PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

Corporate Insolvency Resolution Process (CIRP) in its regular form may not be suitable to companies of smaller sizes like micro, small and medium enterprises (MSME) due to their small sizes, simpler corporate structures and deeper involvement of promotors in running of these companies.  Further, COVID 19 pandemic had an adverse impact on these MSME and had caused financial stress to them.  The President of India promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 on 4^th April 2021 to introduce Pre-Packaged Insolvency Resolution Process (PPIRP). Subsequently, Parliament confirmed PPIRP provisions vide Insolvency and Bankruptcy Code (Amendment) Act, 2021.

The Code has the provisions of PPIRP from Section 54A to 54P. IBBI has framed IBBI (Pre-Packaged Insolvency Resolution Process) Regulations, 2021 (PPIRP Regulations) to supplement provisions of PPIRP.

PPIRP is different from CIRP in various aspects.

Firstly, PPIRP follows debtor-in-possession model rather than creditor-in-possession. Management of Corporate Debtor remains with the Corporate Debtor. Only in certain cases, where affairs of Corporate Debtor are conducted in fraudulent manner or is grossly mismanaged, management of the Corporate Debtor shifts to the Resolution Professional.

Secondly, only the Corporate Debtor can initiate the PPIRP proceedings. Creditor of the Corporate Debtor cannot initiate PPIRP.

Thirdly, in PPIRP the Corporate Debtor has to approach the Financial Creditor with Base Resolution Plan and obtain approval of the Financial Creditors to initiate the PPIRP. Such Base Resolution Plan is evaluated against other plans submitted by the Resolution Applicants.

Fourthly, in PPIRP List of Claims is prepared on the basis of data provided by the Corporate Debtor. There is no invitation of claim from creditors through public announcement.

Fifthly, in PPIRP an Insolvency Professional is appointed as prospective Resolution Professional by the Corporate Debtor itself and later confirmed by the Adjudicating Authority. In CIRP Interim Resolution Professional is appointed at the time of admission of the application by the Adjudicating Authority.

Sixthly, if CIRP does not succeed, there is provision of compulsory liquidation on the other hand if PPIRP fails, there is only termination of PPIRP. Only in cases of fraudulent conduct of affairs of Corporate Debtor or gross mismanagement of the Corporate Debtor, Liquidation Order of the Corporate Debtor can be passed.  

ELIGIBILITY TO START PPIRP

Section 54A provides for eligibility conditions of the Corporate Debtor to initiate PPIRP.

Only such Corporate Debtor, which are registered under Section 7 (1) of the micro, small and medium enterprises development Act, 2006 can initiate PPIRP.  

The Corporate Debtor must not have undergone PPIRP or completed CIRP in respect of a Corporate Debtor during the period of three years preceding the initiation date. The Corporate Debtor should not be undergoing CIRP and no order should have been passed requiring it to be liquidated. Further, the Corporate Debtor must be eligible to submit a Resolution Plan under Section 29A.

MINIMUM AMOUNT OF DEFAULT

Section 4 provides that Central Government can specify such minimum amount of default of higher value which will be not more than one crore rupees for matters relating to PPIRP of Corporate Debtors under Chapter III-A.

The Central Government vide notification dated 9^th April, 2021 has specified ten lakh rupees as the minimum amount of default for the matters relating to PPIRP of Corporate Debtor under Chapter III-A of the Code.

BASE RESOLUTION PLAN

Corporate Debtor individually or jointly with other creditors have to keep ready Base Resolution Plan before initiating insolvency resolution process.

DECLARATION

Section 54A (2) (f) provides that the majority of directors or partners of the Corporate Debtor, as the case may be, have to make a declaration to the effect that the Corporate Debtor will file an application for initiating PPIRP within a definite time period not exceeding ninety days and that the PPIRP is not being initiated to defraud any person. The declaration has also to disclose the name of the Insolvency Professional proposed and approved to be appointed as Resolution Professional.

SPECIAL RESOLUTION

Section 54A (2) (g) provides that a special resolution by members of the Corporate Debtor or resolution by three fourth of the total number of partners of Limited Liability Partnership, as the case may be, has to be passed approving the filing of an application for initiating PPIRP.

