As per preamble to the Insolvency and Bankruptcy Code (amendment) Ordinance, 2021 issued on 4-4-2021, purpose of Ordinance is to help MSME to get over difficulties faced due to COVID-19 pandemic. As per preamble to the Insolvency and Bankruptcy Code,COVID-19 pandemic has impacted businesses, financial markets and economies all over the world and has impacted the business operations of micro, small and medium enterprises the most and exposed many of them to financial distress. Micro, small and medium enterprises are critical for India’s economy as they contribute significantly to its gross domestic product and provides employment to sizeable population. Hence, it was necessary to urgently address the specific requirements of micro, small and medium enterprises relating to the resolution of their insolvency.
A sub-committee of INSOLVENCY LAW COMMITTEE (ILC) was constituted by Ministry of corporate affairs vide order dated on 24-4-2020, under the chairmanship of Dr. M S Sahoo, chairperson of IBBI. The ILC created a committee to in-depth study pre-packaged insolvency resolution process (PPIRP) for speedier resolution of insolvency for micro, small and medium enterprises. Where the minimum default amount atleast be Rs. 10 lakhs.
PURPOSE:
Pre-pack is referred as hybrid framework to resolve stress as a going concern, with minimum assistance of Government. It has emerged as an innovative corporate rescue method that involves both informal(out of court) and formal(judicial) proceedings.
BASIC STRUCTURE OF PPIRP:
The committee delineated the principles that should guide the design of the scheme. Those are:(1) the basic structure should be retained (2) no compromise of rights of any of the party (3) framework should contain adequate checks and balances to prevent any abuse
ADVANTAGES:
1) Causing minimal disruption to the debtor’s business activities by combining the efficiency, speed, cost, and flexibility of formal insolvency proceedings. It offers several advantages if compared to regular resolution process, most important being:
Informal process.
Shorter time for closure than CIRP.
2) PPIRP process commences only after the following:
- Atleast 66% of financial creditors approval.
- Corporate debtor passes special resolution on 75% of members approval.
- Corporate debtor prepares a base resolution plan.
- Name of resolution professional has been approved by financial creditor and corporate debtor.
Thus, preliminary work is done before filling application to adjudicating authority.
3) As informal understanding has already been reached between financial creditor and corporate debtor, there will be no possible opposition.
4) In PPIRP the management continues in the hands of corporate debtor who knows in and out of the enterprise, except in case of fraud which makes the process easier as compared to CIRP where the management is transferred to interim resolution professional.
5) The time frame granted to adjudication for PPIRP resolution is 120 days with no possible further extension which is much shorter period than CIRP which involves 180 days and 90 days further extension making it 270 days in total. In 2019 the time limit for CIRP was further extended making it 330days in total to complete the entire CIRP resolution process.
https://www.ibbi.gov.in/uploads/whatsnew/a650764a464bc60fe330bce464d5607d.pdf
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