INITATION OF PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS

[Mr. M. GOVINDARAJAN]

Pre-packaged insolvency resolution process may be initiated by the Corporate Debtor, which is classified as micro, small or medium enterprises under MSME Act, 2006 and committed a default of not less than Rs.1 crore.

Conditions

For the initiation of pre-packaged insolvency process by the Corporate Debtor (‘CD’ for short) the following conditions shall be fulfilled-

• CD has not undergone pre-packaged insolvency resolution process or completed corporate insolvency resolution process, as the case may be, during the period of 3 years preceding the initiation date;
• CD is not undergoing a corporate insolvency resolution process;
• No order requiring it to be liquidated is passed 
• CD is eligible to submit a resolution plan under section 29A;
• The financial creditors of the corporate debtor, not being its related parties, representing such number and such manner as may be specified, have proposed the name of the insolvency professional to be appointed as resolution professional for conducting the pre-packaged insolvency resolution process of the corporate debtor, and the financial creditors of the corporate debtor, not being its related parties, representing not less than 66%. in value of the financial debt due to such creditors, have approved such proposal in such form as may be specified;
• The majority of the directors or partners of the corporate debtor, as the case may be, have made a declaration, in Form P6, stating-

• that the corporate debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite time period not exceeding ninety days;
• that the pre-packaged insolvency resolution process is not being initiated to defraud any person; and
• the name of the insolvency professional proposed and approved to be appointed as resolution professional;

• The members of the corporate debtor have passed a special resolution, or at least three-fourth of the total number of partners, as the case may be, of the corporate debtor have passed a resolution, approving the filing of an application for initiating pre-packaged insolvency resolution process.

Approval from Financial creditors

The CD shall obtain an approval from its financial creditors, not being its related parties, representing not less than 66% in value of the financial debt due to such creditors, for the filing of an application for initiating pre-packaged insolvency resolution process.  Prior to seeking approval from financial creditors, the CD shall provide such financial creditors with –

• the declaration that the corporate debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite time period not exceeding 90 days;
•  the special resolution or resolution approving the filing of an application for initiating pre-packaged insolvency resolution process.
•  a base resolution plan which conforms to the requirements referred to in section 54K, and such other conditions as may be specified; and
• such other information and documents as may be specified.

The notice of the meeting, in Form P2 shall be served to the financial creditors, who are not related parties of the corporate debtor, at least 5 days before the date of the meeting, unless a shorter time is agreed to by all of them.  The notice of the meeting shall indicate the date, time and venue of the meeting. The approval for filing of application shall be in Form P4.  A list of creditors along with the amount due to them is also to be enclosed with the notice. 

Where the corporate debtor has no financial debt or where all financial creditors are related parties, the applicant shall convene a meeting of operational creditors, who are not related parties of the corporate debtor for approval.

Appointment of Resolution Professional

The financial creditors who are not related parties of the corporate debtor and have not less than 10% of the value of the total financial debt of such creditors may propose names of insolvency professionals.  The terms of appointment of the resolution professional shall include-

• fee payable to him for performing duties;
• fee payable to him and expenses to be incurred by him for conducting the process; and
• fee payable to him and expenses to be incurred by him in case management of the corporate debtor is vested with him.

The insolvency professional, proposed to be appointed as the resolution professional, following the date of the approval,  shall  prepare a report in Form P8 confirming whether the corporate debtor meets the requirements of section 54A, and the base resolution plan conforms to the requirements under Section 54K.

Filing of application

Section 54C of the Code provides that 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.  The applicant shall, along with the application, furnish-

• the declaration, special resolution or resolution, as the case may be, and the approval of financial creditors for initiating pre-packaged insolvency resolution process;
• the name and written consent, in Form – P5, of the insolvency professional proposed to be appointed as resolution professional, as approved, and his report.
• a declaration regarding the existence of any transactions of the corporate debtor that may be within the scope of provisions in respect of avoidance of transactions  or fraudulent or wrongful trading, in form  P7;
•  information relating to books of account of the corporate debtor and the following documents-

• audited financial statements of the corporate debtor for the last two financial years;
• provisional financial statements for the current financial year made up to the date of declaration under clause (f) of sub-section (2) of section 54A; and
• Form P5 submitted by the authorized representatives selected under sub-regulation (5) of regulation 15.

Admission of application

The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order, -

• admit the application, if it is complete; or
• reject the application, if it is incomplete.

The Adjudicating Authority shall, before rejecting an application, give notice to the applicant to rectify the defect in the application within seven days from the date of receipt of such notice from the Adjudicating Authority.

Commencement date

The pre-packaged insolvency resolution process shall commence from the date of admission of the application by the Adjudicating Authority.