Pre-Packaged Insolvency Resolution Process
We are covering entire aspects of Pre-Packaged Insolvency Resolution Process in a series of V write ups. The first part is a mere introduction of Pre-Packaged Insolvency Resolution Process.
The Government of India, on 04.04.2021, has notified the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 (“Ordinance”).
The Ordinance has introduced a Pre-Packaged Insolvency Resolution Process (‘PIRP’) for corporate persons who have been classified as Micro, Small and Medium Enterprises(“MSME”) under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”).
A Pre-Packaged Scheme is an arrangement under which a Stressed Company and the Purchaser negotiate the sale of all or part of a company’s business or assets prior to the appointment of an Insolvency Professional as an Administrator.
The main objective of bringing in this concept is to aid the Insolvency framework, avoid spending time and money in Court proceedings & legal battles and directly move to getting a fair resolution for the company, which was the very objective of the Insolvency and Bankruptcy Code, 2016 (“IBC”) in the first place.
Pre-Packaged Schemes are already prevalent in the UK and the USA and the idea behind it is to approach the Court with the already-negotiated Restructuring Plan for the company. This is being implemented in India with the motive that with a timely resolution of Stressed Companies, their actual market value can be capitalised upon without any depreciation or deterioration.
The Ordinance has also added a new Chapter i.e. Chapter III-A to the IBC. Chapter III-A contains Sections 54A to Section 54P and deals with the corporate persons who are eligible to take advantage of PIRP, the initiation of PIRP, approval of a Plan, duties of a Resolution Professional, etc. With the insertion of a new Chapter, amendments to various provisions of IBC have also been made accordingly.
This Ordinance aims to provide an efficient alternative Insolvency Resolution Process for corporate persons classified as MSMEs by ensuring quicker, cost effective and value maximising outcomes for all the stakeholders.
The Ordinance also aims to provide such alternative Insolvency Resolution Process in a manner which is least disruptive to the continuity of the businesses of such MSMEs and which preserves jobs.
In the part II, we are attempting on Chapter III-A – wherein, the eligibility of a Corporate Debtor under PIRP and duty of a Resolution Person(RP) before PIRP.
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