Parliament is not in session and the President is satisfied that circumstances exist which render it necessary for him to take immediate action, now, therefore, in exercise of the powers conferred by clause (1) of article 123 of the Constitution, the President has promulgated on 4th April, 2021 an Ordinance i.e. Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 which has been come into effective at once i.e. 4th April, 2021.
Now, in exercise of the powers conferred under sections 196, 208 and 240 read with provisions of Chapter III-A of Part II of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), The Insolvency and Bankruptcy Board of India (IBBI) has issued a notification dated 9th April 2021 to notify the Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021 (PPIRP Regulations) to enable operationalisation of PPIRP. The PPIRP Regulations detail the Forms that stakeholders are required to use, and the manner of carrying out various tasks by them as part of the PPIRP.
In furtherance thereof, in exercise of the powers conferred by sub-section (1) and clause (fd) of sub-section (2) of section 239 read with sub-section (2) of section 54C of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 (3 of 2021), the Central Government has notified the Insolvency and Bankruptcy (Pre-packaged Insolvency Resolution Process) Rules, 2021. These Rules shall be applicable to matters relating to the pre-packaged insolvency resolution process
The objectives behind said ordinance are that micro, small and medium enterprises are critical for India’s economy as they contribute significantly to its gross domestic product and provide employment to a sizeable population. It is considered necessary to urgently address the specific requirements of micro, small and medium enterprises relating to the resolution of their insolvency, due to the unique nature of their businesses and simpler corporate structures.
Further, it is considered expedient to provide an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises under the Insolvency and Bankruptcy Code, 2016, ensuring quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs.
In order to achieve these objectives, it is considered expedient to introduce a pre-packaged insolvency resolution process for corporate persons classified as micro, small and medium enterprises.
It may be noted that the Government has taken several measures to mitigate the distress caused by the pandemic, including increasing the minimum amount of default for initiation of corporate insolvency resolution process to one crore rupees, and suspending filing of applications for initiation of corporate insolvency resolution process in respect of the defaults arising during the period of one year beginning from 25th March 2020. This suspension, which was extended from time to time, has been ended on March 24, 2021.
The Ordinance amends the Insolvency and Bankruptcy Code 2016 to allow the Central Government to notify such pre-packaged process for defaults up to Rupees One Crores. As per said amendment, in the Insolvency and Bankruptcy Code, 2016, in section 4, after the proviso, the following proviso shall be inserted
“Provided further that the Central Government may, by notification, specify such minimum amount of default of higher value, which shall not be more than one crore rupees, for matters relating to the pre-packaged insolvency resolution process of corporate debtors under Chapter III-A.”.
Further, a new Chapter III-A PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS is inserted, after Chapter III by the aforesaid amendment.
It is noted that a sub-committee of the Insolvency Law Committee (ILC) was constituted by the government in order to structure the pre-pack framework. The ILC has designed a pre-pack framework within the basic structure of the IBC for the Indian market. The same has been detailed in their report of October, 2020. The Ministry of Corporate Affairs (MCA) vide a notice dated January 8, 2021, also invited public comments and views on its proposed Pre-packaged Insolvency Resolution Process (PIRP).
Now, the Government has used the Ordinance route to introduce PIRP for companies classified as micro, small and medium enterprises under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006.
What is Pre-Packaged Insolvency Resolution Process (PIRP)?
PIRP is a quasi-formal procedure which integrates the essence of an out of court private restructuring and that of a formal bankruptcy. It is a pre-planned insolvency procedure where a resolution plan is formulated and finalised prior to the initiation of formal proceedings.
An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006.
Where a corporate debtor (CD) meets the requirements of section 54A, a corporate applicant thereof may file an application with the Adjudicating Authority (AA) for initiating pre-packaged insolvency resolution process. The pre-packaged insolvency resolution process shall be completed within a period of one hundred and twenty days from the pre-packaged insolvency commencement date. The AA shall declare a moratorium and cause a public announcement during pre-packaged insolvency resolution process. The CD shall, within two days of the pre-packaged insolvency commencement date, submit to Resolution Professional (RP) list of claims and preliminary information memorandum.
During the pre-packaged insolvency resolution process period the management of the affairs of the corporate debtor shall continue to vest in the Board of Directors or the partners, as the case may be, of the corporate debtor, subject to such conditions as may be specified. The Board of Directors or the partners, as the case may be, of the corporate debtor, shall make every endeavour to protect and preserve the value of the property of the corporate debtor, and manage its operations as a going concern.
The resolution professional shall, within seven days of the pre-packaged insolvency commencement date, constitute a Committee of Creditors (CoC), based on the list of claims confirmed under clause (a) of sub-section (2) of section 54F. Where CoC, at any time during the pre-packaged insolvency resolution process period, by a vote of not less than sixty-six per cent. of the voting shares, resolves to vest the management of CD with the RP, RP shall make an application for this purpose to the AA, in such form and manner as may be specified.
If the AA is satisfied that the resolution plan as approved by CoC under sub-section (4) or sub-section (12) of section 54K, as the case may be, subject to the conditions provided therein, meets the requirements as referred to in sub-section (2) of section 30, it shall, within thirty days of the receipt of such resolution plan, by order approve the resolution plan. Any appeal from an order approving the resolution plan shall be on the grounds laid down in sub-section (3) of section 61.
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