MEETING OF FINANCIAL CREDITORS FOR APPOINTMENT OF RP AND APPROVAL OF FILING APPLICATION BEFORE ADJUDICATING AUTHORITY

Prior to initiating PPIRP, the Corporate Debtor has to convene meeting of Financial Creditors for appointment of Resolution Professional under Section 54 A (2) (e) and filing of an application for initiating PPIRP before the Adjudicating Authority under Section 54A (3).  Financial Creditors who are related parties to the Corporate Debtor cannot be part of such meeting. Notice of the meeting has to be served to such Financial Creditors at least five days before the date of meeting unless a shorter time is agreed to by all of them. Notice of such meeting has to indicate the date, time and venue of the meeting and enclose a List of Creditors and amount due to them. 

Financial Creditors having not less than ten percent of the value of total Financial Debt can propose the name of Insolvency Professional to be appointed as Resolution Professional. Such resolution can be approved by the Financial Creditors of the Corporate Debtor representing not less than sixty six percent in value of the Financial Debt due to such creditors.

The Corporate Debtor has to obtain an approval from its Financial Creditors representing not less than sixty six percent, in value of the Financial Debt due to such creditors, for filing of an application for initiating PPIRP.  Before seeking approval of the Financial Creditors, the Corporate Debtor has to provide such Financial Creditors with copy of declaration, special resolution and Base Resolution Plan.

Where the Corporate Debtor has no Financial Debt or where all Financial Creditors are related parties, the applicant has to convene a meeting of Operational Creditors, who are not related parties, and resolutions will be passed in similar manner as that of in case of Financial Creditors.

DUTIES OF INSOLVENCY PROFESSIONAL BEFORE INITIATION OF PPIRP

Section 54A deals with duties of Insolvency Professional before initiation of PPIRP.

In CIRP, the role of Insolvency Professional starts after appointment by the Adjudicating Authority but in the case of PPIRP, the role of Insolvency Professional starts after his appointment by Corporate Debtor. 

The proposed Resolution Professional has to prepare a report confirming whether the Corporate Debtor meets the requirement of Section 54A and the Base Resolution Plan confirms to the requirements referred in Section 54A (4) (c) in respect of mandatory contents of Resolution Plan.

The duties of the Insolvency Professional cease if the Corporate Debtor fails to file an application for initiating PPIRP within the time period as stated under the declaration or the application for initiating PPIRP is admitted or rejected by the Adjudicating Authority.

APPLICATION TO INITIATE PPIRP

Section 54C provides procedure for filing application before the Adjudicating Authority for initiating PPIRP. The Corporate Debtor has to file an application with Adjudicating Authority for initiating PPIRP along with following documents along with the application.

1. The declaration, special resolution or resolution, as the case may be and approval of Financial Creditors for initiating PPIRP.
2. The name and written consent of the Insolvency Professional in appropriate form proposed to be appointed as Resolution Professional as approved in the meeting of Financial Creditors and his report under Section 54 B (1) (a) regarding eligibility of Corporate Debtor to initiate PPIRP.
3. A declaration regarding the existence of any transaction of the Corporate Debtor that may be within the scope of provisions in respect of avoidance transactions or fraudulent or   wrongful trading
4. 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 and written consent of the authorised representative.

The Adjudicating Authority may within a period of fourteen days of the receipt of application   admit the application by and order, if it is complete; or reject the application if it is incomplete.  The Adjudicating Authority before rejecting an application has to 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.

The PPIRP will commence from the date of admission of the application by the Adjudicating Authority.

TIME LIMIT FOR COMPLETION OF PPIRP (SECTION 54D)

According to Section 54D, the PPIRP has to be completed within a period of one hundred and twenty days from the pre-packaged insolvency commencement date. The Resolution Professional has to submit the Resolution Plan as approved by the Committee of Creditors to the Adjudicating Authority within a period of 90 days from the pre-packaged insolvency commencement date. In cases where no Resolution Plan is approved by the Committee of Creditors within 90 days, the Resolution Professional has to file an application with the Adjudicating Authority for termination of the PPIRP process.

