CS, LLB, PGDBA, DSL. Pooja Ojha

Modus Operandi – Pre-Packaged Insolvency Resolution Process (PIRP)

The process of the Pre-Packaged Insolvency Resolution Process (PIRP) envisaged under Section 54A of the Insolvency and Bankruptcy Code, 2016 starts much before the Order is passed by the Hon’ble Adjudicating Authority, the National Company Law Tribunal (NCLT) for initiating the Process.

The Application for initiating the PIRP is filed by the Corporate Debtor itself and all such requisite proceedings and approvals as are necessary to make the application before the Hon’ble NCLT are required to be observed.

A step wise procedure for the actions required to be taken by the Corporate Debtor who wants to initiate PIRP is explained in the below flow chart followed by detailed explanations and framework.

The below flow chart and followed by step wise actions shall aid the Corporate Debtor in making the application under section 54C read with 54A of the Insolvency and Bankruptcy Code, 2016 to NCLT.

Step wise actions required to be taken by the Corporate Debtor for initiating PIRP

Step wise actions required to be taken by Corporate Debtor for initiating PIRP

Step 1: Call & hold an Extra Ordinary General Meeting for approval of shareholders by passing a special resolution to initiate PIRP.

i. A Corporate Debtor to call an Extra-Ordinary General Meeting of the members of the Company for the purpose of approval of the members to initiate PIRP, by way of passing a special resolution.

ii. All such applicable provisions of the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, The Limited Liability Partnership Act, 2008 as may be applicable and any other regulatory Law including rules made thereto are required to be observed.

iii. Ideally, while obtaining approval of the members, the Directors must also place before the members declarations:

a. that the Company shall file an application for initiating PIRP within a definite time period not exceeding ninety days upon approval of the Financial Creditors or the Operational Creditors, as the case may be for initiating PIRP.

b. that the pre-packaged insolvency resolution process is not being initiated to defraud any person.

Note: Where the Corporate Debtor is a Limited Liability Partnership (LLP), it shall obtain approval of at least 3/4th of the total number of Partners.

Step 2: Call meeting of Financial Creditors or where there are no Financial Creditors, Operational Creditors, none of them being a related party.

i. The Corporate Debtor shall convene meeting of the Financial Creditors, who are not related parties of the Corporate Debtor.

Where there are no Financial Creditors or where all the Financial Creditors are related parties, it shall convene meeting of the Operational Creditors who are not related parties.

The below provisions shall mutatis mutandis apply to Operational Creditors (not being related parties) where there are no Financial Creditors or where all the Financial Creditors are related parties.

ii. The Notice calling the meeting of Creditors must be given 5 days prior to the date of the meeting.

Meeting can be convened at a shorter notice if consented by all the Creditors.

iii. The notice of the meeting shall clearly indicate the date, time and venue of the meeting.

iv. The Notice calling the meeting shall be accompanied by the following mandatory documents:

a. List of Creditors as on date of calling the meeting (Form P2);

b. Copy of declaration by Directors/ Partners that it shall file an application for initiating PIRP within a definite time period not exceeding 90 days and that the PIRP is not being initiated to defraud any person (Form P6);

c. Copy of special resolution passed by the members/ partners as the case may be for initiating PIRP;

d. A Base Resolution plan which shall conform the requirements of Section 30(1) & (2), Section 54K of Code and the Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021 and all other applicable provisions.

e. Declaration with respect to existence of any avoidance of transactions under Chapter III or fraudulent or wrongful trading under Chapter VI (Form P7);

f. Information relating to books of accounts of the Corporate Debtor and such other documents as below:

    • audited financial statements of the Corporate Debtor for the last two financial years;
    • provisional financial statements for the current financial year made up to the date of declaration

Step 3: proceedings at the meeting of Financial Creditors or where there are no Financial Creditors, meeting of the Operational Creditors, none of them being a related party.

i. The Creditors to note the documents placed by the Corporate Debtor for the purpose of approval of making an application for initiating PIRP.

ii. The Creditors holding not less than 10% of the value of the total financial debt or the operational debt, as the case may be, may propose names of Insolvency Professionals for being approved by the rest of the Creditors.

iii. The Creditors to approve the terms of appointment of the Resolution Professional (Form P3) which shall include:

a. fee payable to him/ her for performing duties under section 54B(1), i.e. to perform his/ her duties till the time the application is filed within the specified time and/ or till the time the application is admitted or rejected by the Hon’ble NCLT;

b. fee payable to him/ her and expenses to be incurred by him/ her for conducting the process; and

c. fee payable to him/ her and expenses to be incurred by him/ her in case management of the corporate debtor is vested with him/ her under section 54J.

iv. The Creditors to approve for filing of application for initiating PIRP of the Corporate Debtor (Form P4).

