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Pre-Packed Insolvency Resolution Process

By CA Mohit Sharma (1st Attempt)
Particulars CIRP PIRP
Minimum Default 1 crore 10 lakhs
Applicability All MSME
Application OC/FC/CD CD
Control Transferred to creditors Remains with promoter
Management RP is responsible for Same Management except 1
management of CIRP circumstance
TIME LIMIT 180 +90 +60 =330 DAYS Preinitiation phase of 90 days
+ 30 days of passing order
from date of application =
120 days
COC DECISION % Is different in different 66% of voting shares for all
cases approval
Resolution Plan Prepared after Initiation of BSP/ Resolution Plan
CIRP prepared before application
Liquation Same Same
IRP Yes No such concept

☺ Section 54A Eligibility of Corporate Debtor

• WHO CAN FILE?
CD Classified as MSME under MSMED Act 2006 (Micro, Small and Medium Enterprise)
• Default committed-10 lakhs or more
• Conditions for application
✓ Not Undergone PIRP or Completed CIRP during last 3 years preceding initiation date
✓ Not Undergoing CIRP
✓ Eligible to submit Resolution Plan sec 29A
✓ No liquidation order passed u/s 33
✓ Financial creditors of the CD, not being its related parties, representing not less than 66%
in value of the financial debt due to such creditors, have approved Proposed Name of RP
(NO CONCEPT OF IRP)
✓ Members of the CD have passed a special resolution, or at least three-fourth of the total
number of partners, approving the filing of an application for initiating PIRP
✓ Majority of the directors or partners of the CD have made declaration stating
a) PIRP not initiated to defraud any person
b) Name of proposed RP
 c) PIRP application Filed within 90 Days
☺ Approval from financial Creditor not being related party and representing not less than
66% in financial debt But prior to seeking approval CD shall provide to Financial Creditor-
Declaration, SR or Resolution and Base Resolution Plan conforms to requirement of 54K.

☺ DUTIES OF RP (Sec 54B)

➢ It is duty of RP to prepare Report and file it with board confirming whether CD meets the
requirement of 54A and Base resolution plan requirements as per sec 54K and such other
documents required by board.
➢ Duties of RP shall cease if
• CD Fails to file an application for initiating PIRP within 90 days as stated under
declaration
• AA admitted or rejected the PIRP application
☺ Fees payable to IP to form part of PIRP process costs if application is admitted of PIRP

☺ APPLICATION TO INTITATE CIRP (Sec 54C)

➢ If CD meets the requirements of section 54A, a corporate applicant may file an
application with the AA for initiating PIRP and along with it Furnish

➢ Procedure of AA for admitting or rejecting application- same as CIRP (Within 14 days + 7

Days to rectify application if any)
➢ PIRP COMMENCEMENT DATE- date of admission of the application

☺ TIME LIMIT FOR COMPLETION (Sec 54D)

 ➢ RP shall submit the resolution plan, as approved by the COC to the AA within a period of
90 Days from the PIRP commencement date.
➢ PIRP to be completed with 120 days from PIRP commencement date
➢ If not Submitted Resolution plan within 90 days, then RP file an application with the AA
for termination of the PIRP

☺ DECLERATION OF MORATORIUM AND PUBLIC ANNOUNCEMENT (Sec 54E)

AA shall on the pre-packaged insolvency commencement date, along with the order of
admission

Declare a moratorium Appoint a Resolution Cause a public

Order of moratorium shall
have effect from the date of
such order till the date on
which the PIRP period comes
to an end
professional announcement
Immediately after
As named-If name given in
appointment
the application and no
disciplinary proceeding is
pending against him
Otherwise Based on the
recommendation made by
the Board if disciplinary
proceeding is pending against
the Proposed RP in the
application.

NOTHING MENTIONED OF ESSENTIAL AS CD IS STILL GOING CONCERN

☺ DUTIES AND POWER OF RP (Sec 54F)- Similar to CIRP

☺ LIST OF CLAIMS AND PRELIMINARY INFORMATION MEMORANDUM (Sec 54G)

CD shall within 2 days of the PIRP commencement date submit to the RP the following
information

• list of claims along with details of the respective creditors, their security interests and
guarantees, if any
• 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 CD, every person who

• Promoter or director or partner of the corporate debtor at the time of this submission
OR

• has authorised this submission

be liable to pay compensation to every person who has sustained such loss or damage.
No person shall be liable if the list of claims or the preliminary information memorandum was
submitted by the CD without his knowledge or consent.
Person who has sustained any loss or damage as a consequence is entitled to move a court
having jurisdiction for seeking compensation for such loss or damage.

☺ MANAGEMENT OF AFFAIRS OF CD (Sec 54H)

During the PIRP period
(a) the management of the affairs of the CD shall continue to vest in the Board of Directors or
the partners of the CD

(b) the Board of Directors or the partners of the CD shall make every endeavor to protect and
preserve the value of the property of the CD, and manage its operations as a going concern
(c) the promoters, members, personnel and partners of the CD shall exercise and discharge their
contractual or statutory rights and obligations in relation to the CD

☺ COC (Sec 54I)

RP Shall within 7 days of pre-packaged insolvency commencement date constitute COC

First meeting of the COC shall be held within 7 days of the constitution of the committee of
creditors
Composition of the COC shall be altered on the basis of the updated list of claims but any such
alteration shall not affect the validity of any past decision of the COC.

