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What is the News?
The Finance and Corporate Affairs Minister has introduced the Insolvency and Bankruptcy Code (Amendment Bill), 2021 in the Lok Sabha.
Insolvency and Bankruptcy Code (Amendment Bill),2021:
Key Provisions of the Bill:
Pre-Pack Insolvency Resolution Process(PIRP):
- The bill introduces pre-packs as an insolvency resolution mechanism for micro, small and medium enterprises(MSMEs) with defaults up to Rs 1 crore.
- A pre-pack is an agreement for the resolution of the debt of a distressed company through an agreement between secured creditors and investors, instead of a public bidding process.
- Unlike in the case of the corporate insolvency resolution process (CIRP), debtors remain in control of their distressed firm during the Pre-Pack Resolution Process(PIRP).
- Distressed corporate debtors(CDs) are permitted to initiate a pre-pack insolvency resolution process(PIRP) with the approval of two-thirds of their creditors.
- Moreover, the CDs are also required to submit a base resolution plan at the time of the initiation of the PIRP.
Swiss Challenge Method:
- The pre-pack insolvency resolution process(PIRP) also allows for a Swiss challenge to the resolution plan submitted by a CD, in case operational creditors are not paid 100% of their outstanding dues.
- Under the Swiss challenge mechanism, any third party would be permitted to submit a resolution plan for the distressed company. Then, the original applicant would have to either match the improved resolution plan or forgo the investment.
