The government has announced a pre-packaged insolvency resolution or PIRP framework and it is largely meant for MSMEs. This PIRP framework is only for MSMEs for defaults of up to Rs 1 crore. For default of more than Rs 1 crore, they can use the Insolvency and Bankruptcy Code (IBC). Application to initiate the PIRP process can be filed under Sec 54C of IBC.

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Sunil Mehta, IBA Chief, said, "This particular framework is altogether different from the framework that is available under IBC. So the timelines which have been prescribed are very much reasonable. Here the initiation of the process happens much before it goes to the NCLAT for admission."

He said, "Here the entire resolution plan has to be worked out by the corporate debtor himself and the Sec 29A does not apply that means the promoter himself is already in control of the things, they know what the resolution plan they are bringing, without any outside equity support and that plan needs to be supported by the lenders. Here the benefit will be given under the restructuring which is under the June 7 circular of the RBI. Operational creditors or a small creditor has got the capacity to take the company to the IBC but with the pre-packaged insolvency, they will have a resolution by the corporate with the immunity of the IBC. So it is a blend of the IBC where you get all the immunities which are available under IBC under pre-packaged and on the other side it is a facility available to the existing promoter to revive the unit and especially to the MSME segment.”

Nilang Desai, the partner at AZB & Partners, said, "The idea behind this scheme is that one goes into the pre-pack after having done most of the work before it. The idea is that who was initiating will have a contract signed up with his creditors of 51 percent majority or 66 percent majority before he goes into it which means the work is already done. One is hoping that 120 days is not such a ridiculous timeline.”

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(Edited by : Priyanka Rathi)