The presentation seeks to provide deep insight into the Pre-Packaged Insolvency Resolution Process introduced to the Insolvency and Bankruptcy Code, 2016 by way of enactment of Insolvency and Bankruptcy (Amendment) Ordinance, 2021 under Part II Chapter III-A of the Code.

1. And its Implications
- KARAN VALECHA
Advocate |
Insolvency Practitioner
© 2021 KARAN VALECHA

2. BACK
DROP
 The Ministry of Corporate Affairs (MCA) had set
up a sub-committee of the Insolvency Law
Committee (ILC) in June 2020 under the
chairmanship of Dr. M.S. Sahoo, Chairperson
Insolvency and Bankruptcy Board of India (IBBI)
to explore the possibility of including what are
called “pre-packs” under the current statutory
framework of the Insolvency and Bankruptcy Code
(IBC), while maintaining business continuity and
thereby preserving asset value and jobs.
 The sub-committee upon examination and taking
note of the financial stress in the economy
submitted its report to MCA in October 2020.
 In furtherance of the said report, the MCA vide a
notice dated January 8, 2021 invited public
comments and views on its proposed Pre-Packaged
Insolvency Resolution Process (PPIRP).
 Finally, promulgated by the President on April 4,
2021 by way of Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2021 upon being satisfied
of the circumstances which rendered immediate
action. (Enacted when the Parliament was not is
session)
© 2021 KARAN VALECHA

3.  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.
 This system of insolvency
resolution has lately become an
increasingly popular mechanism
across various jurisdictions.
© 2021 KARAN VALECHA

4. Canada Singapore France United States United Kingdom
A management led pre-
packaged sale of a
financially distressed compa
ny as a going concern is often
resorted.
Courts can approve
a compromise or
arrangement under
section 211 I of The
Companies Act.
Mandat ad hoc : Operational companies
with financial stress but not insolvent
can take recourse to this procedure
without the existing management losing
control over the assets of the CD.
The US Bankruptcy Code facilitates
three forms of pre-packs, namely, pre-
plan sales (similar to UK) under section
363, pre-packaged bankruptcy
proceedings and pre-arranged
bankruptcy proceedings under Chapter
11.
UK Government has proposed
to introduce new regulations to
require scrutiny of pre-pack
sales to connected parties, to
build on the existing voluntary
measures and to mitigate
any adverse consequences in
the increased use of pre-
pack sales arising from
the pandemic.
Provision now shifted
to the Insolvency,
Restructuring and
Dissolution Act, 2018.
Conciliation : A CD which is insolvent
for less than 45 days or on anticipation
of legal, economic, or financial stress
may request the tribunal for initiation of
the conciliation procedure.
In the case of pre-packaged bankruptcy
proceeding, the CD reaches an
agreement on the terms of a plan with
key creditors and solicits approval of the
agreement from specific classes of
creditors.
The IRDA
(Amendment) Bill,
2020: Responding
to COVID-19 -
Proposed new scheme
for micro and small
enterprises.
Safeguard (Sauvegarde) : This process is
available to CDs approaching insolvency.
The object of the proceedings is to
reorganise the CD through a
reorganization plan.
In the case of pre-arranged (also known
as pre-negotiated) bankruptcy
proceeding, the CD reaches an
agreement with its key creditors but
does not circulate the plan or solicit
actual votes on the plan prior to filing
Chapter 11 petition.
Insolvency procedure (Redressement
Judicaire) : It consists of two
proceedings, namely, reorganization
proceedings and liquidation.
© 2021 KARAN VALECHA

5. NON-AVAILABILITY OF CIRP
In respect of defaults due to covid-19.
In respect of defaults of less than Rs. 1 crore.
In times of stress before default.
PRE-PACK HAS EMERGED AS AN INNOVATIVE CORPORATE RESCUE METHOD
It incorporates 65 virtues of both informal (out-of-court) and formal (judicial) insolvency proceedings.
Enables stakeholders to resolve the stress of a CD as a going concern, with the least assistance of the State.
Fast, Cost Efficient, and Effective in resolution of stress much before value deteriorates.
© 2021 KARAN VALECHA

