Corporate Rescue & Pre-pack Paradigm in India

[2022] 137 taxmann.com 377 (Article)

Under the current legal context for corporate insolvency proceedings, there are two basic approaches to deal with a failing corporation. Liquidation & Corporate rescue. Both the methods present a collective approach of resolving the fate of corporations when private negotiations fail to resolve financial issues. While liquidation serves the essential function of closing up an insolvent business, corporate rescue procedures offer an alternative to the insolvent business’s immediate liquidation. Speed is one of the most important factors for any bankruptcy code to function properly.

One of the key purposes of the Code is to place insolvency law in India under a single consolidated roof with the object of expediting up the insolvency process. The pre-pack’s, a form of corporate rescue is being proposed in order to facilitate the Code’s quick settlement. The framework, however, cannot be implemented without altering the Code as well as the laws and regulations that it prescribes. Once the framework is in place, the Adjudicating Authority’s responsibility of resolving a company’s financial crisis in a timely and cost-effective manner under the Code would be reduced.

However, insolvency professionals will have a greater responsibility for balancing the interests of stakeholders and ensuring that secured creditors and promoters do not benefit unduly from the use of frameworks such as PPIRP, PAIRP, and others. Furthermore, the Adjudicating Authority’s necessary approval would alleviate stakeholders’ concerns about the resolution plan because it would be binding on all parties. It would also help to alleviate the issue of preferred transactions under Section 43 of the Code. Pre-packs help to achieve the Code’s goal of maximising the value of a corporate debtor’s assets while protecting the interests of all stakeholders.

As a result, the legislature is likely to find the ideal balance between existing legislation and the pre-pack structure. The transition would not be easy, but with a few tweaks, the pre-pack regime in the Code would be implemented smoothly. This Article deals with the position of prepacks in India after the recent amendment in IBC and establishes the importance of pre-packs for MSMEs.

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