Recently President Ram Nath Kovind promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance of 2021. This ordinance will allow pre-packaged insolvency resolution process for MSMEs. PIRP is Pre-packaged Insolvency Resolution Process.
The ordinance introduces a PIRP for corporate persons classified as MSMEs under the MSME Development Act of 2006. Chapter III-A has been introduced to the Insolvency and Bankruptcy Code of 2016 under the amendment. It explains the initiation of resolution, duties of resolution professional and eligibilities to take the benefits of pre-packaged insolvency resolution processes, etc.
Objective of the ordinance
The ordinance aims to provide an efficient alternative insolvency resolution process for the corporate persons classified as Micro, Small and Medium Enterprises.
How will the ordinance benefit the corporates?
The Insolvency and Bankruptcy Code Amendment Ordinance allows the corporate debtor to submit a “base resolution plan” to the resolution professional. However, the debtor should have the plan ready before approaching the creditors to initiate PIRP. If the committee of creditors did not approve the plan, then the resolution professional shall invite applicants to submit different plans.
- The new pre-pack framework is applicable to MSMEs with a maximum default value of Rupees 1 crore.
- A Pre-packaged Insolvency Resolution Process cannot run in parallel to a CIRP (Corporate Insolvency Resolution Process).
- The PIRP should have a three-year cooling off period from the closure of the other PIRP or CIRP.
Control of Company during PIRP
During the Pre-packaged Insolvency Resolution Process framework, the management of affairs of the corporate debtor will continue to vest with the Board of Directors.
Difference between PIRP and normal IBC process
- Pre-packaged Insolvency Resolution Process is applicable only to MSMEs. On the other hand, IBC is applicable to all the corporate debtors.
- PIRP has a default threshold of Rupees 1 crore. IBC deals with threshold greater than Rupees 1 crore.
- Pre-packaged Insolvency Resolution Process provides 90 days of timeline to submit a resolution plan. On the other hand, the IBC provides 180 days.
- The management control lies with the corporate debtor in possession with creditor in control. On the other side, the management control in IBC lies with the creditor in control.
Insolvency and Bankruptcy Code Amendment Ordinance of 2021 Insolvency and Bankruptcy Code Amendment Ordinance of 2021