Process of Pre-Packaged Insolvency Resolution Process

Summary: The Pre-Packaged Insolvency Resolution Process (PPIRP) under Sections 54A to 54P of the Insolvency and Bankruptcy Code (IBC) 2016, and the Insolvency and Bankruptcy Board of India (Pre-Packaged Insolvency Resolution Process) Regulation, 2021, is designed to expedite insolvency resolution for micro, small, and medium enterprises (MSMEs). To initiate PPIRP, the corporate debtor must not have undergone a similar process or completed a Corporate Insolvency Resolution Process (CIRP) within three years, and must meet specific eligibility criteria including not being in CIRP, having financial creditors who are not related parties, and providing a resolution plan compliant with Section 29A. The process begins with filing an application with the Adjudicating Authority, which must be admitted or rejected within 14 days. Upon acceptance, a moratorium is declared, and a public announcement is made. The resolution professional then prepares a list of claims and a memorandum detailing the debtor’s financial state. The resolution plan, requiring a 66% majority vote from creditors, is submitted to the National Company Law Tribunal (NCLT) for approval. If no plan is approved or if the committee decides, CIRP may be initiated. The resolution plan must cover insolvency costs, operational debt repayment, management of the debtor, and legal compliance, as outlined by the board.

The process and conditions related to the pre- packed Insolvency resolution process defined under the section 54A to 54P of the Insolvency Bankruptcy Code, 2016 and other terms covered under the Insolvency and Bankruptcy Board of India (Pre- Packaged Insolvency Resolution Process) Regulation, 2021. The object behind the introduction of PPIRP is to 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.

An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor, who commits a default referred to in section 4, subject to the following conditions, that—

1. The corporate debtor covered under the definition and threshold aspect of the MSME defined under the below specified table as follows:

2. It has not undergone pre-packaged insolvency resolution process or completed corporate insolvency resolution process, as the case may be, during the period of three years preceding the initiation date

3. Not undergoing a CIRP process,

4. It is eligible to submit a resolution plan under section 29A,

5. The financial creditor of the corporate debtor are not the related parties who have proposed and initiate the PPIRP process,

6. The majority of the director giving the declaration regarding of not defrauding any person, application filled in the period of 90 days, and the name of the insolvency professional proposed and to be appointed as resolution professional.

Now after the terms and conditions required to be satisfied before initiation of PPIRP process there are some few steps defining the process of PPIRP as follows:

7. When the corporate debtor meets the requirements specified under Section 54A, a corporate debtor may file an application with Adjudicating authority.

8. The corporate applicant shall, along with the application, furnish-

a) Declaration, special resolution, written consent of Insolvency professional and approval from the financial creditor for PPIPR process,

b) Declaration about the transaction related to fraudulent trading and defraud purposes,

c) Books of accounts and financial statements and such other information required.

9. The Adjudicating authority shall within a period of 14 days from the submission of application by an order admit or reject the application.

The main process of the PPIRP starts from the acceptance of the application of the corporate applicant. The various requirements and compliances required to be complied till the order of the termination of the PPIRP process or transfer of proceedings to CIRP process are as follows:

• Declaration of moratorium and public announcement during pre-packaged insolvency resolution process (Section 54E) for which the Resolution professional make an announcement regarding this in the period of two days,
• Preparing the list of claims and Memorandum that contains the information like assets and liabilities of corporate debtor, personal information of corporate debtor and Resolution professional, list of creditors and details of claims etc.
• The motive behind of effectively preparing the list of claims and Memorandum is to call for the Resolution plans from the applicant for the PPIRP process. The committee of creditor approved the resolution plan with the 66% of votes.
• The approved resolution plan is submitted to NCLT by RP and in case no resolution plan is approved by the Committee, the RP shall file an application with NCLT for termination of PIRP.
• If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors 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.
• Also the committee of creditors, at any time after the pre-packaged insolvency commencement date but before the approval of resolution plan under sub-section (4) or sub-section (12), as the case may be, of section 54K, by a vote of sixty-six per cent. of the voting shares, may resolve to initiate a corporate insolvency resolution process in respect of the corporate debtor, if such corporate debtor is eligible for corporate insolvency resolution process under Chapter II.

There are some requirements of the Resolution plan that should be covered by the person who are responsible in the preparation of it. These are:

1. provides the payment of Insolvency resolution process cost,

2. provides the payment of debts of operation creditor in such a manner as specified by the board,

3. provides for the management of the affairs of the corporate debtor,

4. Does not contravene any of the provision of the law covered on it,

5. Any other requirement as specified by the board or think of placing in the plan.