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Pre Pack Insolvency Resolution Process - PPIRP under IBC code, 2016

Micro, small, and medium enterprises (MSMEs) are critical for India’s economy.

They contribute significantly to gross domestic product and provide employment to a

sizeable population. The COVID- 19 pandemic has impacted their business operations

and exposed many of them to financial stress. Resolution of their stress requires

different treatment, due to the unique nature of their businesses and simpler

corporate structures. Therefore, it was considered expedient to provide an efficient

alternative insolvency resolution process under the Code for corporate MSMEs, that

ensures quicker, cost-effective and value maximising outcomes for all the stakeholders,

in a manner which is least disruptive to the continuity of their businesses, and which

preserves jobs. Accordingly, President promulgated the Insolvency and Bankruptcy

Code (Amendment) Ordinance, 2021 on 4th April, 2021 to introduce PPIRP under

the Code for this purpose.

The Insolvency Resolution process under Insolvency and Bankruptcy code is just taking the company from the hands of debtors and handing over that to creditors, so they can find a solution to resolve their debt even by changing the ownership.

When the company have huge asset size, mainly in plant and machinery, it will be easy to find investor, but in the case of Micro, Small and Medium enterprises, it will be very difficult

to find investors as they will be having meagre investments in plant and machinery.

To enable restructuring of such enterprises, the government have notified Chapter IIIA to

Insolvency and Bankruptcy code, especially for MSMEs. It is called as Pre Pack Insolvency resolution process.

Section 54A to 54P of the Insolvency and Bankruptcy Code, 2016 (‘Code’) read with the Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations,2021 lays down the provisions of a pre-packaged insolvency resolution process with respect to its initiation, manner of carrying out the process, appointment of resolution professional, termination etc.

Unlike in the normal insolvency process, where the creditors have a bigger hand and voice, under PPIRP, the debtors and creditors work hand to hand to find a informal plan of restructure. The minimum amount notified is 10 lakhs.

So, to clearly understand, this is an insolvency process, where the debtors and creditors will try to find and informal plan/solution between an agreement between them, without initiating insolvency proceeding and difficult process related with it.

Circumstances necessitating PPIRP

  1. CD has a default of 10 lakhs at least.

  2. CD is eligible to submit a resolution plan under Section 29A of IBC

  3. CD has not under gone any CIRP and completed it during the last three years from the date of initiation of PPIRP.

  4. CD has not undergone a PPIRP during thre previous years to initiation date.

  5. CD is not undergoing a CIRP or not being liquidated under an order of IBC.

  6. The name of the Insolvency Resolution Professional should be recommended by unrelated creditors and 66% of the such unrelated creditors should approve the proposal.

Points to be noted in Pre Pack Insolvency Resolution Process

  1. The entire process is time bound, and to be completed within 120 days of initiation.

  2. The involved Insolvency resolution professional need to submit resolution plan approved by the Committee or Creditors within a period of ninety days from the insolvency commencement date and if no plan is approved by them committee of Creditors (CoC), the Insolvency Professional need to file for termination of PPIRP with adjudicating authority.

  3. One of the most important aspect of the PPIRP is unlike the CIRP where the appointed resolution professional is in control of the CD, in PPIRP the company management retains the control of the affairs.

  4. The existing management continues to retain the effective management of the CD.

  5. Majority of directors or partners, should declare about the time bound initiation of insolvency resolution, it is not to defraud any person and also the name of Insolvency Resolution Professional.

  6. The approved resolution plan is binding between CD and creditors. To enable the approval, necessary information should be provided to creditors.

  7. Insolvency professional should fulfill his duties as per IBC code, prepare such report with details and attachments.

  8. Section 54B says the Insolvency professional will vacate when the CD fails to submit PPIRP application within the specified time or it is rejected by the authority.

  9. Declaration that the process is not to defraud any persons.

  10. Adjudicating authority, within 14 days of receipt of application either admit or reject application.

  11. The promoter still can try to save the company, if he does not have dirty hands.

  12. Section 54C says the insolvency resolution professional need to file application, in prescribed form, and also furnish declaration, special resolution for initiating PPIRP.

  13. consent of the person to act as Insolvency Resolution Professional.

  14. Section 54E, provisions relating to moratorium under IBC code apply to PPIRP. Need to make public announcement of initiation of PPIRP, in such form and manner immediately after the appointment.

  15. Section 54F(2), 54F(3) - have all rights, powers, responsibilities related to PPIRP. can access all documents, books, accounts of CD even if it is maintained by financial institutions.

  16. He should be supported by the promoters, debtor and such associated persons. Necessary expenses can be incurred for the process, should be ratified by Committee of Creditors and to be born by CD.

  17. Section 54G, within 2 days of commencement, corporate debtor, shall submit to resolution professional, list of claims, details of creditors, security interests, guarantees and also preliminary information.

  18. If any omission happened and loss or damage incurred to any person, promoter, director or partner who authorised such submission shall be liable to compensate such loss.

  19. Section 54H says the management of the affairs of the corporate debtor with the existing management only.

  20. Section 54I - within 7 days of commencement , the COC to be constituted. First meeting to be within 7 days of constitution.

  21. Section 54J - during the PPIRP process, the management of the CD can be handed over to Insolvency Resolution Professional. by 66% of decision of COC.

  22. Section 54K - base resolution plan can be submitted by CD whether individually or jointly and to be approved by COC.

  23. It should be as per the provisions and COC can provide an opportunity to revised the  base plan before its approval.

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