PRE- PACKAGED INSOLVENCY RESOLUTION PROCESS (PPIRP)
The concept of Pre-Packaged Insolvency Resolution Process (PPIRP), positioning it as a hybrid model that blends informal and formal procedures to rehabilitate financially stressed corporate debtors. The central idea revolves around a restructuring plan mutually agreed upon by the debtor and creditors before the initiation of insolvency proceedings. Notably, PPIRP's introduction in the Indian insolvency regime is lauded as a progressive step, particularly benefiting Micro, Small, and Medium Enterprises (MSMEs), crucial contributors to India's economy.
ENHANCING CORPORATE INSOLVENCY RESOLUTION:
Beginning with the background, the paper addresses India's challenge with Non-Performing Assets (NPAs) and the governmental response through the enactment of the Insolvency & Bankruptcy Code, 2016. A significant development is highlighted with the 2021 amendment introducing PPIRP as a more efficient means of resolving stressed corporate entities.
A COMPHRENSIVE ANALYSIS OF INDIA’S PRE-PACK INSOLVENCY RESOLUTION PROCESS (PPIRP) IN GLOBAL CONTEXT:
The global landscape is then explored, comparing PPIRP in India with analogous processes in the United Kingdom, the United States, Singapore, and France. This comparative analysis encompasses various facets, such as the consensual nature of the process, voting rights for creditors, and the pivotal role of the adjudicating authority.
A critical aspect of the discussion emphasizes the importance of adhering to international standards in evaluating the effectiveness of an insolvency regime. The paper identifies key features contributing to the success of a pre-pack insolvency system, including a clear trigger for initiating proceedings, expeditious liquidation of non-viable firms, support for the rehabilitation of viable firms, well-designed voting rights for creditors, a credible threat to debtors, and a nuanced distinction between fraudulent and honest defaulters.
The analysis further underscores the need for a delicate balance between proactive triggers and efficient resolution, advocating for lower thresholds that deter insolvency proceedings and encourage caution among firms facing financial stress. This argument gains significance in light of the Ministry of Corporate Affairs' decision to increase the threshold for initiating insolvency proceedings, a move prompted by the economic challenges posed by the COVID-19 pandemic.
Speedy liquidation of non-viable firms emerges as another crucial aspect, aligning with the paper's assertion that a well-functioning insolvency regime should swiftly liquidate assets when a firm reaches an irreparable state. The 2021 amendment sets a time limit of 120 days for completing PPIRP, allowing non-viable firms to undergo quick liquidation under the oversight of the Adjudicating Authority.
The Article contends that PPIRP offers viable firms an option to continue operations under the existing board of directors, with creditors overseeing commercial transactions. The mandated three-year resting period between two PPIRPs provides firms the necessary space to recover momentum and overcome financial distress. Notably, the option for initiating Corporate Insolvency Resolution Process (CIRP) after the termination of PPIRP further strengthens the overall insolvency framework.
The analysis underscores the importance of well-designed voting rights for creditors to prevent strategic misuse of the process. PPIRP, with its emphasis on transparency and the involvement of the Adjudicating Authority, mitigates the risks associated with creditors and debtors using the process strategically.
This article acknowledges the absence of specific provisions in Indian legislation distinguishing between fraudulent and honest defaulters. However, recent judgments and the trajectory towards incorporating group insolvencies in the Insolvency and Bankruptcy Code indicate a positive trend in addressing this issue.
CONCLUSION:
The Article positions the Indian pre-pack insolvency regime as a promising and carefully crafted framework, representing the genesis of a system with ample room for growth and evolution. Despite initial skepticism, the momentum behind the ordinance suggests its necessity in times of market downturns and financial stress. The paper anticipates that PPIRP will play a pivotal role in preventing valuable asset reduction through swift liquidation and facilitating the rehabilitation of viable firms, contributing to the overall health and resilience of the Indian economy.
Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us.
