It was notified more than a year ago, but so far only two insolvency cases have been initiated under this regime, exclusively available to Micro, Small and Medium Enterprises (MSMEs).
Partner Manoj Kumar said, “Bankers are not comfortable taking a haircut in pre-packaged insolvency as they are worried that such decisions may come under question later on.” corporate professional, “Therefore they are also processing potential PIRP cases through regular corporate insolvency process, which generally puts more strain on the business of MSMEs.”
Insolvency experts say PIRP will need incentives from both the government and the government reserve Bank of India ,reserve Bank of India) to gain wide acceptance.
The government introduced the PIRP process through an ordinance in April 2021, setting up an alternative process to expedite bankruptcy resolution and ensure business continuity for MSMEs. Under the PIRP process, the defaulting borrower continues to exercise management control, while a resolution professional oversees the resolution, ensuring business continuity for the MSMEs.
Conversely, under the normal corporate insolvency resolution process (CIRP), after a default, the debtor company is placed under moratorium and a resolution professional takes over the company and manages it in coordination with the creditors.
Only two companies—Ahmedabad-based GCCL Infrastructure & Projects and Delhi-based Loonland Developers—have opted for the PIRP solution.
Resolution Experts say public sector bankers are more hesitant as any allegation of wrongdoing can lead to a vigilance inquiry.
Indeed, in several recent cases, debtors have made allegations against decisions taken by bankers and resolution professionals under the Insolvency and Bankruptcy Code (IBC,
Under PIRP, lenders and debtors go through an initial informal process to find suitors willing to fund and handle the loan. Once a suitor is identified, lenders negotiate the deal and then contact National Company Law Tribunal ,NCLT) for final approval.
“Financial institutions are hesitating on the notion of a mere consultation process, i.e., voluntarily taking a potential haircut in a PIRP rather than accepting it as a so-called last resort in a CIRP and thus avoiding the former altogether. are,” said. Ruby Singh AhujaSenior Partner, Karanjawala & Co.
One of the key industry suggestions is that the Reserve Bank of India (RBI), in consultation with the government, may shortlist a group of debtor companies and compulsorily place them under PIRP.
When the IBC was first introduced, the RBI released a list of 12 entities for CIRP resolution. “RBI may likewise identify some MSMEs and give a mandate to banks to bring a resolution through PIRP, if it is possible,” Ahuja said.
Globally, PIRP is considered a viable alternative to the regular insolvency process not only for small industries but also for large corporate defaults.