DECLRATION OF MORATORIUM AND PUBLIC ANNOUNCEMENT DURING PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (SECITON 54E)

Section 54E deals with Moratorium and public announcement in respect of initiation of PPIRP.

The Adjudicating Authority on the pre-packaged insolvency commencement date, along with order of admission under Section 54 C has to declare a Moratorium for purposes referred to 14 (1) (3), which mutandis mutatis applies.  The order of Moratorium will have effect from the date of such order till the date on which the PPIRP comes to an end.

The Adjudicating Authority has also to appoint Resolution Professional as named in the application, if no disciplinary proceedings are pending against him. If any disciplinary proceeding is pending against Resolution Professional named in the application, the Adjudicating Authority can appoint an Insolvency Professional as Resolution Professional on recommendation of IBBI.

The Adjudicating Authority has also to cause a public announcement of the initiation of PPIRP to be made by the Resolution Professional immediately after his appointment. Such public announcement to be made within two days of commencement of the process. Such public announcement has to be sent to every creditor and information utilities; and published on the website, if any, of the Corporate Debtor and IBBI.

LIST OF CLAIMS & PRELIMINARY INFORMATION MEMORANDUM (SECTION 54 G)

Section 54 G deals with List of Claims and Preliminary Information Memorandum.

The mode of collation of claim in PPIRP is different from collation of claims in case of CIRP. The Corporate Debtor itself has to submit a List of Claims along with details of the respective creditors   their security interests and guarantees based of the records and a Preliminary Information Memorandum containing information relevant for formulating a Resolution Plan.

The Resolution Professional has to confirm the details received. The Resolution Professional has to inform every creditor regarding its claims as confirmed by him and seek objections. A creditor may submit objections along with supporting documents to the Resolution Professional within seven days from receipt of the communication.  The Resolution Professional may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim. The Resolution Professional has to consider every objection and modify the claim of the creditor if required. A creditor has to update its claim as and when the claims are satisfied partly or fully, from any source in any manner, after pre-packaged insolvency commencement date.

Where any person has sustained any loss or damage as a consequence of  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 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 submitted by the Corporate Debtor  or has authorised the submission of the List of Claims or the Preliminary Information Memorandum by the Corporate Debtor,   without prejudice to Section 77A, be liable to pay compensation to every person who has sustained such loss or damage. No person will be liable if the List of Claims or Preliminary Information Memorandum was submitted by the Corporate Debtor without his knowledge or consent.

Any such person who has sustained any loss or damage as a consequence of omission of material information or inclusion of any misleading information in the List of Claims or Preliminary Information Memorandum will be entitled to move a court having jurisdiction for seeking compensation for such loss or damage.

COMMITTEE OF CREDITORS (SECTION 54 I)

Section 54I provides for constitution of Committee of Creditors.

The Resolution Professional has to within seven days of the pre-packaged insolvency commencement date, constitute a Committee of Creditors, based on the List of Claims. Committee of Creditors can consist of only Financial Creditors. If List of Creditors includes creditors in a class, the applicant has to identify three Insolvency Professionals, obtain their consents and seek choice of highest number of creditors in a class. The choice of highest number of creditors in a class has to be selected as authorised representative of respective class and such authorised representative will participate in Committee of Creditors. Provisions of Section 21 regarding constitution Committee of Creditors during CIRP are mutatis mutandis applicable to Committee of Creditors constituted under PPIRP.

Constitution of Committee of Creditors will be modified on the basis of updated List of Claims and any such alteration will not affect the validity of any past decision of the Committee of Creditors.  The first meeting of Committee of Creditors has to be held within seven days of the constitution of the Committee of Creditors.

Where the Corporate Debtor has only creditors in a class and no other Financial Creditor, who are not related parties of the Corporate Debtor, the Committee of Creditors consists of only the authorised representative(s).

