Page 32 - Banking Finance July 2022

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Adopting plan evaluation process akin to Swiss Challenge, it retains competitive tension such that promoters propose
plans with least impairment to rights and claims of creditors. The ability of the committee of creditors to require dilution
of promoter shareholding/ control, in cases resolution plans submitted by the corporate debtor provides for impairment
of any claims owed by such corporate debtor, should also be a significant deterrent against unreasonable terms in resolution
plans. The Pre-pack resolution must be approved by financial creditors with a minimum 66 percent voting share by value.

Silent Feature of Pre-Packaged Insolvency Resolution Process vis-à-vis CIRP

Criteria Pre-Packaged Insolvency Resolution Corporate Insolvency Resolution
Process (PIRP) Process (CIRP)
Eligibility Only MSMEs All corporate debtors
Default threshold Above Rs.10.00 lac to Rs 1 crore Over Rs 1 crore
Initiation by Only Corporate Debtor (CD), post approval Financial Creditor/Operational Creditor/
by shareholders & unrelated Fin Creditors Corporate Debtor
Timeline 90 days to submit resolution plan to 180+90+60days extendable up to max
adjudicating authority, Max 120 days for 330 days
entire process. No extension
Criteria Corporate Debtor-in-Possession with Creditor in control
Creditor-in-Control mechanism
Invitation for First right of offer to promoters, Public Process
Resolution plan Swiss challenge method
Section 29A applicability Yes Yes
Consequence of failure Termination of PIRP Liquidation
Role of Insolvency Relatively Less Relatively More
professional and
Adjudicating authority
Legal framework Relatively less in statute and more Relatively more in the statute and less
in regulation in regulation

Challenges with the framework: challenging for CoC member to decide on base resolution
plan within this short period without any broad parameter
Time and parameter for deciding on the resolution plan is
on which the Resolution Plan be approved and main
major concern, basic motive of PIRP has been introduced is
that the debtor shall be in better position to revive the
activities as it is running the unit and doing the operation
and hence better in control and should be allowed to submit
a plan for revival of unit and challenge with the prepack
scheme is that the Corporate debtor may not raise
additional capital from investors because of the risk involved
in recovering the money being provided by their investors
and lenders.

Hence a plan based on the restructuring of debt may not
help to realize the adequate amount to Financial Creditors
and may find it challenging to achieve a turnaround.
secondly timeline for PIRP is 120 days and it is very

32 | 2022 | JULY | BANKING FINANCE