Citing the latest figures available from the Insolvency and Bankruptcy Board of India (IBBI), the ministry said in its monthly business sector update that more than 86% of the 1,717 court-ordered bankruptcy cases were pending. course for more than 270 days.

A protracted litigation derails the operations of the failing firm, leaves assets idle and depreciates and results in job losses. It also affects the efficiency of the bankruptcy resolution process. Disputes between shareholders and potential investors arise when shareholders resist decisions made about the business by its lenders and the professional hired by them to run the business. “Shareholders retain control of the companies as long as they make sure that the contributions are paid by the company. Once the company defaults, the lenders take over in the decision-making, ”said a government official.

The government is now banking on the recently introduced ‘pre-packaged’ or informal bankruptcy resolution system to address these delays and help assemble corporate recovery plans within 120 days – 90 days for shareholders and lenders to submit a plan and a month for the court to clear it. The pre-pack program, rolled out in April, allows shareholders and lenders to informally prepare a stimulus package before moving the court.

The pre-packs will reduce the dependence of financially stressed companies on the relevant authorities, the ministry said. It will also “relieve the courts by reducing the number of cases that clog the system, leading to faster resolution of other cases,” the ministry said. the one-year suspension of the bankruptcy proceedings for failing companies was lifted on March 25.