Pre-Packaged Insolvency Resolution Process (PPIRP) in India: A Promising Alternative to Traditional Insolvency Resolution Framework for Small and Medium-Sized Enterprises (SMEs)

 

Introduction

Corporate Insolvency Resolution Process (CIRP) and Pre-Packaged Insolvency Process (PPIRP) are two important mechanisms available under the Indian Insolvency and Bankruptcy Code, 2016 (IBC) for the resolution of distressed companies. In this comparative analysis, we will discuss the key differences between these two processes in terms of their objectives, procedures, timelines, and legal provisions.

Key Comparison

1. Objectives:

The primary objective of CIRP is to resolve the insolvency of the corporate debtor and maximize the value of its assets for the benefit of all stakeholders. The process involves the appointment of an insolvency professional who takes over the management of the company and works towards a resolution plan that can be approved by the creditors and the National Company Law Tribunal (NCLT).

On the other hand, PPIRP is a relatively new mechanism introduced in India in 2021, which aims to provide a faster and more efficient process for the resolution of distressed companies. The objective of PPIRP is to facilitate the restructuring of the company through a pre-packaged plan that is negotiated between the debtor and its creditors before the commencement of the insolvency process. The aim is to avoid the delay and uncertainty associated with the CIRP process and provide a quicker and more cost-effective solution for all parties involved.

2. Procedure:

Under CIRP, the process starts with the initiation of insolvency proceedings by the creditor, debtor, or any other interested party. The NCLT then appoints an insolvency professional who takes over the management of the company and invites resolution plans from potential buyers or investors. The resolution plan is then evaluated by the creditors and the NCLT, and if approved, the company is handed over to the successful bidder.

In contrast, PPIRP involves the negotiation of a pre-packaged plan between the debtor and its creditors before the commencement of the insolvency process. The plan is then submitted to the NCLT for approval, and if accepted, the process moves forward with the implementation of the plan.

3. Timelines:

CIRP is a time-bound process with a maximum period of 330 days, including any extensions granted by the NCLT. This timeline includes the time taken for the appointment of the insolvency professional, the invitation of resolution plans, and the evaluation and approval of the plan.

PPIRP, on the other hand, is expected to be a faster process, with a maximum timeline of 120 days for the submission and approval of the pre-packaged plan.

4. Legal Provisions:

CIRP is governed by Chapter II of the IBC, which outlines the procedure for the initiation of insolvency proceedings, the appointment of the insolvency professional, and the evaluation and approval of the resolution plan. Section 29A of the IBC imposes certain eligibility criteria for bidders, such as the requirement that they should not be willful defaulters or have a past history of fraud.

PPIRP was introduced in India through an amendment to the IBC in 2021, which inserted a new Chapter III-A. This chapter provides for the submission and approval of pre-packaged plans and specifies the eligibility criteria for debtors and creditors who can initiate the process.

Legal Analysis of PPIRP

The Pre-Packaged Insolvency Resolution Process (PPIRP) is a recent addition to the Insolvency and Bankruptcy Code, 2016 (IBC) and provides for a faster and more efficient mechanism for the resolution of corporate insolvency. The PPIRP mechanism involves the preparation and negotiation of a resolution plan before the initiation of insolvency proceedings, which can be implemented immediately upon the commencement of the insolvency proceedings. The PPIRP process is governed by Sections 54A to 54M of the IBC, which were introduced by way of an amendment in 2021.

Here is a legal analysis of the sections involved in PPIRP:

Section 54A: This section provides for the applicability of the PPIRP mechanism to corporate debtors that meet the prescribed criteria. It lays down the eligibility conditions for initiating the PPIRP process.

Section 54B: This section provides for the preparation of a base resolution plan by the debtor. The plan should contain all relevant information and details required for the resolution of the corporate debtor.

Section 54C: This section provides for the appointment of an insolvency professional who will act as a mediator between the debtor and the creditors for negotiating the resolution plan. The insolvency professional will also examine the plan and submit a report to the Adjudicating Authority (AA) regarding the feasibility and viability of the plan.

Section 54D: This section provides for the submission of the resolution plan to the AA for approval. The AA may approve the plan with or without modifications, or reject it.

Section 54E: This section provides for the initiation of the insolvency proceedings by the debtor or any other person authorized by the debtor, on the basis of the approval of the resolution plan by the AA.

Section 54F: This section provides for the appointment of an interim resolution professional (IRP) by the AA. The IRP will take over the management of the affairs of the corporate debtor until the resolution plan is implemented.

Section 54G: This section provides for the implementation of the resolution plan by the debtor or any other person authorized by the debtor, with the approval of the AA.

Section 54H: This section provides for the reporting of the implementation of the resolution plan to the AA. The report should contain details regarding the implementation of the plan and the compliance of the debtor with the plan.

Section 54I: This section provides for the consequences of non-implementation of the resolution plan by the debtor. If the debtor fails to implement the plan within the prescribed time, the AA may initiate the CIRP process against the debtor.

Section 54J: This section provides for the provisions of the resolution plan to be binding on all stakeholders, including the central government, state government, and local authorities.

