The Insolvency and Bankruptcy Code (Amendment) Ordinance 2021
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021
Recently the President Promulgates IBC Amendment Ordinance To Allow Pre-Packaged Insolvency Process For MSMEs.
Pre-Packaged Insolvency Process
- A pre-packaged insolvency process is an informal scheme used by the creditor and debtor for debt resolution.
- In the past decade, this arrangement for insolvency resolution has become very popular in the UK and Europe.
- In the case of India, under such a system, financial creditors would be required to agree with potential investors, and the approval of the National Company Law Tribunal (NCLT) would also be required for the resolution plan.
- Under this amendment, a new chapter IIIA has been added in the Insolvency and Bankruptcy Code, 2016 which deals with the pre-packaged insolvency resolution process. The ordinance introduces a pre-packaged insolvency resolution process for corporate individuals classified as MSMEs under the MSME Development Act, 2006.
- Further the Ordinance has amended the Insolvency and Bankruptcy Code 2016 and allows the Central Government to notify such pre-packaged procedure for defaults of more than Rs 1 crore.
Main objective of the ordinance?
The purpose of this ordinance is to provide an efficient alternative insolvency resolution process for corporate individuals classified as MSMEs.
How will corporates benefit from the ordinance?
A corporate debtor is required to submit a “base resolution plan” to the resolution professional within two days of PIRP commencement, and changes are allowed prior to the approval by the CoC. However, in case the resolution plan is not approved by creditors or does not pay the operational creditors in full, new bids can be invited.
Difference between the “Pre-Packaged Insolvency Resolution Process (PIRP)” and the “General Insolvency and Bankruptcy Code (IBC)” process?
- PIRP only applies to MSMEs. On the other hand, IBC applies to all corporate debtors.
- The default limit of PIRP is Rs 1 crore. IBC limit is more than 1 crore rupees.
- PIRP provides a time period of 90 days to submit a resolution plan. IBC, on the other hand, provides 180 days.
Source – The Hindu