Streamlining Corporate Recovery: Embracing the Pre-Packaged Insolvency Resolution Process (PPIRP) in India

Introduction?

The Micro small and medium enterprises (MSMEs) are the backbone of the Indian economy. Millions of jobs stem from their operations, making the vitality of these companies vital for continuous economic expansion. A paradigm? shift was brought about by enacting the Insolvency and Bankruptcy Code, 2016 (Code) inter alia introducing the Corporate Insolvency Resolution Process (CIRP) and upon subsequent amendments, the?

Pre-Packaged Insolvency Resolution Process (“PPIRP”) mechanism was introduced and made available under the? IBC for the resolution of distressed companies. In the wake of Covid-19, PPIRP was introduced in April 2021? to deal with stress of these small and mid-sized companies. Addressing the challenges faced by distressed MSMEs demands tailored solutions owing to the distinctiveness of their operations. The pre-packaged insolvency process offers an alternative and expedited resolution avenue for micro, medium, and small enterprises grappling with financial turmoil.

Objectives

The objective of PPIRP is to provide a faster and more efficient process for the resolution of distressed? companies and to facilitate the restructuring of the company through a pre-packaged plan that is? negotiated between the debtor and its creditors before the commencement of the insolvency process and? provide a quicker and more cost-effective solution for all parties involved.?

Procedure?

In the PPIRP, the debtor and its creditors engage in negotiations to craft a pre-packaged plan prior to initiating the insolvency proceedings. The plan is then submitted to the NCLT for approval, and if? accepted, the process moves forward with the implementation of the plan.?

Timelines?

PPIRP, is expected to be a faster process, with a maximum timeline of 120 days for the submission and? approval of the pre-packaged plan. During this period, the Committee of Creditors (CoC) is allotted 90 days to review and endorse the PPIRP plan. The remaining 30 days are allotted for seeking? approval from the Adjudicating Authority. The AA has the power to approve or reject the PPIRP plan?

Legal Provisions?

The introduction of PPIRP in India occurred in 2021 via an amendment to the Insolvency and Bankruptcy Code (IBC), which incorporated a new Chapter III-A. This chapter provides for the submission and approval of pre-packaged plans and specifies the? eligibility criteria for debtors and creditors who can initiate the process as it is? a departure from the conventional CIRP mechanism, PPIRP offers a valuable alternative, especially beneficial for SMEs navigating financial challenges.

Legal Analysis of PPIRP

The PPIRP mechanism involves the preparation and negotiation of a base resolution plan before the? initiation of CIRP, which can be implemented immediately upon the commencement of the insolvency? proceedings. The process is governed by Sections 54A to 54M of the Insolvency and Bankruptcy Code,? 2016 and its success will depend on the effective implementation of these provisions.?

Important Facts Related to PPIRP?

1. PPIRP can be initiated by a corporate debtor, its directors, or its creditors who hold at least 66%? of the total financial debt of the debtor.?
2. If the default amounts range anywhere between Rs 10 lakh to Rs 1 crore, the pre-packaged? insolvency process kicks in.?
3. The PPIRP mechanism allows for the maximization of the value of the assets of the debtor as it? enables the resolution applicant to take control of the assets immediately upon the? commencement of the proceedings.?
4. The PPIRP mechanism is primarily intended for small and medium-sized enterprises (SMEs) as? they may not have the resources or time to go through the lengthy and complex Corporate Insolvency Resolution Process.?
5. In the event, the base resolution plan is rejected, the date on which the NCLT admits the? application will be the date of commencement of PPIRP.?

Case Study?

There have been a limited number of cases involving the PPIRP since its introduction in the IBC in 2021.??

However, one notable case is the recent resolution of the insolvency of the corporate debtor, through the PPIRP mechanism.?

Ruchi Soya Industries Limited, a leading edible oil and soy food products company, was admitted into the? CIRP in December 2017. After a long and complex CIR process, the resolution plan submitted by the? successful resolution applicant, Patanjali Ayurved Limited, was approved by the National Company Law? Tribunal (NCLT) in September 2019. However, the implementation of the resolution plan was delayed? due to various legal challenges and appeals filed by the unsuccessful bidders and stakeholders of Ruchi? Soya. In the meantime, in June 2020, the PPIRP mechanism was introduced by way of an amendment to? the IBC.?

In January 2021, the successful resolution applicant, Patanjali Ayurved Limited, submitted a? resolution plan under the PPIRP mechanism for the implementation of the resolution plan approved by? the NCLT in September 2019. The plan was approved by the NCLT in February 2021, and the? implementation of the plan was completed in April 2021.?

The successful implementation of the resolution plan under the PPIRP mechanism in the case of Ruchi Soya Industries Limited showcases the efficiency and effectiveness of the PPIRP mechanism in corporate insolvency resolution. PPIRP enabled the successful resolution applicant to negotiate and prepare a resolution plan before the initiation of insolvency proceedings, which could be immediately implemented upon the commencement of the insolvency proceedings. Moreover, the PPIRP mechanism allowed the resolution applicant to implement the previously approved resolution plan promptly, thereby avoiding any further delays and legal challenges.The PPIRP?

mechanism thus provides a viable and efficient alternative to the CIRP process for the resolution of? corporate insolvency.?

Conclusion?

In conclusion, the PPIRP is a significant addition to the insolvency resolution framework in India. It? provides an alternative to the traditional CIRP and allows for a faster and more efficient resolution of? corporate insolvency. The PPIRP mechanism facilitates the crafting and negotiation of a resolution plan prior to commencing insolvency proceedings, leading to potential savings in time and resources.

By-

Ms. Almira Lasrado, Senior Attorney at Vis Legis Law Practice, Advocates