Updated: May 12
CHAPTER III-A had got introduced in to the Insolvency and Bankruptcy Code, 2016 through an Ordinance and the same came into effect with effect from 04th April, 2021. The Pre Packaged Insolvency Resolution Process(PPIRP) is basically intended to resolve the financial stress on Corporate Persons which can be classified as as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006. The PPIRP is envisioned as an “Out of Court” process in contrast to the Corporate Insolvency Process (CIRP) which is more litigative in nature and heavily expensive.
A. The process of filing application for PPIRP.
In order to file an application under PPIRP, the Corporate Debtor (Company or LLP) should be classified as an MSME under relevant Act and the said Corporate Debtor(CD) should have committed “Default” within the meaning of the Code. Furthermore as a precondition, the Corporate Person should not have undergone the process of PPIRP or CIRP, or had not completed CIRP in three years preceding the initiation date or no liquidation proceedings order has been issued against the CD. In order to be qualified as an Applicant, the Corporate debtor should not be disqualified under Section 29A of the Code.
If the Corporate Debtor had committed a Default within the meaning of Section 4 of the Code, and intending to move the application for PPIRP, the Board of Directors or partners, as the case may be, shall have to make a declaration stating that the corporate debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite time period not exceeding ninety days. If the Corporate Debtor had committed a Default within the meaning of Section 4 of the Code, then the Board of Directors have to proceed to call a General Meeting of the shareholders or its partners to obtain their approval to submit the application for undergoing PPIRP.
Further to the above, the Board of Directors have to prepare a ‘Base Resolution Plan’ which conforms to the requirements referred to in section 54K of the Code. Once the above three factors, viz Declaration, Special Resolution and Base Plan is ready, then the Corporate Debtor have to approach the Financial Creditors(lenders) for obtaining their concurrence for submitting the application under CIRP. The Financial Creditors who are having not less than sixty-six per cent. in value of the financial debt approve the same. On their approval the Corporate Debtor can move the application for initiating pre-packaged insolvency resolution process