☺ VESTING MANAGEMENT OF CD WITH RP (Sec 54J)

1: If COC at any time during the PIRP by a vote of not less than 66% of the voting shares resolves
to vest the management of the CD with the RP.RP shall make an application for this purpose to
the AA.
2: If the AA is of the opinion that during the PIRP Affairs of the CD have been conducted in a
fraudulent manner or gross mismanagement of the affairs of the corporate debtor it shall pass
an order vesting the management of the CD with the RP

CIRP Provisions of Sec 14(2) or 14(2A) or Sec 17 or Sec 18 (e) to (g), sec 19, sec 20, sec 28, Sec
25(1) and Sec 25(2) (a) to (c) shall apply mutatis mutandis Until PIRP period comes to an end

☺ CONSIDERATION AND APPROVAL OF RESOLUTION PLAN (Sec 54K)

CD SHALL
SUBRMIT BRP TO RP SHALL SUBMIT THE
RP WITHIN 2 DAYS RP SHALL RESOLUTION PLAN AS
OF PIRP PRESENT IT TO APPROVED BY THE
COMMENCEMENT COC COC TO THE AA
DATE

1. COC may provide an opportunity to CD to revise BRP prior to its approval or inviting
Prospective resolution applicant
2. Resolution Plan and Base Resolution Plan (BRP) shall confirm to the requirements of Sec
30 (1) and (2)
3. COC may approve the BRP for submission to the AA if it does not impair any claims owed
by the corporate debtor to the operational creditors RP shall invite prospective resolution
applicants to submit a resolution plan to compete with the BRP
♦ COC does not approve the BRP or
♦ BRP impairs any claims owed by the CD to the operational creditors
4. RP shall provide to the resolution applicants
➢ Basis for evaluation of resolution plans
➢ Relevant information referred to in section 29 shall apply mutatis mutandis
5. RP shall present to the COC for its evaluation, resolution plans which conform to the
requirements section 30(2) and COC shall evaluate Resolution Plans and Select one
amongst them.
6. Where on the basis of such criteria as may be laid down by it
Option 1: COC decides that the resolution plan selected is significantly better than the BRP then
such resolution plan may be selected for approval
Option 2: Where resolution plan selected is not significantly better than the BRP then it shall
compete with the BRP and one of them shall be selected for approval.
If Resolution plan selected for approval is not approved by the COC, the RP shall file an
application for termination of the PIRP
7. Approval of the resolution plan by the COC, shall be by a vote of not less than 66% of the
voting shares, after considering its feasibility and viability, the manner of distribution
proposed, taking into account the order of priority amongst creditors as laid down in
section 53 (1)
8. Where the resolution plan submitted by the CD provides for impairment of any claims
owed by the CD, the COC may require the promoters of the corporate debtor to dilute
In case Resolution Plan doesn’t provide for dilution COC shall prior to the approval of such
resolution plan record reasons for its approval.
9. The RP shall submit the resolution plan as approved by the committee of creditors to the
AA

☺ Approval of resolution plan (Sec 54L)

Requirements Section 30(2)-within 30 days of the receipt of such resolution plan, by order
approve the resolution plan.

Doesn’t meet the requirements Section 30(2)- Within 30 days of the receipt of such resolution
plan, by order Reject the resolution plan and pass an order u/s 54N

If AA passed under Sec 54J and Resolution plan approved by the COC under Section 54k does not
result in the change in the management or control of the CD to a person who was not a
promoter or in the management or control of the corporate debtor, the AA shall pass an order

• Rejecting such resolution plan,

• Terminating the PIRP process and passing a liquidation order in respect of the CD

Declaring that the PIRP process costs shall be included as part of the liquidation costs
 ☺ Appeal against order (Sec 54M)
Appeal from an order approving resolution plan shall be on grounds of Sec 61-Same as CIRP

☺ Termination of pre-packaged insolvency resolution process (Sec 54N)

1.Where the RP files an application with the AA

• No resolution Plan Approved by AA {Sec 54K (12)}

• No resolution Plan Approved by COC within time limit {Sec 54D (3)}

Shall within 30 days of such application terminate PIRP process

AA passes an order of termination the CD shall bear the PIRP costs, if any.

2. RP at any time after the PIRP commencement date but before the approval of Resolution
Plan intimates the AA of the decision of COC approved by a vote of 66% of the voting shares to
terminate PIRP.
3. AA Passed an order under section 54J (2) and PIRP is required to be terminated, AA shall pass
an order

• Liquidation of CD
• Declare that the PIRP costs, if any, shall be included as part of the liquidation costs

☺ Initiation of CIRP (Sec 54O)

COC at any time after the PIRP commencement date but before the approval of resolution plan
by a vote of 66 % of the voting shares, may resolve to initiate a CIRP and if such CD is eligible for
CIRP
AA shall within 30 days of the date of such initiation, pass an order to

• Terminate the PIRP and initiate CIRP

• Appoint the RP as the IRP subject to submission of written consent by such RP to the AA
(RP fails to submit written consent-AA shall appoint an IRP by making a reference to the
Board for recommendation as per manner stated in sec 16)
• Declare that the PIRP costs included as part of CIRP costs
• AA order deemed as order of admission under Sec 7, CIRP shall commence from the
date of such order) in respect of the CD and proceedings for avoidance of transaction
under Chapter III or Sec 66 and 67 if any shall continue during CIRP (Time period of PIRP
excluded)