Where the Corporate Debtor has no Financial Debt or all Financial Creditors are related parties, the Committee of Creditors will consist of ten large Operational Creditors by value and if the number of operations creditors are less than ten, the Committee of Creditors will include all such Operational Creditors. The Committee of Creditors will also consist of one representative elected by all workmen and one representative elected by all employees other than those already included under ten largest Operational Creditors.

A member of Committee of Creditors formed only of Operational Creditors will have voting rights in proportion of the debt due to such creditor or debt represented by such representative, as the case may be, to the total debt. Total debt herein means debt owed to ten largest Operational Creditors, aggregate debt owed to workmen and aggregate debt owed to employees. Any such Committee of Creditors formed has the same rights, powers, duties and obligations as a Committee of Creditors comprising of Financial Creditors and its members.

Any change in the composition of Committee of Creditors will be intimated to all the members of the committee within two days of such change.

Meeting of the Committee of Creditors during PPIRP has to be conducted mutatis mutandis in the same way as in the case of CIRP.   Three days’ notice have to be given for calling Committee of Creditors meeting during PPIRP instead of five days in case of CIRP.

MANAGMEMENT OF AFFAIRS OF CORPORATE DEBTOR

Section 54H deals with management of affairs of the Corporate Debtor.

During PPIRP, the management of affairs of the Corporate Debtor does not shift to the Resolution Professional.  Management of the affairs of the Corporate Debtor continues to vest in the board of directors or the partners, as the case may be, of the Corporate Debtor. The board of directors or the partners, as the case may be, has to make every endeavour to protect and preserve the value of the property of the Corporate Debtor and manage its operations as a going concern.  The promoters, members, personnel, and partners, as the case may be, of the Corporate Debtor has to exercise and discharge their contractual or statutory rights and obligation in relation to the Corporate Debtor.

The Corporate Debtor cannot manage the affairs of the Corporate Debtor in a manner prejudicial to the creditors of the Corporate Debtor or in a fraudulent manner.

certain actions can only be taken with prior approval of the Committee of Creditors. Such actions include transactions above a threshold as decided by the committee, actions included under Section 28 and any other matters not included under Section 28 which has been decided by Committee of Creditors. 

The Corporate Debtor in consultation with the Resolution Professional has to prepare a monthly report and forward it to the members of the Committee of Creditors with details of legal proceedings having a material impact on the business of the Corporate Debtor and details of key contracts executed during the reporting period and other relevant matter(s) which may have a material impact on the business of the Corporate Debtor

The Resolution Professional may call for information related to operations of the Corporate Debtor   including payments made, visit to premises of the Corporate Debtor, inspect the assets of the Corporate Debtor, call for information related to compliances applicable to the Corporate Debtor and its status, ask for details related to litigation initiated by or against Corporate Debtor and ask details for ascertaining the conduct of Corporate Debtor during the process.

DUTIES AND POWERS OF RESOLUTION PROFESSIONAL DURING PPIRP

Management of Corporate Debtor does not shift to the Resolution Professional but Resolution Professional monitors the management of affairs of the Corporate Debtor and informs the Committee of Creditors regarding breach of any of the obligations of the board of directors or partners of the Corporate Debtor under the provisions of the Code.

Other powers and duties of Resolution Professional during PPIRP are similar to Resolution Professional in the case of CIRP.

PPIRP Regulation 38 deal with appointment of registered valuers. The Resolution Professional has to within three days of his appointment has to appoint two registered valuers to determine Fair value and liquidation value of the Corporate Debtor. Eligibility conditions and functions of registered valuers are similar to that of register valuers in case of CIRP. The average of value determined by two registered valuers will be considered fair value and liquidation value. Confidentiality of fair value and liquidation value has to maintained by members of Committee of Creditors, Resolution Professional and registered valuer.

PPIRP Regulation 40 deals with Information Memorandum. Information Memorandum contain similar details as that of Information Memorandum in CIRP. The Resolution Professional has to finalise the Information Memorandum with aforesaid details and submit to members of the Committee of Creditors within fourteen days of pre-packaged insolvency commencement date after receiving an undertaking from a member of the Committee of Creditors to the effect that such member or Resolution Applicant will 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.

