Part one highlighted the notable features of the Pre-packaged Insolvency Resolution Process whereas this part demonstrates the step-wise process.
- MSME, as defined under Section 7(1) of the Micro, Small and Medium Enterprises Development Act, 2006
- Minimum default of ten lakh rupees. However, the Central Government may by notification increase the minimum default which cannot be more than one crore rupees [Notification by the Ministry of Corporate Affairs dated 09.04.2021, Section 4]
- Corporate Debtor should not have undergone PPIRP or CIRP for a period of three years prior to initiation date.
- Corporate Debtor is not undergoing CIRP.
- No order of liquidation has been passed under Section 33.
- Eligible to submit resolution plan under Section 29A.
- Unrelated financial creditors of the Corporate Debtor representing at least 10% of the value of the financial debt due have proposed the name of insolvency professionals to be appointed as the Resolution Professional at a meeting convened by the applicant. [Section 54A(2)(e) read with Regulation 14(4)]
- Unrelated financial creditors of the Corporate Debtor
representing at least 66% of the value of the financial debt due,
have approved the proposed Resolution Professional and the filing
of application initiating PPIRP at a meeting convened by the
applicant. [Section 54A(2)(e), Section 54A(3)]
- Prior to such approval, the Corporate Debtor has provided the financial creditors with a declaration, special resolution and base resolution plan. [Section 54A(4)]
- If the Corporate Debtor has no financial debt or all the financial creditors are related parties, the applicant is to convene a meeting of unrelated operational creditors. [Regulation 14(8)]
- Majority of the directors or partners of the Corporate Debtor have made a declaration specifying the name of the approved resolution professional and that the PPIRP is not initiated to defraud a person.
- Members of the Corporate Debtor have passed a special resolution approving the filing of the application for initiating pre-packaged insolvency resolution process.
Step 1- Filing of application
Eligible Corporate Debtor/Corporate Applicant files application to initiate PPIRP [Section 54C]
Step 2- Admission or rejection of application
Adjudicating Authority within 14 days admits or rejects the application based on its completeness. Opportunity to rectify defect of the application within 7 days is given before rejection. [Section 54C(4)]
Step 3- Commencement of PPIRP, moratorium and appointment of Resolution Professional
Commencement of PPIRP from date of admission of application. [Section 54C(5)]
Adjudicating Authority on the PPIRP commencement date along with admission order declares moratorium and appoints Resolution Professional. [Section 54E]
Step 4- Public Announcement
Resolution Professional issues public announcement on initiation of PPIRP. [Section 54E(1)(c)]
Step 5- Submission of list of claims and base resolution plan
Within 2 days of commencement date, the Corporate Debtor submits the list of claims with details of creditors with their security interest and guarantees, preliminary information memorandum relevant for formulating a resolution plan and the base resolution plan to the Resolution Professional [Section 54G(1), Section 54K(1)]
Step 6- Tasks undertaken by the Resolution Professional
Within 3 days of appointment, the Resolution Professional appoints two registered valuers to determine the fair value and liquidation value of the Corporate Debtor. [Regulation 38]
Resolution Professional confirms list of claims submitted by the Corporate Debtor, informs creditors of their claims, monitors affairs of the Corporate Debtor, constitutes CoC within 7 days of commencement, convenes meetings of CoC- the first of which is to be held within 7 days of the constitution of the CoC, prepares information memorandum, informs CoC of any breach of obligations of the Board of Directors of the Corporate Debtor, forms an opinion whether the Corporate Debtor has been subjected to PUFE transactions within 30 days of commencement. [Section 54I, Section 54F(2) read with Regulation 41]
Step 7- Base resolution plan presented to CoC
Resolution Professional then presents the base resolution plan to the CoC that conforms to the requirements of Section 30(2). [Section 54K(8)]
Step 8- Selection of resolution plan
CoC evaluates and selects a resolution plan from amongst those presented by the Resolution Professional. [Section 54K(9)]
Evaluation is carried out by applying certain parameters as approved by the CoC and accordingly, a score is assigned to each plan evaluated. [Regulation 42].
