The Insolvency and Bankruptcy Code (Amendment) Act, 2021

The Insolvency and Bankruptcy Code (Amendment) Act, 2021 received Presidential assent on 12th August 2021. It replaced the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, which was promulgated on April 4, 2021.

Difference between PIRP and CIRP

  • The CIRP provides for a threshold of 270-days for insolvency resolution proceedings. This period may also exceed as CIRP is often put down by various litigations. Whereas the PIRP provides a maximum 90 days to stakeholders to bring a resolution plan for approval before the NCLT.
  • In case of PIRP, the existing management takes control whereas, in the case of CIRP, a resolution professional takes control of the debtor as a representative of financial creditors. This ensures minimal disruption of operations relative to a CIRP.
  • Thus, a PIRP allows the assets of distressed businesses to be quickly deployed back into the economy rather than being subject to long litigation in courts under CIRP.

Key Features

  • Pre-Packaged Insolvency Resolution: It provides for an alternate insolvency resolution process for MSMEs, known as the pre-packaged insolvency resolution process (PIRP). During PIRP, the management of the company will remain with the debtor. Application for initiating PIRP may be filed in the event of a default of at least one lakh rupees. The central government may increase the threshold of minimum default up to one crore rupees through a notification.
  • Moratorium on certain Actions: During the process, certain actions against the debtor such as filing or continuation of suits, execution of court orders, or recovery of property will be prohibited.
  • Management of Debtor during PIRP: During PIRP, the board of directors or partners of the debtor will continue to manage the affairs of the debtor. Only in case of fraudulent conduct or gross mismanagement, it can be vested with the Resolution Professional.
  • Initiation of Corporate Insolvency Resolution Process (CIRP): At any time from the PIRP commencement date but before the approval of the resolution plan, the committee of creditors may decide (with at least 66% of the voting shares) to terminate PIRP and instead initiate CIRP.

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