Pre-packaged insolvency fails to take off as bankers wary of voluntary haircuts

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New Delhi: The pre-pack model of insolvency resolution introduced over two years ago to speed up the rescue of smaller firms has failed to take off, as bankers worry that the voluntary haircuts they opt for could lead to allegations of impropriety in the future..

Bankers have come under scrutiny in some recent cases, such as the one involving former State Bank of India chairman Pratip Chaudhuri, which has prompted them to be more cautious, legal experts added..

The Pre-packaged Insolvency Resolution Process (PPIRP) was introduced in April 2021 as an alternative mechanism for defaults by micro, medium and small enterprises (MSMEs) in 2021..

The whole idea behind making NCLT approval mandatory for pre-packaged insolvency cases was to improve transparency and ensure bankers dont face any impropriety- related issues in the future." said Bahram Vakil, co-founder & senior partner, AZB & Partners..

However, in the pre-pack scheme, which was introduced as a semi-formal model, there is no bidding; bankers themselves find a new buyer and agree on a voluntary haircut, keeping the original management in place, and without disrupting its operations..

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