New Delhi, April 23, 2018

India would do well to consider ushering in the concept of ‘pre-packs’ in its insolvency regime, the National Company Law Tribunal (NCLT) President MM Kumar suggested.

Pre-packaged insolvency (pre-pack) is a procedure where a company arranges to sell all or some of its assets to a buyer before declaring its insolvency (appointing administrator to facilitate the sale). This would be seen as a powerful, legal way to sell the business to a trade buyer or third party.

“It is worth considering. It should be there (in India),” Kumar told BusinessLine, when asked if he was in favour of this concept.

Earlier, addressing a seminar on ‘Business Restructuring — Evolving Legal Issues and Imperatives’, organised by PHDCCI, Kumar said ‘pre-packs’ can be a ‘panacea’ for economies like India.

“If there are good entrepreneurs, then pre-packs can offer best solution. The solution can be done in 10 days,” he said.

Kumar cited UK as a jurisdiction where pre-packs work in an effective way.

“In England, there is a smooth transition of managements under pre-pack. On Friday, the insolvency Court appoints the administrator. On Saturday, according to the pre-pack the new management takes over. On Monday, it is the same company, same employees, same machinery and things move on,” he said.

He said Indian promoters need to imbibe the tendency to “let go”, which does not seem to be there right now.

Lalit Bhasin, Chairman, PHDCCI's Law & Justice Committee, told this newspaper that he was in favour of introduction of the concept of pre-packs in India.

“A pre-pack is you as a responsible business organisation preparing yourself and voluntarily offering to bring someone without involving the resolution professional. It's an arrangement between promoter and fresh business people,” Bhasin said.

Aseem Chawla, Regional Vice-President, Indo-American Chamber of Commerce, said a pre-pack administration process, as prevalent in the UK, envisions making suitable arrangements by a company which is vulnerable to insolvency or has a threat of winding up of selling its assets to a buyer.

“It is a efficacious way of selling business to a third party before insolvency petition is admitted. Only in a matured legal environment and with a sound code of conduct of professional practice applicable to IRPs, such mechanism can be considered,” Chawla said.

[The Hindu Business Line]