Insolvency And Bankruptcy Code (Amendment Bill), 2021:
The government introduced the Insolvency and Bankruptcy Code (Amendment Bill), 2021 in the Lok Sabha.
- The Bill is set to replace the Insolvency and Bankruptcy Code Amendment Ordinance 2021 promulgated in April 2021.
- It introduced an alternate insolvency resolution process for Micro, Small and Medium Enterprises (MSMEs) with defaults up to Rs 1 crore called the Pre-packaged Insolvency Resolution Process (PIRP).
- In March 2021 a sub-committee of the Insolvency Law Committee (ILC) recommended a pre-pack framework within the basic structure of the Insolvency and Bankruptcy Code (IBC), 2016.
Major Provisions:
- Distressed Corporate Debtors (CDs) are permitted to initiate a PIRP with the approval of two-thirds of their creditors to resolve their outstanding debt under the new mechanism.
- A corporate debtor is a corporate person who owes debt to any other person.
- The 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.
- A Swiss Challenge is a method of bidding, often used in public projects, in which an interested party initiates a proposal for a contract or the bid for a project.
About PIRP:
- A pre-pack is the resolution of the debt of a distressed company through an agreement between secured creditors and investors instead of a public bidding process.
- This system of insolvency proceedings has become an increasingly popular mechanism for insolvency resolution in the UK and Europe over the past decade.
- Pre-packs are largely aimed at providing MSMEs with an opportunity to restructure their liabilities and start with a clean slate while still providing adequate protections so that the system is not misused by firms to avoid making payments to creditors.
- Unlike in the case of Corporate Insolvency Resolution Process (CIRP), debtors remain in control of their distressed firm during the PIRP.
- Under the pre-pack system, financial creditors will agree to terms with a potential investor and seek approval of the resolution plan from the National Company Law Tribunal (NCLT).
