Page 31 - Banking Finance July 2022

ARTICLE

Applicability of Pre-Pack Framework: Financial creditors representing not less than 66% in
value of financial debt has proposed the name of the
The pre-pack framework will be applicable for MSMEs with
insolvency resolution professional and same is approved
a maximum default value of Rs 1 crore only. It can be filed
the proposal.
under a newly inserted Section 54C of the IBC. For defaults
of more than Rs 1 crore, IBC or other resolution mechanisms
can continue to be used. A pre-packaged insolvency Timelines:
resolution process or PIRP cannot run in parallel to another The entire Pre-packaged insolvency resolution process would
corporate insolvency resolution process (CIRP), and must have to be completed within 120 days from the
have a three-year cooling-off period from the closure of any commencement date. The resolution professional is
other pre-pack or CIRP, as per the rules notified. expected to submit the resolution plan, as approved by the
committee of creditors, to the Adjudicating Authority within
If a pre-pack application is filed within 14 days of the filing 90 days of the commencement date. If the plan is not
of any application under section 7 or section 9 or section 10 approved by the committee of creditors (CoC) within the
which is pending, then the Adjudicating Authority would time period, the PIRP would be terminated.
have to first dispose of the application under section 54C. If
more than 14 days have passed since an IBC plea was filed
Control of company during PIRP:
under Sections 7, 9, or 10, then the court would have to
Unlike the IBC, under the pre-pack framework, the
give the existing plea a preference. Sections 7, 9 and 10 deal
management of the affairs of the corporate debtor will
with the initiation of the corporate insolvency resolution
continue to vest in the Board of Directors or the partners
process by financial creditors, operational creditors and the
of the corporate debtor. If the CoC at any time during the
corporate debtor himself respectively.
process feels the company's affairs are not being run in a
transparent manner or there is a fraud, it can vote by 66
Initiation/Trigger: percent majority to transfer the management powers to the
The framework has been modelled on the debtor-in- resolution professional instead.
possession and creditor in control approach. The debtor
would have to have a base resolution plan in place before Resolution Plan:
approaching creditors to initiate a PIRP.The financial
Section 29A of the IBC, which prohibits defaulting
creditors can initiate the PIRP in case of a default by an
promoters/willful defaulters from participating in the
MSME if a minimum of 66 percent creditors vote in favour
resolution process would also apply in the case of PIRP. A
of PIRP, and file an application with the adjudicating
corporate debtor is required to submit a ResolutionPlan to
authority for the same. Alternatively, if a corporate debtor
the resolution professional within two days of PIRP
does not have any financial creditors, the company may
commencement, and changes are allowed prior to the
approve the application filing through a special resolution
approval by the CoC. However, in case the resolution plan is
with a 75 percent majority, and move the court to initiate
not approved by creditors or does not pay the operational
PIRP. An insolvency resolution professional, as approved by
creditors in full, new bids can be invited.
creditors, is then appointed by the court.
While considering the feasibility and viability of a resolution
Eligibility Criteria for the Corporate Debtors for
plan, where the resolution plan submitted by the corporate
filing application for Pre-Pack: debtor provides for impairment of any claims owed by the
MSME unit has not undergone pre-packaged insolvency corporate debtor, the committee of creditors may require
resolution process or completed CIRP during the period the promoters of the corporate debtor to dilute their
of 3 years preceding the initiation date of PIRP shareholding or voting or control rights in the corporate
debtor: Provided that where the resolution plan does not
Order of the liquidation is not passed under section 33
provide for such dilution, the committee of creditors shall,
of IBC
prior to the approval of such resolution plan under sub-
It is eligible to submit resolution plan under section 29A
section (4) or sub-section (12), as the case may be, record
of the IBC
reasons for its approval.
BANKING FINANCE | JULY | 2022 | 31