The alternative insolvency resolution framework was expected to bring about a quicker and more cost-effective process for MSMEs that would maximise value while being least disruptive to business, the ordinance said.
The new framework is based on the debtor-in-possession model which involves a resolution professional monitoring the prepack insolvency resolution process to ensure transparency.
A corporate debtor can initiate the process with the approval of 60% of financial creditors and the entire court proceedings from commencement to the approval of the resolution plan will have to be completed in 120 days.
The base resolution plan, which would be the result of out-of-court negotiations between the management and the creditors, would have to be submitted to the adjudicating authority within two days of commencement of the process.
As per the provisions of the ordinance, the prepack process will be eligible for defaults of Rs 1 lakh and above, with clauses that allow for the threshold default amount of up to Rs 1 crore.
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