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Government Promulgates Ordinance to amend Insolvency & Bankruptcy Code 

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Govt-amends-insolvency-law_-introduces-pre-packaged-resolution-process-for-MSMEsThe government of India has promulgated an Ordinance titled ‘The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021’ to allow ‘pre-packaged insolvency resolution process (PIRP)’ to Micro, Small & Medium Enterprises (MSME).

  • It amends the Insolvency and Bankruptcy Code, 2016.
  • The amendments are necessary to address the specific requirements of MSMEs relating to resolution of their insolvency due to the unique nature of their businesses and simpler corporate structures.

Key Points

Applicability

  • PIRP will be applicable for MSMEs with a maximum default value of INR 1 Crore only. It can be filed under a newly inserted Section 54C of the IBC.

Initiation/Trigger

  • It is modelled on the debtor-in-possession approach.
  • The debtors should have a base resolution plan in place before approaching creditors to initiate a PIRP.
  • The Pre-pack resolution must be approved by financial creditors with a minimum 66 % voting share by value.
  • If the Corporate debtor does not have financial creditors, the company may approve application filing through a special resolution with a 75% majority, and move court to initiate PIRP.

Timelines

90 days to submit a resolution plan & 120 days for the entire process.

Control of Company

During PIRP, the management of affairs of the corporate debits will continue to vest in the Board of Directors or partners of the corporate debtor.

Termination

  • Can terminate process with minimum 66% CoC (Committee of Creditors) votes

Eligibility

  • It should be eligible to submit a resolution plan under section 29A
  • It should not have undergone PIRP or Completed Corporate Insolvency resolution process during the period of three years preceding the initiation date.
  • It should not be undergoing a corporate insolvency resolution process.

Newly Inserted Sections

  • Insertion of new section 11A – Disposal of applications under section 54C and under section 7 or section 9 or section 10.
  • Insertion of new Chapter III-A titled ‘Pre-Package Insolvency Resolution Process’.
  • Insertion of new section 67A – Fraudulent management of corporate debtor during prepackaged insolvency resolution process.
  • Insertion of new section 77A – Punishment for offences related to pre-packaged insolvency resolution process.
  • Section 54-C – Application to initiate prepackaged insolvency resolution process.

General Procedure

  • Generally, under a pre-package process, the creditors & shareholders together identify a prospective buyer and negotiate a resolution plan before approaching NCLT (National Company Law Tribunal).
  • All resolution plans under the IBC need to be approved by the NCLT.
  • The Insolvency and Bankruptcy Board of India (IBBI) is a key institution in implementing the IBC.

Criteria Pre-Packaged Insolvency Resolution Process (PIRP)
Eligibility Only MSMEs
Default Limit UptoRs 1 crore
Initiation by Corporate Debtor (CD)
Timeline 90 days to submit resolution plan & 120 days for entire process
Management Control Corporate Debtor-in-Possession with Creditor-in-Control
Resolution plan CD to submit Base Resolution Plan.
Termination Can terminate process with minimum 66% CoC  (Committee of Creditors) votes

Recent Related News:

i.Government to amend the IBC (Insolvency & Bankruptcy Code), 2016 for suspending provision of 3 sections (7, 9, 10) for six months. It will act as a relief measure for corporate borrowers affected by COVID-19 pandemic.

About Insolvency and Bankruptcy Board of India (IBBI):

Chairperson – Dr. M. S. Sahoo
Head Office – New Delhi