Section 54K: This section provides for the protection of the resolution professional from any legal action for any action taken in good faith in the performance of his duties under the PPIRP process.

Section 54L: This section provides for the applicability of the provisions of the PPIRP process to the resolution of the insolvency of partnership firms and individuals.

Section 54M: This section provides for the power of the central government to make rules and regulations for the implementation of the PPIRP process.

The PPIRP mechanism provides for a faster and more efficient mechanism for the resolution of corporate insolvency. The mechanism involves the preparation and negotiation of a resolution plan before the initiation of insolvency proceedings, which can be implemented immediately upon the commencement of the insolvency proceedings. The process is governed by Sections 54A to 54M of the Insolvency and Bankruptcy Code, 2016, and its success will depend on the effective implementation of these provisions. While the PPIRP mechanism is relatively new, the successful resolution of the insolvency of Ruchi Soya Industries Limited through the PPIRP mechanism highlights its potential.

Important Facts Related to PPIRP

Here are some  facts about the Pre-Packaged Insolvency Resolution Process (PPIRP):

1. PPIRP is a relatively new mechanism introduced in the Insolvency and Bankruptcy Code, 2016 (IBC) through an amendment in 2020. It enables a debtor to prepare a resolution plan before the initiation of insolvency proceedings and implement it immediately upon commencement of the proceedings.
2. PPIRP can be initiated by a corporate debtor, its directors, or its creditors who hold at least 66% of the total financial debt of the debtor.
3. The PPIRP mechanism allows for a faster resolution of insolvency proceedings as the resolution plan is already negotiated and prepared before the initiation of the proceedings.
4. The PPIRP mechanism allows for the maximization of the value of the assets of the debtor as it enables the resolution applicant to take control of the assets immediately upon the commencement of the proceedings.
5. The PPIRP mechanism is primarily intended for small and medium-sized enterprises (SMEs) as they may not have the resources or time to go through the lengthy and complex Corporate Insolvency Resolution Process (CIRP).
6. The success rate of the PPIRP mechanism is yet to be determined as it is a relatively new mechanism. However, the early signs are promising, and the successful resolution of the insolvency of Ruchi Soya Industries Limited through the PPIRP mechanism has shown its potential.
7. PPIRP is a welcome addition to the insolvency resolution framework in India as it provides an alternative to the traditional CIRP mechanism and can be particularly useful for SMEs facing financial distress.

Case Study-Based on PPIRP

There have been a limited number of cases involving the Pre-Packaged Insolvency Resolution Process (PPIRP) since its introduction in the Insolvency and Bankruptcy Code, 2016 (IBC) in 2021. However, one notable case is the recent resolution of the insolvency of the corporate debtor, Ruchi Soya Industries Limited, through the PPIRP mechanism. Ruchi Soya Industries Limited, a leading edible oil and soy food products company, was admitted into the Corporate Insolvency Resolution Process (CIRP) in December 2017. After a long and complex CIRP process, the resolution plan submitted by the successful resolution applicant, Patanjali Ayurved Limited, was approved by the National Company Law Tribunal (NCLT) in September 2019. However, the implementation of the resolution plan was delayed due to various legal challenges and appeals filed by the unsuccessful bidders and stakeholders of Ruchi Soya. In the meantime, in June 2020, the PPIRP mechanism was introduced by way of an amendment to the IBC. In January 2021, the successful resolution applicant, Patanjali Ayurved Limited, submitted a resolution plan under the PPIRP mechanism for the implementation of the resolution plan approved by the NCLT in September 2019. The plan was approved by the NCLT in February 2021, and the implementation of the plan was completed in April 2021. The successful implementation of the resolution plan under the PPIRP mechanism in the case of Ruchi Soya Industries Limited highlights the efficiency and effectiveness of the PPIRP mechanism in resolving corporate insolvency. The PPIRP mechanism enabled the successful resolution applicant to negotiate and prepare a resolution plan before the initiation of insolvency proceedings, which could be implemented immediately upon the commencement of the insolvency proceedings. Moreover, the PPIRP mechanism allowed the resolution applicant to implement the previously approved resolution plan in a timely manner, thereby avoiding any further delays and legal challenges. The PPIRP mechanism thus provides a viable and efficient alternative to the CIRP process for the resolution of corporate insolvency. In conclusion, while the PPIRP mechanism is still in its early stages, the successful implementation of the PPIRP mechanism in the case of Ruchi Soya Industries Limited highlights its potential to provide a faster and more efficient mechanism for the resolution of corporate insolvency. The success of this case may encourage other stakeholders to explore the PPIRP mechanism as an alternative to the CIRP process.

 

Conclusion

In conclusion, the Pre-Packaged Insolvency Resolution Process (PPIRP) is a significant addition to the insolvency resolution framework in India. It provides an alternative to the traditional Corporate Insolvency Resolution Process (CIRP) and allows for a faster and more efficient resolution of corporate insolvency. The PPIRP mechanism enables the preparation and negotiation of a resolution plan before the initiation of insolvency proceedings, which can help save time and resources.

 

Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

 

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including newspapers, Journals, Bare Acts, Case Material. Charted Secretary etc.

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