The government has promulgated an ordinance to introduce a pre-packaged insolvency resolution process for stressed micro, small and medium enterprises or MSMEs.

It will allow the stressed debtor - in this case the MSMEs - and its creditors to quickly work out a plan to revive the company before filing an insolvency plea, which would then be sanctioned by the courts.

The pre-pack framework will be applicable for MSMEs with a maximum default value of Rs 1 crore only. It can be filed under a newly inserted section 54C of the IBC.

The hope is that the pre-pack will incentivise the promoter to look for an early resolution before the account turns an NPA, while also assuring creditors of a speedier resolution blessed by the courts, however, as is the case with most new regulations - there may be teething troubles.

To discuss this, Ritu Singh and Latha Venkatesh spoke to Abizer Diwanji, partner of financial Services at EY India; Swaminathan Janakiraman, MD of SBI and Bahram Vakil, founder & senior partner at AZB & Partners.

Watch video for more.

(Edited by : Aditi Gautam)