Pre-Pack Resolution of Stressed Corporate MSMEs by Banks in India

ABSTRACT

Micro, Small and Medium Enterprises (MSMEs) in India experienced a steep decline in production, income and employment generation during the recent Covid-19 pandemic. Consequently, loan default on the part of stressed MSMEs has been on the rise. Appreciating the difficulties of such enterprises during the pandemic, the Government of India has recently initiated a major relief measure by amending the Insolvency Bankruptcy Code (IBC) to introduce a Pre-Pack Resolution Scheme, initially for corporate MSMEs. This is considered as an alternative route for faster and easy resolution of stressed corporate MSME debts if 66% of the financial creditors approve their plan to approach the adjudicating authority for insolvency, National Company Law Tribunal (NCLT). In the absence of such a scheme, they had to go through a long-drawn-out process under IBC. While there are several benefits of the scheme, stakeholders such as corporate MSMEs, lending institutions and NCLT have to face many challenges in implementing it successfully. This paper attempts to review the scheme by discussing its background, salient features, process, regulatory aspects and other issues.