NCLT has appointed Parag Sheth as the resolution professional. Gujarat-based real-estate developer GCCL Infrastructure & Projects owes Rs 54.16 lakh to its creditors. The company had approached the Ahmedabad bench of NCLT under the newly introduced pre-packaged insolvency resolution process. “The financial creditor approved the decision of the directors to file this application,” observed the division bench of Madan Gosavi and Virendra Kumar Gupta in its order of September 15.
In April, the government had issued an ordinance to amend the Insolvency & Bankruptcy Code (IBC) to provide a quicker and more cost-effective mechanism for the Micro, Small and Medium Enterprises (MSME) sector, which has been hit the hardest by the pandemic. On July 28, the Lok Sabha passed the Insolvency & Bankruptcy Code (Amendment) Bill 2021 to pave the way for pre-packaged insolvency resolution. “The incorporation of the pre-packaged insolvency resolution process for MSMEs in the code will alleviate the distress faced by MSMEs due to the impact of the pandemic and the unique nature of their business,” said the government at the time of issuing the ordinance.
According to Anil Goel, founder of AAA Insolvency, pre-packaged insolvency resolution gives a chance to MSMEs to restructure their debts and start afresh while the old losses can be shared with the creditors. “It would facilitate more transactions of investment, partnership, mergers & acquisitions and business transfer as the acquirer would get a clean slate on the affairs of the company,” adds Goel.
The minimum threshold for default for such companies is Rs 10 lakh for initiation of the process. Also, as per the law, about 66% of creditors must approve the Pre-Pack Insolvency Resolution Process. “Pre-Pack insolvency brings two elements, first it takes away the fear of subsequent investigation by Govt agencies when lenders agree for resolution package since this is also a judicial process and second MSME borrowers can continue to run their business which will help to protect the value of the businesses,” said Nirmal Gangwal, Managing Partner, Brescon & Allied Partners LLP. “Many more MSME are expected to take this route to resolve their debts in near future.”
As per the laws, MSMEs should not have a turnover of more than Rs 250 crore excluding exports, and the investment in plant and machinery should not exceed Rs 50 crore in the preceding year. Earlier, the MSME status was limited to only manufacturing companies and service providers. It has now been extended to trading companies as well by the Centre.
However, few experts are skeptical about the long-term success of the regulations. “Unlike normal insolvency resolution process, in Pre-Pack, the role of the resolution professional is more of a monitor and the company’s promoter runs the show and hence the lenders will have to keep the long term viability of the business in mind when they take a call to rescue a business,” said Nishit Dhruva, managing partner of law firm MDP & Partners. “Only time will tell whether this will be successful in the future.”