The Insolvency and Bankruptcy Code (Amendment) Bill, 2021, passed by Lok Sabha has proposed ‘pre-packs’ or Pre-packaged Insolvency Resolution Process (PIRP) as an insolvency resolution mechanism for Micro, Small and Medium Enterprises (MSMEs).
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A pre-pack envisages the resolution of the debt of a distressed company through a direct agreement between secured creditors and the existing owners or outside investors, instead of a public bidding process.
nder the pre-pack system, financial creditors will agree to terms with the promoters or a potential investor, and seek approval of the resolution plan from the National Company Law Tribunal (NCLT).
The approval of at least 66 per cent of financial creditors that are unrelated to the corporate debtor would be required before a resolution plan is submitted to the NCLT.
The NCLTs will be required to either accept or reject an application for a pre-pack insolvency proceeding before considering a petition for a Corporate Insolvency Resolution Process (CIRP).
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