“While modelled on debtor-in-possession approach, it vests significant consent rights to the financial creditors, such that the mechanism cannot be misused by errant promoters.
“Further, adopting the plan evaluation process akin to Swiss Challenge, it retains competitive tension such that promoters propose plans with least impairment to rights and claims of creditors,” Majumdar noted.
L Viswanathan, Partner at Cyril Amarchand Mangaldas, said the government has cautiously introduced the pre-pack regime only for the MSME sector at this point of time, which is welcome.
“The pre-pack regime comes with procedural checks and balances including applicability of Section 29 A and two-third creditors’ consent for both initiation and approval of the base resolution plan.
“Participation of eligible existing promoters is encouraged with the board continuing in control and the debtor proposing the base resolution plan,” he added.
Broadly, Section 29 of the IBC seeks to prevent defaulting promoters from taking back their companies under the resolution process.
He also said the creditors’ committee can convert the pre-pack process to the usual corporate insolvency resolution process by 66 per cent majority at any time, or require the board to cease control through intervention of the NCLT in case of fraud or mismanagement by the existing management.
Misha, Partner at Shardul Amarchand Mangaldas & Co, said the intent of the government appears to be to provide for an alternative and efficient resolution mechanism especially for MSMEs by introduction of a new chapter in the statute.
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