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Banks and MSMEs to resolve stressed loans early

Apr 23, 2021

Government of India recently promulgated the IBC Amendment Ordinance 2021, allowing MSME borrowers to initiate resolution plan, jointly with their lending banks, to resolve their stressed loan at an early stage. This pre-pack regime is a hybrid scheme that combines the informal resolution process between stressed borrowers and lenders with the formal process of approval from the National Company Law Tribunal (NCLT). Under this scheme, stressed MSME borrowers with outstanding bank credit of less than Rs 1 crore can initiate resolution plan.

In order to create awareness about this scheme among local industry, MVIRDC World Trade Center, Mumbai and All India Association of Industries organised a webinar on `Pre-packaged Insolvency Resolution Process’

The webinar was addressed by Mr. Sanjay Rudra, General Manager, Credit - Large & Mid Corporate, MSME, at Bank of Maharashtra, Mr. Bahram N. Vakil, Co–Founder of AZB & Partners and Mr. Sumant Batra, President, Society of Insolvency Practitioners of India. The webinar was moderated by
Mr. Pulkit Gupta, Partner – Restructuring and Turnaround Services, Ernst & Young.

In his remarks, Mr. Rudra explained the benefit of the pre-pack resolution scheme for bankers and MSMEs. He said, “With the outbreak of the COVID crisis, the stress on hospitality, luxury retail, tour operators, lodging and restaurant operators has increased considerably. I expect around 20-25 stressed MSME accounts to be resolved under the pre-pack insolvency resolution regime in the coming months.

Speaking on this occasion, Mr. Vakil said, “MSME promoters should file for resolution with the NCLT only after having a robust base plan. Also, if the promoters could come out with a resolution plan with minimum possible haircut for operational creditors and if it is also acceptable to the committee of creditors, then the chances of such plans being challenged in the Swiss challenge auction is less.”

Mr. Batra, President, Society of Insolvency Practitioners of India said, “The RBI and the government should pave way for setting of benchmark, best practices and jurisprudence for the pre-pack regime by identifying 8-10 cases to be resolved on priority basis, and pushing them into IBC as was done in 2017.”

Earlier in his welcome remarks, Mr. Vijay Kalantri, Chairman, World Trade Center Mumbai flagged the challenges in the existing Insolvency and Bankruptcy Code (IBC) regime and proposed some amendments to the IBC regime to address these challenges.

In his introductory remark, Mr. Gupta mentioned, “The decision to include the pre-pack tool under the existing IBC regime is a welcome step in the right direction. It offers a hybrid approach between a formal and informal process and also between a debtor in possession and creditor in control.”

The webinar was attended by members of trade and industry, consular corps, representatives from law firms, financial institutions and academia.

Ms. Rupa Naik, Senior Director - MVIRDC World Trade Center Mumbai proposed the vote of thanks for the webinar