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The Insolvency and Bankruptcy Code 2016 (IBC) has proved to be one of the landmark legislations paving a way to rescue the businesses which are potentially viable however, are in the turmoil because of the incapacity of the management. IBC has granted a ventilator support to the organisations which are financially distressed by providing them a chance to thrive via revival process i.e Corporate Insolvency Resolution Process (CIRP). The pre-packaged insolvency resolution process is also a part and parcel of CIRP only. The process of introducing pre-packaged insolvency resolution process was put to a get go when Ministry of Corporate Affairs (MCA) vide order dated 24 June 2020 required the formulation of sub-committee of the Insolvency Law Committee to recommend a regulatory framework for pre-pack insolvency resolution process.

Pre-packaged insolvency resolution process has no statutory meaning. It is an innovative corporate revival process which is a blend of informal (out of-court) and formal (court’s intervention) resolution proceedings. This process envisages revival of a distressed corporate debtor by the virtue of establishing a mutual understanding between the debtor and the creditors without any intervention of the outsiders. Pre-packaged insolvency process advocates an insolvency process which is not only time saving but also cost-effective and ensures minimum disruption since the control and management rest with the promoters and management of corporate debtor.

Covid 19 has not only created a havoc but turned the whole Indian economy upside down, the aftermaths of which will be borne by each and every person in the coming years. The Indian corporate sector has and is continued to taking a huge blow because of the covid situation which is getting worse day by day. Though, corporates in the big league are expected to encompass this situation however, it is the small businesses which are the at the hour of worry. Small businesses are playing a very imperative role in the growth of the economy and therefore, in order to ensure their continuation and helping them to overcome this distressed financial hour, MCA has vide notification in official gazette dated April 04, 2021 promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 wherein the concept of pre-packaged insolvency is introduced to provide an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises (MSMEs) under the Micro, Small and Medium Enterprises Development Act, 2006. The mentioned ordinance relating to pre-packaged insolvency resolution has already become a part of the Insolvency and Bankruptcy Code 2016 (IBC) in the form of Chapter III.

Corporate Debtors Eligibility and approval of pre-packaged insolvency resolution plan

The ordinance envisages that only corporate debtor classified as MSME shall be allowed to reap the benefits of pre-packaged insolvency resolution process. There are certain pre-conditions which are required to be satisfied by the corporate debtor before making an application to the adjudicating authority for initiation of pre-packaged insolvency resolution process. However, the important consideration which requires our contemplation here is that this process is completely voluntary and no formal procedure is prescribed with respect to completing the formalities before making the application.  Corporate debtor is required to pass a board resolution and special resolution before entering into any discussion in this matter with the creditors. The financial creditors representing 66% in value of the financial debt, due to such creditors, are required to approve the proposal of submitting an application for initiation of pre-packaged insolvency resolution process. Further, once pre-packaged insolvency resolution process commences the same is required to be completed within a period of 120 days. The period of 120 days will ensure a time bound completion of insolvency process.

Corporate Applicant falling under the ineligibility regime of section 29A

The ordinance clearly specifies that no application for initiation of pre-packaged insolvency resolution process shall lie to the adjudicating authority where a corporate applicant is ineligible under section 29A. Under pre-packaged insolvency resolution process, it is the promoter or someone in the management of corporate debtor who proposes a resolution plan (base resolution plan) and Section 29A(c) prohibits a person from submitting a resolution plan who has an account declared as a Non-Performing Asset (“NPA”) by the RBI for 1 year preceding the submission of the plan or is a promoter of, or in the management or control of, a corporate debtor whose account has been classified as an NPA for 1 year before submission of the resolution plan. Further, Section 29A(h) prohibits a person from submitting a plan if they have executed an enforceable guarantee in favour of a creditor of a corporate debtor against which the application for insolvency resolution made by such creditor has been admitted under the IBC. However, section 240A specifically exempts a resolution applicant in respect of corporate insolvency resolution process or pre-packaged insolvency resolution process of any MSME. Therefore, promoters and persons in management of the corporate debtor which is a MSME shall be eligible to propose a resolution plan under pre-packaged insolvency resolution process irrespective of the fact whether they are defaulting or not.

Initiation of Corporate Insolvency Resolution Process under Chapter II of the IBC

The corporate debtor is required to submit the base resolution plan to the resolution professional within a period of 2 days of the pre-packaged insolvency commencement date for the submission of the same to the Committee of Creditors (COC). Where the base resolution plan impairs any claim owed by the corporate debtor to the operational creditors then the resolution professional shall invite prospective resolution applicants to submit a resolution plan or plans, to compete with the base resolution plan and on the basis of evaluation and confirmation of conditions prescribed under the IBC, COC shall approve a plan. Where base plan is rejected, the resolution professional shall file an application for termination of the pre-packaged insolvency resolution process. COC enjoys full autonomy while approving a resolution plan and in the end, it is their commercial wisdom which shall prevail.


Though, sub-committee recommended making pre-pack available for all corporate debtors however, only MSMEs are kept within the purview for the time being. Running a business in the covid era is difficult for all businesses therefore, a more proactive approach in the form of extending the benefits of pre-pack to Non-MSMEs corporate debtor might ease their distress and help them to overcome these challenging times. Further, allowing a defaulting promoter or person in management of the corporate debtor to submit base resolution plan might defeat the very objective of the IBC. The intention must be to ease up the procedure requirement and not providing a back door for defaulting promoters and persons in management from keeping on occupying the control. Pre-packaged insolvency resolution process provides a greater flexibility to the MSME corporate debtors in terms of provisions inculcated therein however, its practical aspect and impact would be spectated in the coming future only.


1. Report of the sub-committee of the Insolvency Law Committee on Pre-packaged Insolvency Resolution Process

IBBI Invites comments on Pre-packaged Insolvency Resolution Process

2. Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021


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July 2024