Pre-Packaged Insolvency Resolution Process for MSMEs

Background: The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 was promulgated by the President on 4th April, 2021. It has introduced Chapter III-A on ‘Pre-Packaged Insolvency Resolution Process’ (“PPIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IB Code”). The Rules and Regulations for PPIRP were notified on 9th April, 2021.

1. PPIRP is applicable to which entities and what are the pre-requisites for initiating it?

The PPIRP is applicable to the micro, small and medium enterprises (“MSMEs”) which are classified under Section 7(1) of the MSME Development Act, 2006. As per the Form-1 under the Insolvency and Bankruptcy (PPIP) Rules, 2021, only the MSMEs which are incorporated as companies or limited liability partnerships are entitled to initiate PPIRP.

The Corporate Debtor (“CD”) has to take approval from its members by way of a special resolution (more than 75%) as well as approval from over 66% of the financial creditors for the initiation of PPIRP. The other conditions for the initiation of PPIRP are as follows:

First, the CD should not have undergone PPIRP or finished Corporate Insolvency Resolution Process (“CIRP”) within the period of three years prior to the initiation of PPIRP.

Second, CD should not be undergoing the CIRP.

Third, no liquidation order should have been passed against the CD.

Fourth, the CD should be eligible under Section 29A of the IB Code to submit a resolution plan.

Fifth, sixty-six percent of the unrelated financial creditors of the CD should approve the appointment of a Resolution Professional (RP).

Sixth, the partners or directors of the CD in majority, are required to make a declaration in terms of Section 54A(2)(f).

2. What are the differences between PPIRP and CIRP?

i. During the PPIRP, the existing directors or partners of the CD remain in control of the management of CD, whereas, the CIRP is based on the ‘creditor in control’ model.
ii. The maximum time limit for the completion of PPIRP is 120 days, whereas, for CIRP, the same is 330 days.
iii. The minimum threshold for filing an application for PPIP is Rs. 10 Lakhs and for CIRP is Rs. 1 Crore.
iv. Prior to the initiation of PPIRP, the CD has to present a base resolution plan to the financial creditors, however, under CIRP, there is no such requirement.
v. The fee for filing an application for the initiation of PPIRP is Rs. 15,000, whereas, for CIRP, the same is Rs. 25,000.
vi. The RP has to submit the resolution plan approved by the CoC to the Adjudicating Authority (AA) within 90 days of the commencement of PPIRP, however, there is no such time limit for the submission of resolution plan under CIRP.

3. Can a third party submit a resolution plan under PPIRP?

Yes, if the CoC does not approve the base resolution plan proposed by CD or the base resolution plan impairs any claims of the operational creditors, the RP has to invite resolution plan(s) from other parties. These resolution plan(s) will be evaluated by CoC, which will select one of them. Thereafter, CoC may select such resolution plan for approval over the base resolution plan. In case if such resolution plan is not selected for approval, it will compete against the base resolution plan.

Disclaimer

Discalimer

By proceeding further, you the user acknowledge that you of your own accord wish to know more about UKCA and Partners LLP (“UKCA”) for your own information and use. You further acknowledge that there has been no solicitation, invitation or inducement of any sort whatsoever from UKCA or any of its Employees, Associates, Partners or Attorneys to create an Attorney-Client relationship through this website. You further acknowledge having read and understood the terms and conditions as stated below:

This website is a resource for informational purposes only and is intended, but not promised or guaranteed, to be correct, complete, and up-to-date. UKCA does not warrant that the information contained on this webpage is accurate or complete, and hereby disclaims any and all liability to any person for any loss or damage caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause.

UKCA further assumes no liability for the interpretation and/ or use of the information contained on this webpage, nor does it offer a warranty of any kind, either expressed or implied. UKCA does not intend links from this site to other internet websites to be referrals to, endorsements of, or affiliations with the linked entities. UKCA is not responsible for, and makes no representations or warranties about the contents of Websites to which links may be provided from this Website.

This website is not intended to be a source of advertising or solicitation and the contents of the website should not be construed as legal advice. The reader should not consider this information to be an invitation for an attorney relationship and should not rely on information provided herein and should always seek the advice of competent counsel licensed to practice in the reader’s country/ state. Transmission, receipt or use of this website does not constitute or create a attorney-client relationship. No recipients of content from this website should act, or refrain from acting, based upon any or all of the contents of this page.

Furthermore, UKCA does not wish to represent anyone desiring representation based solely upon viewing this website or in a country/ state where this website fails to comply with all laws and ethical rules of that country/ state. Finally, the reader is warned that the use of Internet e-mail for confidential or sensitive information is susceptible to risks of lack of confidentiality associated with sending email over the Internet.