Pre-packaged bankruptcy scheme under consideration by the government

By EDITORIAL BOARD - INSOL INDIA Posted On : December 14, 2018

The government is assessing the potential of a ‘pre-packaged’ bankruptcy scheme that will speed up insolvency resolution at a pre-insolvency bankruptcy code stage. The scheme is prevalent in USA and is expected to aid the existing framework for insolvency and help in reducing time and cost of a resolution process.

 

The idea of a ‘pre-packaged’ bankruptcy scheme revolves around providing a recourse to a stressed company to prepare a financial reorganisation plan and seek approval from its creditors and shareholders before any party approaches the NCLT for initiating an insolvency resolution process. The reorganisation plan, if approved, can be placed before NCLT and be implemented. Such a plan which has been previously endorsed by the lenders of the stressed company, will not be subject to numerous formalities under the Code and likely to reduce the involvement of NCLT.