On August 12, 2021, the Central Government has notified the Insolvency and Bankruptcy Code Amendment Act, 2021 which has brought Pre-packaged Insolvency Resolution Process for MSMEs. The Act repeals Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 and amends the provisions of IBC Act, 2016. It shall be deemed to have come into force on the 4th day of April, 2021
Key Highlights of the Act:
- Application for initiating Prepacked Insolvency Resolution Process may be filed in the event of a default of at least one lakh rupees. The Central Government may increase the threshold of minimum default up to one crore rupees through a notification.
- Definitions of ‘Pre-packed Insolvency has been inserted.
“pre-packaged insolvency resolution process costs” means
(a) the amount of any interim finance and the costs incurred in raising such finance;
(b) the fees payable to any person acting as a resolution professional and any expenses incurred by him for conducting the pre-packaged insolvency resolution process during the pre-packaged insolvency resolution process period, subject to sub-section (6) of section 54F;
(c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern pursuant to an order under sub-section (2) of section 54J;
(d) any costs incurred at the expense of the Government to facilitate the pre-packaged insolvency resolution process; and
(e) any other costs as may be specified;
- Chapter III A has been inserted on Prepacked Insolvency Resolution Process providing the following:
- Corporate debtors eligible for pre-packaged insolvency resolution process: Application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006
- Duties of Insolvency Professional before initiation of pre-packed insolvency resolution process: The duties of Insolvency Professional are as follows:
- prepare a report, confirming whether the corporate debtor meets the requirements of section 54A, and the base resolution plan conforms to the requirements referred to in 54A (4) (c).
- file such reports and other documents, with the Board, as may be specified.
- Application to initiate pre-packaged insolvency resolution process: Where a corporate debtor meets the requirements of section 54A, a corporate applicant thereof may file an application with the Adjudicating Authority for initiating pre-packaged insolvency resolution process.
- Time-limit for completion of pre-packaged insolvency resolution process: The pre-packaged insolvency resolution process shall be completed within a period of one hundred and twenty days from the pre-packaged insolvency commencement date.
- Declaration of moratorium and public announcement during pre- packaged insolvency resolution process: The Adjudicating Authority shall, on the pre-packaged insolvency commencement date, along with the order of admission declare a moratorium and appoint a insolvency professional.
- Duties and powers of resolution professional during pre- packaged insolvency resolution process: The resolution professional shall perform the following duties, namely:—
(a) confirm the list of claims submitted by the corporate debtor under section 54G;
(b) inform creditors regarding their claims;
(c) maintain an updated list of claims;
(d) monitor management of the affairs of the corporate debtor;
(e) inform the committee of creditors in the event of breach of any of the obligations of the Board of Directors or partners, as the case may be, of the corporate debtor, under the provisions of this Chapter and the rules and regulations made thereunder;
(f) constitute the committee of creditors and convene and attend all its meetings;
(g) prepare the information memorandum on the basis of the preliminary information memorandum submitted under section 54G;
(h) file applications for avoidance of transactions under Chapter III or fraudulent or wrongful trading under Chapter VI.
- List of claims and preliminary information memorandum: The corporate debtor shall, within two days of the pre-packaged insolvency commencement date, submit to the resolution professional the list of claims along with the details of he respective creditors, their security interests and guarantees, updated as on that date and a preliminary information memorandum containing information relevant for formulating a resolution plan.
- Termination of pre- packaged insolvency resolution process: Where the resolution professional files an application with the Adjudicating Authority, the Adjudicating Authority shall, within thirty days of the date of such application, by an order terminate the pre-packaged insolvency resolution process and provide for the manner of continuation of proceedings initiated for avoidance of transactions under Chapter III or proceedings initiated under section 66 and section 67A.
- Initiation of corporate insolvency resolution process: The committee of creditors, at any time after the pre-packaged insolvency commencement date but before the approval of resolution plan by a vote of not less than sixty-six per cent. of the voting shares, may resolve to initiate a corporate insolvency resolution process in respect of the corporate debtor, if such corporate debtor is eligible for corporate insolvency resolution process under Chapter II.
- Insertion of new provision Section 67 A relating to Fraudulent management of corporate debtor during pre-packaged insolvency resolution process:
On and after the pre-packaged insolvency commencement date, where an officer of the corporate debtor manages its affairs with the intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may, on an application by the resolution professional, pass an order imposing upon any such officer, a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.
Insertion of a new provision on Punishment for offences related to pre- packaged insolvency resolution process.