6. ADVANTA
GES OF
PRE-
PACKS
 Quick Resolution: Pre-pack, which enables a faster resolution,
preserves and maximizes value (of a company in a stressful state)
and increases the possibility of resolution.
 Minimizes Disruptions to the Business: Since the CD continues
with the existing management during pre-pack, it avoids the cost
of disruption of business as it does not shift management to
Interim Resolution Professional (i.e. unlike that in the CIRP
process) and continues to retain employees, suppliers, customers,
and investors.
 Group Resolution: Given that resolution of a group of companies
can be value adding as compared to a separate insolvency
proceeding for each company in distress, many jurisdictions are
contemplating to make available an enabling framework for the
same. In the absence of any mechanism to effectively deal with
insolvency of a group of companies in most jurisdictions, pre-
packs have proved to be very helpful.
 Lighter on Courts: The courts usually have limited
infrastructural capacity and can perform its obligations within its
limits.
 A pre-pack has the potential to reduce litigation, due to its
informal and consensual nature. It does not require
involvement of the court during the informal part of the
process and requires a minimum role of courts during formal
process.
 It is necessary to have a functional out of court restructuring
process, so that the vast majority of cases are restructured out
of bankruptcy, with the NCLT acting as a court of last resort if
no agreement is possible.
© 2021 KARAN VALECHA

7.  Lack Transparency:
 The key drawback of a pre-packaged insolvency resolution is the reduced transparency
compared to the CIRP as financial creditors would reach an agreement with a potential
investor privately and not through an open bidding process.
 This could lead to stakeholders such as operational creditors raising issues of fair
treatment when financial creditors reach agreements to reduce the liabilities of the
distressed company.
 Insufficient Marketing: The research shows that where no marketing is carried out pre-
packs return less money to creditors.
 No consideration is given to the future viability of the new company: The insolvency
practitioner has no legal requirement to look at the future viability of the new business
emerging from a pre-pack sale. His/her only legal responsibility is to the creditors of the old
business.
© 2021 KARAN VALECHA

8.  .
1
2
3
Requirement of an insolvency
practitioner
Envisages a consensual
process
Course of Action: Sale of
CD's Business/
Reorganization Plan
6
7
8
CD remains under the control
and possession of debtor
Formal part of insolvency
enjoys moratorium excepting
on essential services
Exclusive right over CD's
business: Management
and current promoters
4 9
Sale to connected party in
UK: validated by a set of
experienced persons
Approval: Limited to
secured/ impaired/ all
creditors
5 10
Court approved outcome,
binds stakeholders
Blessings of Court on the
process and not on
commercial wisdom
© 2021 KARAN VALECHA

9. INSOLVE
NCY AND
BANKRU
PTCY
CODE
(AMEND
MENT)
ORDINAN
CE, 2021
 An Ordinance further to amend the
Insolvency and Bankruptcy Code, 2016
and provide for an efficient alternative
insolvency resolution process for
corporate persons classified as micro,
small and medium enterprises
(‘MSME’) under the Insolvency and
Bankruptcy Code.
 Introduced Pre-Packaged Insolvency
Resolution Process for corporate
persons classified as micro, small and
medium enterprises (‘MSME’) by way
of inserting CHAPTER III – A to the
Code titled ‘PRE-PACKAGED
INSOLVENCY RESOLUTION
PROCESS’ (PPIRP) further inserting
Sections 54-A to 54-P to govern the
entire PPIRP.
© 2021 KARAN VALECHA

10. Corporate debtors eligible for PPIRP
Section
54-A
Duties of resolution professional before
initiation of PPIRP
Section
54-B
Application to initiate PPIRP
Section
54-C
Time-limit for completion of PPIRP
Section
54-D
Declaration of moratorium and public
announcement during PPIRP
Section
54-E
© 2021 KARAN VALECHA

11. Duties and Powers of Resolution
Professional during PPIRP.
Section
54-F
List of claims and Preliminary Information
Memorandum
Section
54-G
Management of Affairs of Corporate Debtor
Section
54-H
Committee of Creditors
Section
54-I
Vesting Management of Corporate Debtor
with Resolution Professional
Section
54-J
© 2021 KARAN VALECHA

12. Consideration and Approval of Resolution Plan
Section
54-K
Approval of Resolution Plan
Section
54-L
Appeal against order u/s 54-L – Approval of Resolution
Plan.
Section
54-M
Termination of PPIRP
Section
54-N
Initiation of CIRP
Section
54-O
Application of provisions of Chapter II, III, VI and VII to
this Chapter i.e. Chapter III-A
Section
54-P
© 2021 KARAN VALECHA

13.  Under the present regime of the IBC, insolvency professionals are still evolving
the necessary expertise required over time. Like the law under the UK regime has
evolved over time rather than simply promulgated, application of pre-pack
insolvency in India will require a much higher degree of expertise of insolvency
professionals, as under such resolution methods, they have a much higher degree
of control.
 However, with the increase in the trend of out of court settlements, pre-pack
insolvency could very well be the next alternative to regular CIRP proceedings.
© 2021 KARAN VALECHA

14.  Address : A-23, LGF, South Extension Part –
II, New Delhi – 110049.
 Feel free to reach out at
advocatekaranvalecha@gmail.com.
 You can connect with me over LinkedIn.
© 2021 KARAN VALECHA