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1. Pre Packaged Resolution Insolvency Plan (PPIRP)

1.       Pre Packaged Resolution Insolvency Plan (PPIRP)

The concept of ‘Pre-Packaged Insolvency’ has not all of a sudden come into vogue. This concept, by whatever term it may be called, has found its place in the Insolvency Laws in the United Kingdom, the United States of America, Singapore, France and Canada.

In India, the outbreak of COVID-19 pandemic and the lockdown imposed thereto forced companies, industries and enterprises all over the World to remain shut for a long period of time thus pushing innumerable business units, specifically the Micro, Small and Medium Enterprises (MSMEs), into financial distress.

Considering the need of the hour of revival and insolvency resolution of these Micro, Small and Medium Enterprises that contribute significantly to India’s GDP and provide employment to a sizeable population, the Government of India upon several deliberations promulgated the regime of Pre-Packaged Insolvency specifically for such MSMEs vide The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021. 

Under a pre packaged resolution Insolvency plan, the debtor and creditor agree on a restructuring or a resolution plan in advance, before the case is admitted for insolvency proceedings. Principally, the pre-pack process provides an alternative insolvency resolution process for MSME corporate debtors, which involves a ‘debtor-in-possession with creditor-in-control’ model, and envisages a shorter timelineforcompletion.

Thus, Pre-Packaged Insolvency has emerged as an innovative corporate rescue method that incorporates the virtues of both informal (out-of-court) and formal (judicial) insolvency proceedings thus resulting in a faster, cost-effective and value maximizing regime along with ensuring that the management of MSMEs remains with the honest MSME owners. This regime has been introduced as an alternative to Corporate Insolvency Resolution Process (CIRP) and not as a replacement of the same.

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INSOLVENCY AND BANKRUPTCY CODE, 2016 (IBC)

Banks, especially public sector, lent extensively to the corporate between early in 2000’s and 2008. However, the profits of the corporates dwindled due to slowdown in the global economy. This in turn negatively impacted the ability of these companies to pay back their loans to the financial institutions and is one of the important reasons behind increase in Non-Performing Assets (NPA) in India. Prior to the enactment of Insolvency and Bankruptcy Code, the bad loan recovery mechanism was governed by the following legislations:-

·         SARFAESI Act, 2002  

·         The Presidency Towns Insolvency Act, 1909 and The Provincial Insolvency Act, 1920

·         The Companies Act, 2013

·         The Recovery of Debts due to Banks and Financial Institutions Act, 1993

·         The Sick Industrial Companies (Special Provisions) Act, 1985

·         Corporate Debt Restructuring(CDR)/ Strategic Debt Restructuring (SDR)/Scheme for Sustainable Structuring of Stressed Assets (S4A)

EVOLUTION OF IBC

The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015 under the Chairmanship of Sh. Arun Jaitley. It was passed by Lok Sabha on May 5, 2016 and it received the assent of the President of India on May 28, 2016.

However, the provisions on Corporate Insolvency Resolution Process under IBC became effective in December 2016.

The Insolvency and Bankruptcy Code, 2016 (‘IBC’) is the newly enacted bankruptcy law of India which seeks to consolidate the existing framework for debt recovery by creating a single law for insolvency and bankruptcy. The prime objective of the IBC is to rescue corporate debtors in distress. The Code specifies a time-bound insolvency resolution process.

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How to start Company in India?

I know that your initial focus is to give shape to your business idea and build a team that believes in your vision. Pitching to prospects, closing deals, and meeting with investors along with developing the product or services takes up all your time.

However, when you embark on your journey as an entrepreneur, the first thing you should do is register your company.

The definition of ‘Company’ signifies an enterprise which is formed under the Companies Act, 2013. The procedure of company registration relies upon the type of the company, which can be a Private Limited Company or Public Limited Company or Limited Liability Partnership (LLP) or or Partnership Firm or Sole Proprietorship.

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