Out-of-court insolvency fix for larger corporates soon

LARGE CORPORATES WILL soon have a facility for "out-of-court" insolvency resolution that will hinge on informal discussions among stakeholders and may not even require open bidding for selection of resolution applicants, official sources said.

- PRIYANSH VERMA

The scheme envisages minimal discretionary involvement by the National Company Law Board (NCLT), but will differ from the extant "prepackaged scheme" for MSMEs in retaining the creditors as the initiators of the process. Under the prepack scheme, launched in April 2021, the debtor MSMEs are allowed to trigger their own bankruptcy processes, and the promoters can retain control of the firms during the resolution period.

There was a plan to extend the debtorled pre-pack scheme to larger companies as well, but this has been dropped as the lender community found it impractical.As such, the pre-pack scheme for MSMEs hasn't gained much traction among lenders as they apprehend a decision to admit a case initiated by the debtor or voluntary haircut by them could later bring them under the scrutiny of investigation agencies.

The proposed creditor-led resolution process (CLRP) is expected to put the insolvency process on the fast track in many cases, and cut the workload of the tribunals, the sources said.

IN JANUARY, RESERVE Bank of India (RBI) governor Shaktikanta Das had recommended that the government introduce pre-packaged insolvency scheme for corporates. He had noted that it could be a "potential game changer" in out-of-court resolution of disputes.