Pre-packaged Insolvency Resolution Process

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The Pre-packaged Insolvency Resolution Process (PPIRP) has resulted in the full settlement of operational creditors' claims in five cases.

About Pre-packaged Insolvency Resolution Process

  • It was introduced in April 2021 in the wake of Covid pandemic, to deal with stress of small and mid-sized companies.
  • The idea was that resolution of distressed MSMEs requires different treatment due to the unique nature of their businesses.
  • Pre-packaged insolvency process is an alternate and speedier resolution mechanism for micro, medium and small enterprises in financial distress.
  • Process
    • It involves the debtor and its creditors negotiating and agreeing on a resolution plan before initiating the formal insolvency process.
    • Once approved by the creditors, the pre-packaged resolution plan is submitted to the National Company Law Tribunal (NCLT) for approval. It is similar to an out-of-court settlement process.
    • The debtor and creditor work on a draft resolution plan before formally initiating the insolvency process.
    • Once finalised and approved by the required majority of creditors, the plan is submitted to NCLT.
  • The pre-packaged insolvency process is initiated voluntarily by the debtor.
  • Significance: Since the resolution plan is negotiated and finalised before filing with NCLT, it reduces the time taken for resolution compared to the corporate insolvency resolution process, with minimal disruptions.

Q1: What is the National Company Law Tribunal?

 It is a quasi-judicial authority incorporated for dealing with corporate disputes that are of civil nature arising under the Companies Act,2013.

Source: Pre-pack insolvency a success for five companies