Pre-packaged insolvency resolution process for micro small and medium enterprises- IBC (Amendment) Ordinance 2021
The President of India has Promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021to amend the Insolvency and Bankruptcy Code, 2016.
According to the Ordinance, due to the COVID-19 pandemic impact on businesses, financial markets and economies all over the world, including India, and has impacted the business operations of micro, small and medium enterprises ( MSMEs ) and exposed many of them to financial distress.
Earlier the Government had taken several measures to mitigate the distress caused by the pandemic, including increasing the minimum amount of default for initiation of corporate insolvency resolution process to one crore rupees, and suspending filing of applications for initiation of corporate insolvency resolution process in respect of the defaults arising during the period of one year beginning from 25th March 2020 which has ended on 24th March 2021.
In view of the role of MSMEs in India’s economy to address their specific requirements relating to the resolution of their insolvency the Government has introduced a pre-packaged insolvency resolution process ( PPIRP ) for corporate persons classified as micro, small and medium enterprises.
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 may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006.
The Central Government may, by notification, specify such minimum amount of default of higher value, which shall not be more than one crore rupees, for matters relating to the pre-packaged insolvency resolution process of corporate debtors
The PPIRP 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.
The pre-packaged insolvency resolution process shall be completed within a period of one hundred and twenty days from the pre-packaged insolvency commencement date.
During the pre-packaged insolvency resolution process period, the management of the affairs of the corporate debtor shall continue to vest in the Board of Directors or the partners, as the case may be, of the corporate debtor, subject to conditions specified. However, committee of creditors, at any time during the pre-packaged insolvency resolution process period, by a vote of not less than sixty-six per cent. of the voting shares, may resolves to vest the management of the corporate debtor with the resolution professional which shall be decided by the Adjudicating Authority.
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