By LE Desk
New Delhi, April 7: The Central Government has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021 to allow pre-packaged insolvency process for MSMEs.
The Ordinance, in essence, has amended the Insolvency and Bankruptcy Code 2016 and allows the Central Government to notify such pre packaged process for defaults of not more than Rs 1 crore, The Economic Times reported.
The government had been looking to offer a pre-packaged resolution framework for stressed companies under the IBC. A pre-packaged resolution essentially translates to a company preparing a restructuring plan with its creditors before initiating insolvency proceedings. This helps to cut down the time and costs in the overall process.
A new chapter III A has been inserted that deals with pre-packaged insolvency resolution process. “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 Ordinance stated.
It also said that an application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor, keeping the following conditions in mind:
* It has not undergone pre-packaged insolvency resolution process or completed corporate insolvency resolution process, as the case may be, during the period of three years preceding the initiation date;
* It is not undergoing a corporate insolvency resolution process;
* No order requiring it to be liquidated is passed under section 33;
* It is eligible to submit a resolution plan under section 29A;
* The financial creditors of the corporate debtor, not being its related parties, representing such number and such manner as may be specified, have proposed the name of the insolvency professional to be appointed as resolution professional for conducting the pre-packaged insolvency resolution process of the corporate debtor, and the financial creditors of the corporate debtor, not being its related parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors, have approved such proposal in such form as may be specified.
* The majority of the directors or partners of the corporate debtor, as the case may be, have made a declaration, in such form as may be specified,
* The members of the corporate debtor have passed a special resolution, or at least three-fourth of the total number of partners, as the case may be, of
* The corporate debtor has passed a resolution, approving the filing of an application for initiating pre-packaged insolvency resolution process.
In June 2020, the government promulgated an ordinance that suspended initiation of new insolvency proceedings for defaults. This came into effect from March 25 – the date when the nationwide lockdown commenced. The suspension of proceedings, which was initially for six months, was extended twice for three months each.