Pre-Packaged Insolvency Resolution under Insolvency and Bankruptcy Code, 2016 (IBC 2016)
Pre-Packaged Insolvency Resolution Process( hereinafter called PPIRP) under the Insolvency and Bankruptcy Code, 2016 has been introduced by President of India on 04.04.2021 through Insolvency and Bankruptcy Code ( Amendment) Ordinance, 2021.
This concept under IBC has been introduced to provide alternative efficient and speedy insolvency resolution process as compared to existing corporate insolvency resolution process. The new law will help in resolving financial distress in incorporated Micro, Small and Medium Enterprises( MSME), a large number of which have been severely affected by the pandemic. It aims to provide a cost effective, value creating and swift mechanism for disposal of insolvency process with minimum interference to business operations.
Applicability: PPIRP is applicable to a corporate debtor covered under MSME Act, when minimum amount of default is ₹ 10 lakhs.
Time limit for completion of PPIRP: The PPIRP shall be completed within a period of 120 days from the commencement date I.e. it should be completed within 120 days from admission of application by adjudicating authority( hereinafter referred to as tribunal) with no extension.
Step by step process for PPIRP: 1) In case of default with respect to companies, LLP’s covered under MSME Act, an application may be given for insolvency proceedings by corporate applicant to tribunal along with following:
a) Declaration, special resolution and approval of financial creditors for initiating PPIRP in terms of section 54A of IBC, 2016.
b) The name and written consent of the insolvency professional proposed to be appointed.
c) such other documents as may be prescribed.
2) Tribunal may either accept or reject the application within a period of 14 days from receipt of application, provided in case of rejection it will give notice to applicant to rectify the defect within 7 days from date of receipt of notice by applicant.
3) Tribunal shall on commencement date along with admission order:
a) declare a moratorium period during which all other proceedings by or against the corporate debtor shall put on hold.
b) appoint a resolution professional as proposed or based on recommendation of Insolvency and Bankruptcy Board Of India.
c) cause a public announcement of commencement of PPIRP process to be made by Resolution professional
Moratorium shall have effect from the date of order till date on which PPIRP period comes to an end.
4) In case of admission, the resolution professional shall submit the resolution plan after getting approved by committe of creditors ( hereinafter called COC) with atleast 66% voting share to the tribunal, within a period of 90 days from PPIRP commencement date, provided where no resolution plan is approved by COC within 90 days, the resolution professional shall file an application with tribunal for termination of PPIRP.
5) Corporate debtor shall within 2 days of commencement date submit to the Resolution professional:
a) list of claims of creditors, pending.
b) preliminary information memorandum containing information relevant for formulating a resolution plan.
6) The resolution professional shall within 7 days of PPIRP commencement date constitute COC, based on list of confirmed claims. First meeting of COC should be conducted within 7 days of constitution of COC, in which base resolution plan submitted by corporate debtor will be considered.
7) COC may approve the base resolution plan with atleast 66% voting share, if it doesn’t impair claim of operational creditor.
8) If tribunal is satisfied that the resolution plan as approved meets the requirement as referred to in section 30(2), it shall within 30 days of receipt of resolution plan, approve the plan, else the plan will be rejected after giving opportunity of being heard.
In a nutshell, all provisions as applicable to CIRP are applicable to PPIRP except as listed below:
1) PPIRP is applicable to MSME for minimum default of 10 lakh rupees.
2) Application for PPIRP can be given by corporate debtor and not by financial or operational creditor.
3) During insolvency period, the management of affairs of corporate debtor vests with board of directors or the partners, as the case may be.
4) Base plan us ready at the time of application for PPIRP.
5) It should be completed within 120 days and no interim resolution professional is appointed in this case.
Overall, it can be considered as a great initiative by government to allow the assets of distress business to be quickly deployed back into economy instead of being stuck in long litigation in courts, which is the primary purpose of Bankruptcy Code.