Pre – packaged Insolvency Resolution process for
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Frequently Asked Questions
An application for initiating pre-packaged insolvency resolution process may be made with the Adjudicating Authority by a corporate applicant. As per Section 5(5), corporate applicant means:
- Corporate debtor (CD); or
- a member or partner of the CD who is authorized to make an application for the CIRP under the constitutional document of the corporate debtor; or
- an individual who is in charge of managing the operations and resources of the CD; or
- a person who has control and supervision over the financial affairs of the CD.
In accordance to Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, an application for initiating PPIRP process may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006.
Classification of the MSMEs is as follows:
Investment in plant & machinery or equipment
not exceed Rs. 1 crore
not exceed Rs. 5 Crore
not exceed Rs. 10 crore
not exceed Rs. 50 Crore
not exceed Rs. 50 crore
not exceed Rs. 250 Crore
An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor, who commits a default referred to in section 4, subject to following pre-conditions:
- It has defaulted in payment for an amount of Rs.10 lakhs or more
- it has not undergone pre-packaged insolvency resolution process or completed CIRP, as the case may be, during the period of 3 years preceding the initiation date;
- it is not undergoing a CIRP;
- no order requiring it to be liquidated is passed under section 33;
- it is eligible to submit a resolution plan under section 29A
- Pre-conditions stated above
- Declaration by majority directors/partners for initiating the PPIRP
- Members of the CD have passed a Special Resolution (or at least ¾ of the total number of partners in LLP) approving the filing of application for PPIRP.
- CD shall have to obtain approval from its FCs, not being its related parties, representing not less than 66% in value of the financial debt due to such creditors, for the filing of an application for initiating PPIRP.
The pre-packaged insolvency resolution process shall be completed within a period of 120 days from the pre-packaged insolvency commencement date.
- Prepare report confirming eligibility of CD for initiation of PPIRP (under section 54A)
- Prepare base resolution plan
- File reports and documents with the Board
- Any other such duties that may be specified
- Conduct the process during PPIRP period
- Confirm list of claims, maintain its updated list
- Constitute Creditors Committee (CC)
- Convene and attend all the CC meetings
- File application for avoidance/ preferential transaction
- Monitor the activities and operations of the CD by the management/ promoters
- Prepare information memorandum
- Invite Resolution Plan, competitive bidding etc.
The duties of RP may enlarge as per the circumstance /operations of the CD and the decision of the CC.
The RP must within 7 days of the PPIRP commencement date constitute CC based on the list of confirmed claims.
The first CC meeting shall be held within 7 days of its constitution.
According to Sec 5(2A) “base resolution plan” means a resolution plan provided by the corporate debtor. BRP goes into competition with the resolution plan provided by prospective resolution applicants, through a process commonly known as swiss challenge method.
The following documents will be required in most of the cases.
- Constitutional documents of CD
- Financial statements of the CD for the last three years
- Details of its contingent liabilities
- Preliminary Information memorandum
- List of assets and liabilities as on the PPIRP commencement date
- Details of business operations during the last two years
- Updated books of accounts
Further documents may be required depending on the nature and size of the CD
- Quicker process, to be completed in 120 days as against 180 days in case of CIRP.
- No concept of IRP before the appointment of RP.
- Consent of FCs at the time of appointment of RP to save time.
- Once application for PPIRP is filed, no application can be considered before disposing of PPIRP application.
- If PPIRP fails, CD would not be liquidated but PPIRP would be terminated, and promoters would continue to run the CD.
- No filing of claims by creditors – list to be provided by CD – RP to inform the claim particulars to creditors.
- PPIRP is initiated with the consent of promoters, shareholders, directors and financial creditors – therefore least probability of resistance from stakeholders
- Mix of judicial and consensual process.
- Debtor controlled process in PPIRP as against Creditor (CoC) Controlled in case of CIRP.
- CD under the control and management of promoters under the supervision of the RP.