A member of the Committee of Creditors may request the Resolution Professional or Corporate Debtor for further information and the Resolution Professional or the Corporate Debtor, as the case may be, shall provide such information to members within reasonable time if such information has a bearing on the Resolution Plan.

FEE OF RESOLUTION PROFESSIONAL

PPIRP Regulation 8 deals with fee of Resolution Professional.

Where the Corporate Debtor fails to file an application for initiating PPIRP or the application for initiation of PPIRP is rejected, the fee payable to the Resolution Professional for performing duties has to be borne by the Corporate Debtor.

The Corporate Debtor has to maintain a separate bank account with such amount as may be advised by the Committee of Creditors from time to time. Such account has to be operated by the Resolution Professional to meet his fee and expenses incurred by him for conducting the process.

The Committee of Creditors may impose limits and conditions on such fee and expenses. Fee and expenses for the period prior to the constitution of the Committee of Creditors will be subject to ratification by it.

SHIFTING MANAGEMENT TO RESOLUTION PROFESSIONAL

Section 54J deals with shifting of management to Resolution Professional in certain cases.

Although PPIRP follows debtor-in-possession model, there are certain circumstances wherein the management of affairs of the Corporate Debtor shifts to the Resolution Professional. If Committee of Creditors decides with vote of not less than sixty six percent of the voting share to vest the management of the Corporate Debtor with the Resolution Professional, an application may be filed to this effect before the Adjudicating Authority. On such application, if the Adjudicating Authority is of opinion that during PPIRP, the affairs of the Corporate Debtor have been being conducted in a fraudulent manner or there has been gross mismanagement of the affairs of the Corporate Debtor, the Adjudicating Authority may pass an order vesting the management of the Corporate Debtor with new Resolution Professional.

CONSIDERATION AND APPROVAL OF RESOLUTION PLAN BY COC

Section 54K deals with consideration and approval of Resolution Plan by Committee of Creditors. Section 54k has to be read with appropriate PPIRP regulations.

Consideration of Resolution Plan is significantly different in case of PPIRP in comparison of CIRP.  PPIRP introduces swiss challenge model in the bidding of Resolution Plan. Swiss challenge is bidding process wherein each applicant makes a better offer to secure the contract.  The Committee of Creditors in its commercial wisdom may approve Base Resolution Plan submitted by the Corporate Debtor or allow Resolution Applicants to submit their bid and give opportunity to the Corporate Debtor to improve its Base Resolution Plan.

Under Section 54K (1) it is compulsory for the Corporate Debtor tosubmit the Base Resolution Plan to the Resolution Professional within two days of the pre-packaged insolvency commencement date and the Resolution Professional has to present it to the Committee of Creditors. According to Explanation I, Corporate Debtor can submit Resolution Plan either individually or jointly with any persons.

Under Section 54K (2), the Committee of Creditors may provide the Corporate Debtor an opportunity to revise the Base Resolution Plan prior to its approval or invitation to prospective Resolution Applicant.

According to Section 54K (3) the Resolution Plans and Base Resolution Plan submitted under this Section have to confirm to the requirements referred to in Section 30 (1) and (2).

Under Section 54K (4), the Committee of Creditors may approve the Base Resolution Plan for submission to the Adjudicating Authority if it does not impair any claims owed by the Corporate Debtor to the Operational Creditors. According to Explanation II, the claims are considered to be impaired where the Resolution Plan does not provide for the full payment of the confirmed claims to the Operational Creditors as per the updated List of Claims maintained by the Resolution Professional.

Invitation for Resolution Plans

Under Section 54K (5) if the Committee of Creditors does not approve the Base Resolution Plan or the Base Resolution Plan impairs any claims owed by the Corporate Debtor to the Operational Creditors, the Resolution Professional has to invite prospective Resolution Applicants to submit a Resolution Plan or plans to compete with the Base Resolution Plan.

According to Section 54 K (6) the Resolution Applicants submitting Resolution Plans pursuant to invitation has to fulfill such criteria as may be laid down by the Resolution Professional with the approval of Committee of Creditors having regard to the complexity and scale of operations of the business of Corporate Debtor and such other conditions as may be specified by regulations.

