● Pre-Pack is the resolution of the debt of a distressed company through an agreement between secured creditors and investors instead of a public bidding process.
● Under this system, financial creditors will agree to terms with a potential investor and seek approval of the resolution plan from the National Company Law Tribunal(NCLT).
● The approval of a minimum of 66% of financial creditors that are unrelated to the corporate debtor would be required before a resolution plan is submitted to the NCLT.
Why in News? President of India has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 to allow the use of pre-packs as an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs) with defaults up to Rs 1 crore.
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