Allowing Pre-Packaged Insolvency Resolution Process For Large Corporates

Allowing Pre-Packaged Insolvency Resolution Process For Large Corporates

Pre-Packaged Insolvency Resolution Process For Large Corporates

Pre Packaged Insolvency Resolution Process (PPIRP) was introduced for Micro, Small, and Medium Enterprises (MSME) by way of the Promulgation of the Ordinance by the President of India on 4th April 2021.  The Ordinance was subsequently enacted by Parliament by way of the Insolvency and Bankruptcy Code (Amendment) Act 2021 and after receiving the assent of the President of India was issued on 12 August 2021 ( effective from 4 April 2021).  Insolvency and Bankruptcy Board of India (Pre-Packaged Insolvency Resolution Process) Regulations, 2021 was issued on 9 April 2021.

The purpose for having a Pre-Packaged Insolvency Resolution Process (PPIRP) has been dealt with elaborately in the preamble to the Ordinance of 4 April 2021 and it addresses the specific requirements of Micro, Small, and Medium Enterprises relating to the resolution of their insolvency, due to the unique nature of their businesses and simpler corporate structures; It is considered expedient to provide an efficient alternative insolvency resolution process for corporate persons classified as micro, small and medium enterprises under the Insolvency and Bankruptcy Code, 2016, ensuring quicker, cost-effective and value-maximizing outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs;

PPIRP works on Debtor in Possession Model and has numerous advantages like maintaining business continuity, faster resolution, value maximization, cost-effectiveness, job preservation, and more of an informal out-of-court settlement of debt of stressed company combined with judicial insolvency proceedings. 

To ensure that the process is not misused by errant promoters, the PPIRP gives substantial consent rights to the financial creditors and also adopts a plan evaluation process similar to the Swiss Challenge so that it keeps the promoters on their toes to submit plans with the least impairment to rights and claims of creditors.

Due to numerous advantages of PPIRP, a pre-packaged resolution for large corporates is the way to go which should be more or less on similar lines as introduced for MSMEs. The extant PPIRP calls for the dilution of stakes by the promoters so that there is an infusion of fresh capital. Generally, promoters of small organizations are a little apprehensive and reluctant to dilution of their stakes which generally is not the case for large corporates. 

Further with the formation of i)  State-owned  National Asset Reconstruction Company Limited (NARCL - set up by banks to aggregate and consolidate stressed assets for their subsequent resolution with  PSBs maintaining 51% ownership in NARCL) and ii) India Debt Resolution Company Limited (IDRCL - a service company/operational entity which will manage the asset and engage market professionals and turnaround experts and where Public Sector Banks and Public FIs will hold a maximum of 49% stake and the rest will be with private sector lenders), there is every reason to argue in favor of extending PPIRP to large corporates.  


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