CORPORATE INSOLVENCY RESOLUTION PROCESS VERSUS PREPACKED INSOLVENCY RESOLUTION PROCESS

[Mr. M. GOVINDARAJAN]

Corporate Insolvency Resolution process

Chapter II of Part II of Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides the procedure for initiation of corporate insolvency resolution process (‘CIRP’ for short) against a corporate debtor.   Where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter II of Part II of the Code.

Prepacked Insolvency Resolution process

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, dated 04.04.2021, introduced the new concept in insolvency resolution process called as prepacked insolvency resolution process (‘PIRP’ for short).  An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006.   An application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor, who commits a default, subject to the conditions stipulated in section 54A (2) of the Code.   The corporate debtor, with consent of majority of unrelated financial creditors may initiate PIRP.

Legal framework

In CIRP the legal framework is relatively more in the statute and less in regulations whereas in PIRP the legal framework is relatively less in the statute and more in regulations.

Time limit

The time limit for completing the CIRP is 180 days with further extension of 90 days but not beyond 330 days from the insolvency commencement date.  The time limit for completing PIRP is 120 days from the insolvency commencement date.  90 days for filing of resolution plan with the AA plus 30 days for the AA to approve it.

Default limit

In CIRP the default limit by the corporate debtor is above ₹ 1 crore, excluding COVID-19 default where in PIRP, Pre and post default stress, including COVID-19 default in a phased manner, if required.

Termination

If CIRP is unable to perform within the prescribed days application may be filed before the Adjudicating Authority for referring the matter to liquidation.  Liquidated will be appointed to look after the liquidation proceedings.  If no resolution plan is approved in PIRP then application may be filed for the termination of proceedings.

Moratorium

The Adjudicating Authority shall, on the pre-packaged insolvency commencement date, along with the order of admission-

•  declare a moratorium for the purposes referred to in sub-section (1) read with sub-section (3) of section 14, which shall, mutatis mutandis apply, to the proceedings;
•  appoint a resolution professional;
• cause a public announcement of the initiation of the pre-packaged insolvency resolution process to be made by the resolution professional, in such form and manner as may be specified, immediately after his appointment.

The moratorium declared under PIRP is limited than that of moratorium in CIRP.

Claim collation

In CIRP, the interim resolution professional will cause a public announcement inviting the claims from the creditors to be filed with him within the date mentioned in the public announcement.  The interim resolution professional  shall receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made by him and based on the claims from the creditors the interim resolution professional will constitute Committee of Creditors (‘CoC’ for short).

 The corporate debtor shall, within two days of the pre-packaged insolvency commencement date, submit to the resolution professional the required information, updated as on that date, in Form No.P10 and manner as may be specified, a list of claims, along with details of the respective creditors, their security interests and guarantees, if any.  The resolution professional shall verify the claims submitted by the corporate debtor.   The resolution professional shall maintain a list of claims in Form P10 and update it as and when required.

Information memorandum

In CIRP the resolution professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan.   The resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes-

•  to comply with provisions of law for the time being in force relating to confidentiality and insider trading;
• to protect any intellectual property of the corporate debtor it may have access to; and
•  not to share relevant information with third parties unless clauses (a) and (b) of this sub-section are complied with.

The corporate debtor shall, within two days of the pre-packaged insolvency commencement date, submit to the resolution professional            a preliminary information memorandum containing information relevant for formulating a resolution plan. 

Where any person has sustained any loss or damage as a consequence of the omission of any material information or inclusion of any misleading information in the list of claims or the preliminary information memorandum submitted by the corporate debtor, every person who-

•  is a promoter or director or partner of the corporate debtor, as the case may be, at the time of submission of the list of claims or the preliminary information memorandum by the corporate debtor; or
•  has authorized the submission of the list of claims or the preliminary information memorandum by the corporate debtor,

shall  be liable to pay compensation to every person who has sustained such loss or damage.

The resolution professional shall finalize the information memorandum with details and submit to members of the committee within fourteen days of the pre-packaged insolvency commencement after receiving an undertaking from a member of the committee to the effect that such member or resolution applicant shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person.

Appointment of resolution professional

In CIRP the interim resolution professional is to be proposed by financial creditors and also by corporate debtor.  In case of operational creditor, the operational creditor may propose the interim resolution professional; if the operational creditor does not propose the interim resolution professional the Adjudicating Authority will appoint the interim resolution professional who may be replaced by Resolution Professional by the Committee of Creditors.

In PIRP, the resolution professional is to be appointed with the consent of unrelated financial creditors, for conducting the resolution process.

Management

In CIRP the entire management of the corporate debtor vests in the interim resolution professional/resolution professional and he is responsible for the management and activities of the corporate debtor, if it is a ‘going-concern’ and for the assets of the corporate debtor.  IP is in possession with creditors in control.

In PIRP the management of the corporate debtor vests in the corporate debtor with creditors in control.

Resolution plan

Invitation of resolution plan in CIRP is a public process.  In PIRP the first right is given to promoters.  The resolution professional shall publish brief particulars of the invitation for resolution plans in Form P11 not later than twenty-one days from the pre-packaged insolvency commencement date.

Cooling off

The cooling off is 12 months between two CIRPs whereas in PIRP it is three years between two Pre-packs

Same aspects

The provisions of CIRP and provisions of PIRP are almost same in respect of the following cases-

• Objectives – in both cases the objective is resolution through a resolution process;
• The provisions relating to avoidance transactions are same;
• Interim finance can be raised in both the processes;
• Valuation is to be done by two registered valuers;
• The provisions of section 29A (ineligibility of resolution applicant) are applicable to both the processes;
• Approval of resolution plan – to be approved by 66% majority by Committee of Creditors;

Approved Resolution plan is binding on all concerned;