Insolvency: Bill on pre-pack resolution of MSMEs tabled

Source: Indian Express

What is the News?

The Finance and Corporate Affairs Minister has introduced the Insolvency and Bankruptcy Code (Amendment Bill), 2021 in the Lok Sabha.

Insolvency and Bankruptcy Code (Amendment Bill),2021:

Key Provisions of the Bill:

Pre-Pack Insolvency Resolution Process(PIRP):

  • The bill introduces pre-packs as an insolvency resolution mechanism for micro, small and medium enterprises(MSMEs) with defaults up to Rs 1 crore.
    • A pre-pack is an agreement for the resolution of the debt of a distressed company through an agreement between secured creditors and investors, instead of a public bidding process.
    • Unlike in the case of the corporate insolvency resolution process (CIRP), debtors remain in control of their distressed firm during the Pre-Pack Resolution Process(PIRP).
  • Distressed corporate debtors(CDs) are permitted to initiate a pre-pack insolvency resolution process(PIRP) with the approval of two-thirds of their creditors.
  • Moreover, the CDs are also required to submit a base resolution plan at the time of the initiation of the PIRP.
Swiss Challenge Method:
  • The pre-pack insolvency resolution process(PIRP) also allows for a Swiss challenge to the resolution plan submitted by a CD, in case operational creditors are not paid 100% of their outstanding dues.
  • Under the Swiss challenge mechanism, any third party would be permitted to submit a resolution plan for the distressed company. Then, the original applicant would have to either match the improved resolution plan or forgo the investment.
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