The Central Government has promulgated Insolvency and Bankruptcy Code(Amendment) Ordinance 2021 to allow pre-packaged insolvency resolution process for corporate debtors classified as micro, small or medium enterprises under the Micro, Small and Medium Enterprises Development Act, 2006.
The Ordinance amends the Insolvency and Bankruptcy Code 2016 to allow the Central Government to notify such pre-packaged process for defaults up to Rupees One Crores. It may be noted that the Centre had suspended the initiation of fresh insolvency process on March 24 last year in the wake of the COVID-19 pandemic. This suspension, which was extended from time to time, ended on March 24 this year.
In this backdrop, this Ordinance has been brought to allow pre-packaged insolvency process saying that it will ensure “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”.
The Centre said that it felt an urgent need for introducing a special scheme for MSMEs “due to the unique nature of their businesses and simpler corporate structures”.
A pre-packaged insolvency process is an informal plan worked out by the creditor and debtor for debt resolution. The Ordinance allows the approval of such informal plans by the National Company Law Tribunals.
A separate chapter, Chapter IIIA, has been inserted in the principal Act to deal with pre-packaged insolvency resolution process.
An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor, subject to the following conditions, that––
(a) it has not undergone pre-packaged insolvency resolution process or completed corporate insolvency resolution process, as the case may be, during the period of three years preceding the initiation date;
(b) it is not undergoing a corporate insolvency resolution process;
(c) no order requiring it to be liquidated is passed under section 33;
(d) it is eligible to submit a resolution plan under section 29A;
(e) the financial creditors of the corporate debtor, not being its related parties, representing such number and such manner as may be specified, have proposed the name of the insolvency professional to be appointed as resolution professional for conducting the pre-packaged insolvency resolution process of the corporate debtor, and the financial creditors of the corporate debtor, not being its related parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors, have approved such proposal in such form as may be specified: Provided that where a corporate debtor does not have any financial creditors, not being its related parties, the proposal and approval under this clause shall be provided by such persons as may be specified;
(f) the majority of the directors or partners of the corporate debtor, as the case may be, have made a declaration, in such form as may be specified, stating, inter alia, —(i) that the corporate debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite time period not exceeding ninety days;(ii) that the pre-packaged insolvency resolution process is not being initiated to defraud any person; and(iii) the name of the insolvency professional proposed and approved to be appointed as resolution professional under clause (e);
(g) the members of the corporate debtor have passed a special resolution, or at least three-fourth of the total number of partners, as the case may be, of the corporate debtor have passed a resolution, approving the filing of an application for initiating pre-packaged insolvency resolution process.
The corporate debtor shall obtain an approval from its financial creditors, not being its related parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors, for the filing of an application for initiating pre-packaged insolvency resolution process, in such form as may be specified
The pre-packaged insolvency resolution process shall be completed within a period of one hundred and twenty days from the pre-packaged insolvency commencement date.
The moratorium shall be available from the pre-pack commencement date till the closure of the process, whether by approval of the resolution plan or otherwise.
The corporate debtor shall remain under the control and possession of the current promoters and management during the pre-pack process.
The Ordinance allows appeal against an order approving the pre-packaged resolution plan on the grounds laid down in sub-section (3) of section 61 of IBC.
Click here to read/download the Ordinance