A critical analysis of India's pre‐pack regime for MSMEs

Abstract

AbstractHybrid restructuring procedures, such as pre‐packs, have been encouraged to deal with an expected increase in insolvent firms in the aftermath of the COVID‐19 pandemic. Pre‐packs have been gaining popularity as a restructuring mechanism across the world. India too introduced a pre‐packaged insolvency resolution process for micro, small and medium enterprises (MSMEs) in April 2021. This article first provides a brief overview of the pre‐pack models employed in certain other jurisdictions such as the United States of America, United Kingdom and Singapore with a view to understanding the key features of pre‐pack models and how they have been operationalised in these jurisdictions. It then briefly discusses other restructuring avenues, that were available to a corporate debtor in India, and the circumstances that led up to the introduction of pre‐packs in India. Finally, it provides a detailed overview of the Indian pre‐pack regime and evaluates its effectiveness for MSMEs, potential issues that may cause delays in the process and how the current pre‐pack regime can be further streamlined. It argues that some of the procedural requirements and features of the Indian pre‐pack regime may not be suitable for MSME insolvencies.