Consider the following statements regarding andlsquo;Pre-packsandrsquo;, an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs).1. A pre-pack envisages the resolution of the debt of a distressed company through a direct agreement between the creditors and the existing owners, instead of a public bidding process.2. The pre-pack mechanism allow for a andlsquo;Swiss challengeandrsquo; to the resolution plan.3. The existing management of the company does not retain control in the case of pre-packs.Which of the above statements is/are correct?a)1 onlyb)1, 2c)1, 3d)1, 2, 3Correct answer is option 'B'. Can you explain this answer?

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Consider the following statements regarding ‘Pre-packs’, an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs).

1. A pre-pack envisages the resolution of the debt of a distressed company through a direct agreement between the creditors and the existing owners, instead of a public bidding process.

2. The pre-pack mechanism allow for a ‘Swiss challenge’ to the resolution plan.

3. The existing management of the company does not retain control in the case of pre-packs.

Which of the above statements is/are correct?

a)
1 only
b)
1, 2
c)
1, 3
d)
1, 2, 3

Correct answer is option 'B'. Can you explain this answer?

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Consider the following statements regarding ‘Pre-packs’, a...

The Insolvency and Bankruptcy Code (Amendment) Bill, 2021, passed by Lok Sabha has proposed ‘pre-packs’ as an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs). The Bill will replace The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021.

A pre-pack envisages the resolution of the debt of a distressed company through a direct agreement between secured creditors and the existing owners or outside investors, instead of a public bidding process.

One of the key criticisms of the Corporate Insolvency Resolution Process (CIRP) has been the time it takes for resolution. The pre-pack in contrast, is limited to a maximum of 120 days with only 90 days available to stakeholders to bring a resolution plan for approval before the NCLT.

Another key difference between pre-packs and CIRP is that the existing management retains control in the case of pre-packs; in the case of CIRP, a resolution professional takes control of the debtor as a representative of financial creditors. Experts note that this ensures minimal disruption of operations relative to a CIRP.

The pre-pack mechanism does however, allow for a ‘Swiss challenge’ to any resolution plan that provides less than full recovery of dues for operational creditors.

Under the Swiss challenge mechanism, any third party would be permitted to submit a resolution plan for the distressed company, and the original applicant would have to either match the improved resolution plan or forego the investment.

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Consider the following statements regarding ‘Pre-packs’, an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs).1. A pre-pack envisages the resolution of the debt of a distressed company through a direct agreement between the creditors and the existing owners, instead of a public bidding process.2. The pre-pack mechanism allow for a ‘Swiss challenge’ to the resolution plan.3. The existing management of the company does not retain control in the case of pre-packs.Which of the above statements is/are correct?a)1 onlyb)1, 2c)1, 3d)1, 2, 3Correct answer is option 'B'. Can you explain this answer?

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