE-PACK RESOLUTION?

  • Pre-pack is a hybrid corporate rescue process
  • It blends elements & virtues of both formal & informal insolvency proceedings.
  • It allows a company to prepare a resolution plan with creditors before initiating insolvency proceedings
  • Private discussions can take place between promoters & financial creditors

WHAT DOES THE CURRENT FRAMEWORK ENTAIL?

  • Pre-packaged insolvency resolution process for MSMEs
  • Govt can set a threshold for default exceeding Rs 1 cr for initiation
  • Govt has prescribed the threshold of Rs 10 lakh for this purpose.
  • Consent of 66% of unrelated financial creditors & special majority holders required
  • Pre-packaged insolvency resolution process has to be completed in 120 days

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