PPIRP Regulation 43 provides for procedure for Invitation for Resolution Plan.

The Resolution Professional has to publish brief particulars of the invitation for Resolution Plans   not later than twenty-one days from pre-packaged insolvency commencement date.

The invitation for Resolution Plan has to detail each step in the process and the manner and purposes of interaction between the Resolution Professional and Resolution Applicant along with corresponding timelines. It has to include the basis of evaluation, basis for considering a Resolution Plan significantly better than another Resolution Plan, tick size and manner of improving Resolution Plan.

The invitation for Resolution Plan cannot require any non- refundable deposit for submission of or along with Resolution Plans.

The Resolution Professional has to require the Resolution Applicant in case its Resolution Plan is approved, to provide a performance security within the time specified therein and such performance security has to stand forfeited if the Resolution Applicant of such plan, after its approval by the Adjudicating Authority, fails to implement or contributes to the failure of implementation of the plan in accordance with the terns of the plan and its implementation schedule.

Evaluation of Resolution Plans

Under Section 54K (7) the Resolution Professional has to provide to the Resolution Applicants the basis for evaluation of Resolution Plans as approved by Committee of Creditors and relevant information referred to under Section 29 in respect of Information Memorandum which will mutatis mutandis apply.

Parameters of evaluation has to incorporated in the Invitation of Resolution Plan, against which the Resolution Plan has to be ranked. 

PPIRP Regulation 42 defines terms “basis of evaluation”, “significantly better” and “tick size”.

“Basis of evaluation” includes the parameters to be applied and the manner of applying such parameters, as approved by the Committee of Creditors, for evaluating a Resolution Plan to assign a score to the plan and disclose in the invitation for Resolution Plans. For example, the Committee of Creditors may identify three parameters, namely X, Y and Z for evaluation of Resolution Plans. It may apply these parameters in the form of formula namely 1.5X +2Y+2.5Z. Where value of X, Y and Z are 20, 25 and 30 respectively the score of the Resolution Plan is 1.5(20) + 2 (25) +2.5(30) = 155.

“Significantly better” in relation to Resolution Plan, means that the score of the Resolution Plan is higher than that of another Resolution Plan by certain number or percentage as approved by the Committee of Creditors and disclosed in the invitation for Resolution Plans.  For example, the Committee of Creditors may consider a Resolution Plan to be significantly better than another Resolution Plan, if score of the former is higher than that of the latter by 10. Where Resolution Plans A and B have scores of 100 and 110 respectively, B is significantly better than A. Where Resolution Plans A and B have scores of 100 and 108 respectively, B is not significantly better than A.

“Tick size” means minimum improvement over another Resolution Plan in terms of score, as approved by the Committee of Creditors and disclosed in the invitation for Resolution Plans. For example, on the basis of evaluation, Resolution Plan A & B have scores of 105 and 108 respectively. Resolution Applicant of A may wish to improve A over B. It must improve A such that the score of A’s ‘exceeds that of B at least by tick size. If tick size is 5, Resolution Applicant of A must improve A such that the score of A’s is at least 108+ 5= 113.

Submission of Resolution Plan to Resolution Professional

According to PPIRP Regulation 46, a Resolution Applicant may submit Resolution Plan or plans prepared in accordance with the Code and these regulations to the Resolution Professional through electronic means within time given in the invitation for Resolution Plan.

Presentation of Resolution Plans to Committee of Creditors

Under Section 54K (8), the Resolution Professional has to present to the Committee of Creditors for its evaluation, Resolution Plans which conform to the requirements referred to in Section 30 (2).

Evaluation of Resolution Plans

Under Section 54K (9) the Committee of Creditors has to evaluate Resolution Plans presented by the Resolution Professional and select a Resolution Plan from amongst them.

According to Section 54K (10), if the Committee of Creditors decides that the Resolution Plan selected under 54K (9) is significantly better than the Base Resolution Plan, such Resolution Plan may be selected for approval.

