Pre-Packaged Insolvency Resolution Process (PPIRP)

The Insolvency and Bankruptcy (Amendment) Ordinance, 2021 promulgated which introduces an entirely new regime – the Pre-Packaged Insolvency Resolution Process (PPIRP). The PPIRP aims to provide a quicker, more cost-effective and less invasive insolvency regime for micro, small and medium enterprises (MSMEs). With this amendment comes amidst a challenging financial environment in which businesses are facing stress due to Covid-19 and prospects of resolution are grim. The amendment offers MSMEs the option to resolve financial stress through a semi-formal regime which allows for out-of-court resolution to some extent, while preserving the sanctity of a formal insolvency process under law.

The act simplified with the insertions of pre-pack or pre-packaged insolvency. In fact The term 'pre-pack' is not defined under the IBC. However it is recognized in various jurisdictions including the US and UK. The term is generally understood to mean a restructuring plan that is agreed between the debtor and its creditors before initiating a formal court process or filing. In the Indian context, the new PPIRP regime is referred to as 'pre-packaged' because before a defaulting MSME can formally initiate the PPIRP process, it has to approach its creditors with a base resolution plan for its revival/restructuring and obtain creditors' approval to initiate PPIRP.

To take part in to initiate PPIRP the eligibility are as follow.

Who is eligible for pre-packaged insolvency resolution or PPIRP under the IBC? 

It should be A company or LLP that classifies as an MSME under Section 7(1) of the Micro, Small and Medium Enterprises Development Act, 20061. 

For that The MSME It should fulfill the following conditions.

It should have failed to pay a due and payable debt of INR 1 million or more.

It should not have undergone a PPIRP or corporate insolvency resolution process (the regular insolvency process under IBC) (CIRP) during the past three years.

No liquidation orders should have been passed against it.

It should not be a person who is disqualified under Section 29A of the IBC

In fact key requirements to be fulfilled for initiating PPIRP that It should be 

Filing of a PPIRP application.

Proposal of a resolution professional (RP) for the MSME by its financial creditors (not related parties) representing at least 10% of the value of total financial debt.

Formulation of a base resolution plan by the MSME for its revival/restructuring and submission of the plan to financial creditors.

Approval of the proposed RP by financial creditors representing at least 66% of the above value.

Declaration from majority of the directors or partners of the MSME stating: (a) that PPIRP application will be filed within 90 days; (b) that 

PPIRP is not initiated to defraud anyone; and (c) the name of the approved RP.

Approval for PPIRP from the shareholders or partners of the MSME by a special resolution of 3/4th

Approval for PPIRP from financial creditors (not related parties) representing at least 66% in value of total financial debt.

This is a great initiative as most provisions are along the lines of the pre-pack committee recommendations that ensures complete exclusion of promoters those that get hit by the Section 29A may not bode well for the pre-pack process. The prepack ensures that there exists commercial justification for diluting the mandate of the Section 29A for pre-packs. The insolvency process will become highly friendly because of direct benefit to the promoters and creditors interests. The Pre-packs are intended to be less formal and not a strict, statutory platform to resolve pre-insolvency and the applicability of the Section 29A is modified to only include established frauds, promoters will become eligible to enable the framework and every pre-pack will become a boom for economic growth.