Insolvency and Bankruptcy Code Amendment Ordinance, 2021
The President of India, Shri Ram Nath Kovind recently promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021. The ordinance will allow pre-packaged insolvency resolution process for MSMEs. The Pre-packaged Insolvency Resolution Process is called PIRP.
About the Ordinance
The ordinance introduces a pre-packaged insolvency resolution process for corporate persons classified as MSMEs under the MSME Development Act, 2006. Chapter III-A has been introduced to the Insolvency and Bankruptcy Code, 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.
What is the main objective of the ordinance?
The ordinance aims to provide an efficient alternative insolvency resolution process for the corporate persons classified as MSMEs.
How will the ordinance benefit the corporates?
The 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 Rs 1 crore.
- A PIRP cannot run in parallel to a CIRP. CIRP is 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 PIRP framework, the management of affairs of the corporate debtor will continue to vest with the Board of Directors.
What is the difference between PIRP and normal IBC process?
- PIRP is applicable only to MSMEs. On the other hand, IBC is applicable to all the corporate debtors.
- PIRP has a default threshold of Rs 1 crore. IBC deals with threshold greater than Rs 1 crore.
- PIRP 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 hand, the management control in IBC lies with the creditor in control.