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

• The government enacted the Insolvency and Bankruptcy Code (IBC) in August 2021 and introduced the PPIRP for micro, small and medium enterprises.

About the Pre-Packed Insolvency Resolution Process (PPIRP)

• Background: Micro, small, and medium enterprises (MSMEs) are crucial for India's economy but have been hit hard by the COVID-19 pandemic. To address their financial stress, the government introduced the Pre-packaged Insolvency Resolution Process (PPIRP) under the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021. 

• PPIRP offers a faster, cost-effective alternative to traditional insolvency resolution for corporate MSMEs, focusing on preserving jobs and business continuity. It applies to defaults of at least Rs 1 crore, as well as for smaller defaults between March 25, 2020, and March 24, 2021. 

• PPIRP combines debtor-in-possession and creditor-in-control elements, ensuring stakeholder rights while minimizing court and Insolvency Professional intervention. The process is outlined in a brochure, detailing steps, responsibilities, timelines, and required forms.

Objectives

• To be a quicker and more efficient way to deal with struggling companies. Instead of taking over the management like in CIRP, PPIRP encourages the company and its creditors to come up with a plan before the insolvency process officially starts. This helps avoid the delays and uncertainties of CIRP and offers a faster and cheaper solution for everyone involved.

• It is expected to be a faster process, with a maximum time of 120 days for the submission and approval of the prepackaged plan.

What is insolvency?

• Insolvency is a situation where individuals or companies are unable to repay their outstanding debt. 

Insolvency and Bankruptcy Code, 2021

• The Code provides a time-bound process for resolving the insolvency of corporate debtors (within 330 days) called the corporate insolvency resolution process (CIRP), as well as introduced an alternate insolvency resolution process for micro, small, and medium enterprises (MSMEs), called the pre-packaged insolvency resolution process (PIRP). 

• The Corporate Insolvency Resolution Process (CIRP) is a method provided by the Indian Insolvency and Bankruptcy Code, 2016 (IBC) to help struggling companies. 

• Its main aim is to address a company's financial problems and ensure that its assets are utilized properly to benefit everyone concerned. 

• During CIRP, an insolvency professional steps in to manage the company and develops a plan that creditors agree to and the National Company Law Tribunal (NCLT) approves.

Eligibility for PPIRP

• A Corporate Debtor (CD), which is an MSME under sub-section (1) of the section 7 of the Micro, Small and Medium Enterprises Development Act, 2006, is eligible to apply for initiation of PPIRP, if it- 

• (i) has committed a default of at least Rs 10 lakh; 

• (ii) is eligible to submit a resolution plan under section 29A of the Code; 

• (iii) has not undergone a PPIRP during the three years preceding the initiation date; 

• (iv) has not completed a CIRP during the three years preceding the initiation date; 

• (v) is not undergoing a CIRP; and 

• (vi) is not required to be liquidated by an order under section 33 of the Code.

Governing Framework 

• The provisions governing PPIRP are available in: 

• The Insolvency and Bankruptcy Code, 2016, as amended by the Insolvency and Bankruptcy (Amendment) Ordinance, 2021;

• The Insolvency and Bankruptcy (Pre-packaged Insolvency Resolution Process) Rules, 2021; and 

• The Insolvency and Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations, 2021. 

Insolvency and Bankruptcy Code, 2016

• The Insolvency and Bankruptcy Code, 2016 (Code) provides for a time-bound, market mechanism for reorganisation and insolvency resolution of persons (companies, limited liability partnerships, partnership and proprietorship firms and individuals) in financial distress. The objective of such reorganization and resolution is maximization of value of assets of the persons to promote entrepreneurship, enhance availability of credit, and balance the interests of all stakeholders. 

Conclusion

• The introduction of the Pre-packaged Insolvency Resolution Process (PPIRP) under the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, marks a significant step towards providing a quicker and more efficient solution for distressed micro, small, and medium enterprises (MSMEs) in India. By streamlining the resolution process and promoting stakeholder collaboration, PPIRP offers a promising avenue for revitalizing struggling businesses and bolstering the overall economy.