Following the recommendations of the sub-committee of the Insolvency Law Committee (ILC)7, the government has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 with effect from 4 April, 2021 to provide for pre-packaged insolvency resolution process (IRP) for corporate persons classified as micro, small and medium enterprises due to the unique nature of their businesses and simpler corporate structures. This is expected to ensure quicker, cost-effective and value maximising outcomes for all stakeholders.

The Amendment Ordinance introduces the following important amendments to the I&B Code, 2016:

1. Insertion of a new Chapter III-A to provide for pre-packaged IRP: Before initiation of pre-packaged IRP, the insolvency professional, proposed to be appointed as the resolution professional (RP), will prepare and file a report with the IBBI confirming that the corporate debtor meets the prescribed eligibility criteria, that is, it should not currently be undergoing a CIRP or has not previously undergone either a pre-packaged IRP or completed a CIRP in the preceding three years, it should be eligible to submit a resolution plan u/s 29A, no order is passed u/s 33 requiring it to be liquidated, among others, and, that the base resolution plan conforms with the provisions of this Chapter. The corporate debtor can subsequently apply for initiation of pre-packaged IRP. The Adjudicating Authority (AA) has been given a time period of fourteen days to accept or reject this application.The pre-packaged IRP must be completed within one hundred and twenty days from the pre-packaged insolvency commencement date, which is the date of admission of the application by the AA. The resolution plan, as approved by the Committee of Creditors (CoC), will be submitted by the RP before the AA within ninety days from the commencement date. If no resolution plan is approved by the CoC within this period od ninety days, the RP shall file for termination of the pre-packaged IRP before the AA.

   Upon admission of the application to initiate pre-packaged IRP i.e. the commencement date of the pre-packaged IRP, the AA will declare a moratorium, appoint an RP and cause a public announcement of the initiation of the process. The moratorium will apply till the conclusion of the pre-packaged IRP period.

   The Corporate Debtor will prepare a base resolution plan and submit it to the RP within two days of the IRP commencement date, post which the RP will present it to the CoC for acception/rejection. The CoC may either accept, reject or seek modifications in the base resolution plan or ask for other resolution plans from prospective resolution applicants. The CoC may select any resolution plan which is better than the base resolution plan. The resolution plan will be approved by a vote of not less than sixty-six per cent. of the voting shares after taking into consideration its feasibility and viability, manner of distribution taking into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified. The resolution plan is required to be approved by the CoC within thirty days from its receipt.

   However, the CoC may resolve to initiate a corporate insolvency resolution process, if the corporate debtor meets the eligibility requirements, any time after the commencement date of the pre-packaged IRP, but before the approval of a resolution plan.

2. The Central Government is empowered to specify a minimum value of default, not higher than Rs. One Crore, for matters relating to the pre-packaged IRP of corporate debtors under Chapter III-A. Section 4 of the Code pertaining to the application of the Code is accordingly amended.

3. Section 67A and section 77A inserted to provide for penalty in case of fraudulent management of the corporate debtor during pre-packaged IRP and for punishment for offences committed during pre-packaged IRP, respectively.

To refer to the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 dated 4 April, 2021 click here.