Swiss Mechanism

According to Section 54K (10), if the Resolution Plan selected under 54K (9) is not considered for approval or is not significantly better than Base Resolution Plan, it has to compete with the Base Resolution Plan in such manner and subject to such conditions as may be specified and one of them will be selected for approval.

Approval of Resolution Plan by CoC

According to Section 54K (12), the Resolution Plan selected under Section 54K (10) or (11) may be approved by Committee of Creditors for submission to the Adjudicating Authority. Where Resolution Plan is not approved by the Committee of Creditors, the Resolution Plan has to file an application for termination of PPIRP.

According to Section 54K (13), the Committee of Creditors may approve the Resolution Plan by a vote not less than sixty six percent of the voting share after considering it feasibility and viability, the matter of distribution proposed, taking into account the order of priority amongst creditors under Section 53 including the priority and value of the security interest of a Secured Creditor.

According to Section 54 K (14), while considering the feasibility and viability of a Resolution Plan, where the Resolution Plan submitted by the Corporate Debtor provides for impairment of any claims owed by the Corporate Debtor, the Committee of Creditors may require the promoters of the Corporate Debtor to dilute their shareholding or voting or control rights in the Corporate Debtor. Where Resolution Plan does not provide for such dilution, the Committee of Creditors has to record reasons for its approval.

APPLICATION TO ADJUDICATING AUTHORITY

Under Section 54 K (15) the Resolution Professional has to submit Resolution Plan approved by Committee of Creditors to the Adjudicating Authority. Where a Resolution Plan is approved by Committee of Creditors, the Resolution Professional has to submit an application along with a compliance certificate to the Adjudicating Authority for approval.

APPROVAL OF RESOLUTION PLAN BY ADJUDICATING AUTHORITY

Section 54 L deals with application to Adjudicating Authority for approval of Resolution Plan.

If the Adjudicating Authority is satisfied that the Resolution Plan meets the requirement of Section 30 (2), it may within thirty days of receipt of such Resolution Plan approve the Resolution Plan.  The Adjudicating Authority before passing an order for approval of Resolution Plan has to satisfy itself that the Resolution Plan has provisions for its effective implementation.

Such approved Resolution Plan will be binding on the Corporate Debtor, its employees, members, creditors, including the Central Government, any State Government or any Local Authority to whom a debt in respect of the payment of dues arising under any law for the time being in force such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the Resolution Plan. After approval of Resolution Plan, the Moratorium Order ceases to have effect.  The Resolution Applicant has to obtain necessary approval required under any law within a period of one year.

Where the Adjudicating Authority is satisfied that the Resolution Plan does not confirm to the requirement under Section 30 (2), it may within thirty days of the receipt of such Resolution Plan reject the Resolution Plan.

Where the Adjudicating Authority has passed an order under Section 54J (2) in respect of vesting management of Corporate Debtor with Resolution Professional due to conducting affairs of Corporate Debtor in fraudulent manner or gross mismanagement of affairs of the Corporate Debtor,  and the Resolution Plan approved  does not result in change in management of control of the Corporate Debtor to person who was not a promoter or in the management or control of the Corporate Debtor, the Adjudicating Authority has to pass an order rejecting such Resolution Plan, terminating the PPIRP and passing of Liquidation Order and declaring that PPIRP costs will be included as part of Liquidation Costs.

The Resolution Professional has to forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a Resolution Plan to the participants and the Resolution Applicant.

The Resolution Professional has to within seven days of the order of Adjudicating Authority approving a Resolution Plan, intimate each claimant the principle or formula as the case may be, for payment of debt under such Resolution Plan.

Where no Resolution Plan is approved by the Committee of Creditors or where the Committee of Creditors has approved the termination of PPIRP, the Resolution Professional has to file an application for termination of PPIRP.

APPEAL AGAINST ORDER UNDER

According to Section 54L, any appeal against an order approving the Resolution Plan under Section 54L may be filed on grounds laid down in Section 61 (3).

TERMINATION OF PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS

Section 54N deals with termination of PPIRP.

