Government notifies Pre-packaged insolvency Amendment PPIRP for MSMEs

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 was promulgated on April 4, 2021 by the President Ram Nath Kovind.
Government notifies Pre-packaged insolvency Amendment PPIRP for MSMEs

The Insolvency and Bankruptcy Board of India notified the Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021 (PPIRP Regulations) recently to enable operationalisation of PPIRP.

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 promulgated on April 4, 2021 provides for pre-packaged insolvency resolution process (PPIRP) for corporate debtors classified as micro, small and medium enterprises (MSMEs).

The Ordinance inter alia has inserted a new Chapter-IIIA in the IBC 2016 to provide for making an application for initiating pre-packaged insolvency resolution process in respect of a corporate debtor classified as a micro, small or medium enterprise (MSME) under sub-section (1) of section 7 of the the Micro, Small and Medium Enterprises Development Act, 2006.  

This ordinance is a welcome step towards the resolution of insolvent MSMEs, in light of the impact that the pandemic has had on the businesses, financial markets and economies all over the world, including India, exposing many of these MSME's to financial distress. The scheme also covers businesses incorporated as partnerships, in addition to companies.

The Corporate Affairs Ministry (MCA) has come out with rules to operationalise the recently introduced pre-packaged insolvency resolution process (PPIRP) for corporate debtor categorised as MSMEs.

It has also now notified ?10 lakh as the minimum amount of default for which PPIRP can be initiated for Corporate MSMEs. The facility of PPIRP is not available for MSMEs that are run as sole proprietorships or partnerships.

The Ministry of Corporate Affairs (MCA) has come out with rules to operationalise the recently introduced pre-packaged insolvency resolution process (PPIRP) for corporate debtor categorised as MSMEs.

It has also now notified Rs10 lakh as the minimum amount of default for which PPIRP can be initiated for corporate MSMEs. The facility of PPIRP is not available for MSMEs that are run as sole proprietorships or partnerships.

What is PPIRP?

Pre-packs are essentially a form of restructuring that allow creditors and debtors to work on an informal plan and then submit it for approval. MSME businesses are generally managed by promoters and it is difficult to revive them after the management is ousted under the normal CIRP. Under the new ordinance, participation of eligible existing promoters is encouraged, with the board continuing in control and the debtor proposing the base resolution plan, which will then be put to competitive bidding through Swiss challenge. Thus, Pre-packs will help corporate debtors to enter into consensual restructuring with creditors and address entire liability of the company.

The pre-pack insolvency shall be initiated by the corporate debtor after obtaining an approval from its financial creditors representing not less than sixty-six per cent in value of the financial debt due to such creditors.

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