Prior to approval of the base resolution plan, the CoC may provide an opportunity to the Corporate Debtor to revise the base resolution plan. [Section 54K(2)]
CoC by vote of at least 66% approves the base resolution plan for submission to the Adjudicating Authority if it does not impair any claims owed by the Corporate Debtor to the operational creditors (i.e. provides for full payment of the confirmed claims as per the updated list of claims maintained by the Resolution Professional) after considering the feasibility, viability, manner of distribution proposed and taking into account the order of priority and value of the security interest of the secured creditors. [Section 54K(4), (13)]
If the CoC does not approve of the base resolution plan or the base resolution plan impairs any claims owed by the corporate debtor to the operational creditors, the Resolution Professional may invite prospective resolution applicants to submit a resolution plan to compete with the base resolution plan. [Section 54K(5)]
If the CoC decides that the resolution plan selected is significantly better than the base resolution plan relying on the criteria established, the resolution plan may be selected for approval for submission to the Adjudication Authority [Section 54K(10) read with Regulation 42 and Regulation 48(1)]
If a plan is not found to be significantly better than the base resolution plan or if no resolution plan is received that complies with the stipulated requirements, the Resolution Professional is to disclose the scores of the selected resolution plan and the base resolution plan to the submitters of the resolution plans and invite them to improve their resolution plan within 48 hours. [Regulation 48]
The plan selected by the CoC but not considered for approval or does not fulfill the established criteria then competes with the base resolution plan in the specified manner and one of them is ultimately selected for approval to be submitted to the Adjudicating Authority. If the plan selected for approval is not approved by the CoC, the Resolution Professional files an application for termination of the PPIRP. [Section 54K(11),(12)]
Step 9- Submission of resolution plan to the Adjudicating Authority
Resolution Professional submits the resolution plan as approved by the CoC to the Adjudicating Authority within 90 days from commencement date. If no resolution plan is approved by the CoC within the stipulated 90 days, the Resolution Professional files an application for termination of the PPIRP and the Adjudicating Authority within 30 days will terminate the PPIRP. [Section 54D(2), Section 54D(3), Section 54K(15) r/w Regulation 49]
Step 10- Approval or rejection of plan by Adjudicating Authority
Adjudicating Authority approves the resolution plan within 30 days of receipt of the resolution plan if satisfied that the resolution plan meets the stipulated requirements of Section 30(2), Section 54K(4),(12). [Section 54L(1)]
Adjudicating Authority rejects the resolution plan, terminates the PPIRP and passes order of liquidation if the order of the resolution plan approved by the CoC does not result in the change in the management or control of the Corporate Debtor to a person who was not a promoter or in the management or control of the Corporate Debtor. [Section 54L(4)]
Step 11- Appeal
Appeal order approving the resolution plan on grounds of Section 61(3) [Section 54M].
Based in the Hyderabad office, Amir Ali Bavani is a Principal Associate in the firm. He is a post graduate in MBA from ICFAI University and completed his LLB from Osmania University in 2014. His core expertise lies in Dispute Resolution especially involving Insolvency & Bankruptcy Code 2016, Banking Laws and General Corporate. He regularly appears before various judicial/quasi-judicial authorities including High Court, Debt Recovery Tribunal and National Company Law Tribunal. He advises significant number of companies, creditors, other stakeholders to identify and adopt the most suitable approach to deal with a complex web of possible outcomes and legal strategies to effectively deal with the aspects of corporate insolvency and restructuring process.
Rhea Jayakumar is an Associate with the firm. She is a law graduate from Jindal Global Law School. Her core expertise lies in commercial litigation and dispute resolution particularly Insolvency and Bankruptcy Code, 2016 and banking laws. She is adept in legal drafting, research, and writing on contemporary developments of laws related to insolvency and bankruptcy. She also attends proceedings and appears before various judicial/quasi-judicial authorities including National Company Law Tribunal, Debt Recovery Tribunal and High Court.
This article is for information purpose only. It is not intended to constitute, and should not be taken as legal advice, or a communication intended to solicit or establish commercial motives with any. The firm shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained herein. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.