In cases, where the Resolution Professional filed an application with the Adjudicating Authority under the proviso to sub-section 54K (12) for approval of Resolution Plan  or under Section 54D (3) for termination of PPIRP in case of non-receipt of any Resolution Plan,  the Adjudicating Authority will within thirty days of the date of such an application by an order terminate PPIRP and provide for the manner of continuation of proceedings initiated for avoidance of transaction under Section 43, 45 50,  66 and Section 67A, if any. In such cases the Corporate Debtor has to bear PPIRP costs.

Where the Resolution Professional at any time after the pre- packaged insolvency commencement date, but before the approval of Resolution Plan under Section 54K (12) or 54 K (4), as the case may, intimates the Adjudicating Authority of the decision of the Committee of Creditors approved by a vote of not less than sixty six percent, of the voting shares, to terminate the Pre-Packaged Insolvency Resolution Process, the Adjudicating Authority has to pass an order of termination of PPIRP.

Where the Adjudicating Authority has passed an order under Section 54J (2) in respect of fraudulent or gross mismanagement of conduct of affairs of the Corporate Debtor and PPIRP is required to be terminated, the Adjudicating Authority will pass an order of liquidation in respect of the Corporate Debtor and declare that PPIRP costs, if any, will be included as part of the Liquidation Costs for the purposes of liquidation of the Corporate Debtor.

INITIATION OF CIRP

Section 54Q deals with circumstances wherein CIRP can be initiated during PPIRP.

The Committee of Creditors at any time after the pre-packaged insolvency commencement date but before the approval of the Resolution Plan under Section 54 K (12) or 54 K (4) by a vote of note less than sixty-six per cent of the voting shares may resolve to initiate a Corporate Insolvency Resolution Process in respect of the Corporate Debtor, if such Corporate Debtor is eligible for CIRP.

Where the Resolution Professional intimates the Adjudicating Authority of the decision of the Committee of Creditors, the Adjudicating Authority will within thirty days of the date of such intimation, pass an orders to terminate PPIRP and initiate CIRP and  appoint the Resolution Professional appointed under Section 54 E as the IRP subject to submission of written consent by such Resolution Professional to the Adjudicating Authority and  declare that the PPIRP costs will be included as part of Insolvency Resolution Process Costs for the purposes of the CIRP  of the Corporate Debtor.   Such order will be deemed to be an order of admission of an application under Section 7 and will have the same effect. The CIRP will commence from date of such order. Where the Resolution Professional fails to submit written consent, the Adjudicating Authority will appoint an Interim Resolution Professional on the recommendation of IBBI.

The proceedings initiated for avoidance of transactions or proceedings initiated under Section 66 and 67A, if any, will continue during CIRP. For the purposes of Sections 43, 46 and 50, insolvency commencement date will mean pre-packaged insolvency commencement date and in computing the relevant time or the period for avoidable transactions, the time period for the duration of PPIRP will also be included.

PREFERENTIAL AND OTHER TRANSACTIONS

PPIRP Regulation 41 deals with preferential and other transactions entered into by Corporate Debtor with third parties.

On or before the thirtieth day of the pre-packaged insolvency commencement date, the Resolution Professional has to form an opinion whether the Corporate Debtor has been subjected to any transaction covered under Sections 43, 45, 50 and 66. Where the Resolution Professional is of the opinion that the Corporate Debtor has been subjected to any transaction covered under Section 43, 45, 50 or 66, he has to make  a determination on or before the forty fifth day of the pre-packaged insolvency commencement date, under intimation to IBBI. Where the Resolution Professional makes any such determination he has to apply to the Adjudicating Authority for appropriate relief on or before the sixtieth day of the pre-packaged insolvency commencement date.

FRAUDULENT MANAGEMENT OF CORPORATE DEBTOR DURING PPIRP

Section 67 deals with fraudulent management of Corporate Debtor during PPIRP.  On and after the pre-packaged insolvency commencement date, if an officer of the Corporate Debtor manages its affairs with the intent to defraud creditors of the Corporate Debtor or for any fraudulent purpose on and after the pre-packaged insolvency commencement date, the Adjudicating Authority may, on an application by the Resolution Professional, pass an order imposing upon any such officer, a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.

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