Threshold for approval of the items placed before the Creditors for initiating PIRP:

i. Approval of Insolvency Professional to act as Resolution Professional by vote of Creditors representing not less than 66% of total debt value of the Creditors.

ii. Approval of the terms of appointment of Resolution Professional by vote of Creditors representing not less than 66% of total debt value of the Creditors.

iii. Approval of filing of the application to initiate PIRP a vote of Creditors representing not less than 66% of total debt value of the Creditors.

Note:

Debt means aggregate financial debt owed to the financial creditors who are not related parties of the corporate debtor.

The provisions shall mutatis mutandis apply to Operational Creditors (not being related parties) where there are no Financial Creditors or where all the Financial Creditors are related parties

Authorised Representative:

i. On examination of List of Creditors submitted by the Corporate Debtor in Form P2, the Resolution Professional shall ascertain class(es) of creditors, if any.

ii. For representation of creditors in a class ascertained, the Resolution Professional shall identify three Insolvency Professionals who are:

a. eligible to be appointed under regulation 7 and are willing to act as authorised representative of creditors in the class;

b. not relatives or related parties of the Corporate Debtor or the Resolution Professional and;

c. having their addresses, as registered with the Board, in the State or Union territory, as the case may be, which has the highest number of creditors in the class as per their addresses in the records of the corporate debtor;

d. Where such State or Union territory does not have adequate number of Insolvency Professionals, the Insolvency Professionals having addresses in a nearby State or Union territory, as the case may be, shall be considered.

iii. The Resolution Professional shall obtain the consent of the Insolvency Professionals identified as above to act as the authorised representative of creditors in the class in Form P5;

iv. The Resolution Professional shall seek choice of the creditors in the class for an Insolvency Professional who has consented and select the Insolvency Professional, who has been selected by the highest number of creditors in the class to act as the Authorised Representative of the creditors of the respective class.

v. The Resolution Professional shall inform the name of the Insolvency Professional selected along with his consent in Form P5 to the Corporate Debtor.

Step 4: Report by Resolution Professional to be submitted to IBBI and to the Hon’ble NCLT along with the application to initiate PIRP.

Upon approval of the Creditors for initiating PIRP, the Insolvency Professional proposed to be appointed as Resolution Professional shall observe the below duties from the date of approval:

i. Prepare a report in form P8 confirming that:

a. Whether the Corporate Debtor meets the requirements of making an application under section 54A;

b. That the base resolution plan complies with section 30(1) & (2), section 54K of Code and the Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021 and all other applicable provisions.

ii. file such reports and other documents with the IBBI

iii. Such report by Insolvency Professional proposed to be appointed as Resolution Professional shall be accompanied with the application to be filed with the Hon’ble NCLT for initiating PIRP.

Step 5: Documents/details to be furnished along with application for initiating PIRP by the Corporate debtor.

Where all the above process are observed, the Corporate Debtor can file an application under section 54C read with section 54A of the Insolvency and Bankruptcy Code, 2016 and such application to be mandatorily accompanied with the below mentioned details and documents:

i. Name and consent of IP proposed to be appointed as RP in form P1;

ii. Consent to act as authorised representative if any, in Form P5;

iii. Declaration by the majority of Directors/ Partners in Form in form P6;

iv. Special Resolution/ Approval of at least 3/4th of the Partners, as the case may be;

v. Declaration by the applicant with respect to existence of any avoidance of transactions under Chapter III or fraudulent or wrongful trading under Chapter VI, in such form as specified in the regulations in form P7;

vi. Report of the IP proposed to be appointed as RP confirming that the CD meets the requirement for making an application to initiate PIRP and also that the base resolution plan proposed by the CD conforms with the requirements as specified in Section 30(1) & (2), Section 54(k) and the Regulations made thereto in form P8;

vii. Information relating to books of account of the CD and such other documents relating to such period as may be specified., i.e.

a. audited financial statements of the CD for the last two financial years;

b. provisional financial statements for the current financial year made up to the date of declaration; and

c. consent of the Insolvency Professionals to act as the authorised representative in Form P5.

*****

Disclaimer: The entire contents of this article are solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation by the Author and the Author of this Article do not constitute any sort of professional advice or a formal recommendation. The author has undertaken utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. The readers are kindly requested to verify and confirm the updates from genuine sources before acting on any of the information’s provided hereinabove. The Author shall not be responsible for any loss or damage in any circumstances whatsoever.

(Author can be reached at [email protected])

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