Introduction Of Pre-Packaged Insolvency Resolution Process Under The Insolvency And Bankruptcy Code, 2016

• Published date: 05 August 2021
• Subject Matter: Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy
• Law Firm: Parinam Law Associates
• Author: Miss Pooja Tidke, Krushi N. Barfiwala, Rima Desai and Tanwangi Shukla

I. INTRODUCTION

The Upper House of Parliament in India, being the Rajya Sabha passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2021 ("Amendment") on 3^rd August 2021 which introduces a Pre-Packaged Insolvency Resolution Process ("PIRP") within the scheme of the Insolvency and Bankruptcy Code, 2016 ("Code"). The Amendment had already cleared the Lower House of Parliament, the Lok Sabha on 28^th July 2021.

The Amendment replaces the Ordinance passed by the President of India on 4^th April 2021. At the time, the Ordinance was promulgated with a view to combat the impact of the COVID-19 pandemic on the Indian economy and protect micro, small and medium sized businesses from the onslaught of applications for commencement of corporate insolvency resolution process ("CIRP") under the Code. This was a step taken in addition to the temporary suspension of the CIRP mechanisms under the Code (as per Section 7, 9 and 10 of the Code) vide the Ordinance dated 24^th March 2020 for a period of 6 (six) months which was further extended on 25^th December 2020 for a period of 3 (three) months.

Pre-packaged insolvency is a financial plan initiated by the Corporate Debtor (hereinafter referred to as "CD") where the restructuring is pre-posed and agreed in advance with creditors and other stakeholders for a CD. The Amendment inter alia has introduced Chapter III-A which contains sections 54A to 54P to facilitate PIRP for corporate persons defined as micro, small and medium enterprises ("MSME") under sub-section Section 7(1) of the Micro, Small and Medium Enterprise Development Act, 2006 ("MSMED Act"). The Government has introduced the Amendment to ensure that PIRP serves as a cost effective and value maximising outcome which preserves jobs and ensures continuity of business and business ownership.

In this news alert we attempt to decode the salient features of the Pre-Packaged Insolvency Resolution Process (PIRP).

II. SALIENT FEATURES

A. Key Definitions

1. Base Resolution Plan

It is defined as a resolution plan provided by the CD under clause (c) of sub-section (4) of Section 54A (section for initiation of PIRP).

2. Pre-Packaged Insolvency Commencement Date

This means the date of admission of an application for initiating the PIRP by the Adjudicating Authority under clause (a) of sub-section (4) of Section 54C.

3. Pre-packaged Insolvency Resolution Process Costs

This has been defined as (i) the amount of any interim finance and the costs incurred in raising such finance; (ii) the fees payable to any person acting as a resolution professional and any expenses incurred by him for conducting the

pre-packaged insolvency resolution process...