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Analysis of Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021

Analysis of Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021


This paper aims to explain how the recent amendment of Insolvency and Bankruptcy Code, 2021 has simplified the insolvency process for the micro, small and medium enterprises. This paper begins with the short introduction of IBC, which provides for a basic understanding of what Insolvency and Bankruptcy Code is and the procedure of insolvency resolution process. The paper mainly focuses on the explanation of provisions of Chapter III-A “Pre-packaged Insolvency Resolution Process” under the Insolvency and Bankruptcy Code and its impact on the MSME industry along with some contrasts from the Corporate Insolvency Resolution Process. Due to the hit of the pandemic on the economy, it was realized that the recovery opportunities need to be simplified in an out-of-court manner.


IBC stands for Insolvency and Bankruptcy Code. It was implemented in 2016. The code applies to companies, partnerships and individuals. It provides for a time-bound mechanism to resolve insolvency. Insolvency is a situation where a debtor cannot pay the debts he owes. However, an insolvency process is also followed in cases of corporate restructuring. When a default in repayment occurs, creditors gain control over the debtor’s assets and must take decisions to resolve insolvency. The companies have to complete the entire insolvency process within 180 days under IBC. In case smaller companies, the whole process of insolvency must be completed within 90 days. In both cases, the deadline can be extended.

The IBC proceedings are regulated by the Insolvency and Bankruptcy Board of India. Under Section 188 of the Insolvency and Bankruptcy Code, the central government has established and incorporated this board. The main functions and powers of this board are:

i. To register insolvency professional agencies, insolvency professionals and information utilities and renew, withdraw, suspend or cancel such registrations[1] ,
ii. To collect and maintain records relating to insolvency and bankruptcy cases and disseminate information relating to such cases[2] ,
iii. To promote transparency and best practices in its governance [3],
iv. To issue necessary guidelines to the insolvency professional agencies, insolvency professionals and information utilities[4] ,
v. To specify mechanism for redressal of grievances against insolvency professionals, insolvency professional agencies and information utilities and pass orders relating to complaints filed against the aforesaid for compliance of the provisions of this Code and the regulations issued hereunder [5],
vi. The Board may make model bye-laws to be adopted by insolvency professional agencies for smooth functioning of the provisions of the act [6],

The insolvency process is facilitated by licensed insolvency professionals. Their main task is to administer the insolvency process, manage the assets of the debtor, and provide information for creditors to assist them in decision-making. The proceedings of insolvency resolution are adjudicated by the National Company Law Tribunal in case of companies and by the Debt Recovery Tribunal in case of individuals. In the entire process of insolvency resolution, the Tribunal is involved at each step. It is the Tribunal, who approves initiating the resolution process, appointing the insolvency professional and giving nod to the final decisions of creditors.

In 2021, the President promulgated the IBC (Amendment) Ordinance, 2021 on 4th of April. This amendment aims to provide an efficient alternative insolvency resolution framework for corporate persons classified as micro, small and medium enterprises (MSMEs) under the code. It aims for ensuring quicker, cost-effective and value maximizing outcomes for all the stakeholders. Chapter III-A has been inserted to the IBC as the Pre-packaged Insolvency Resolution Process (PIRP). Now these provisions will govern the insolvency process of MSMEs.


The main reason for the existence of the amendment is due to the pandemic. The need for a simplified and efficient process was in demand as not everyone is able to understand complex legal framework and provisions [7]Bhumika Indulia Pre-packaged Insolvency Resolution Process for MSMEs, introduced vide IBC (Amendment) Act, 2021, published on august 13, 2021. When MSMEs have to undergo complex and heavy regulation, which is time consuming, it causes prejudice to the interest of the creditors as well as debtors. The process of liquidation and winding up can go up to a period of one year whereas in PIRP it is taking place just in 120 days. The government of India has noticed that the MSMEs are contributing to the growth of GDA and hence any process relating to the business of MSMEs shall be simplified[8]Diganth Raj Sehgal, Analysing the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, published on May 2, 2021.


Based on the above mentioned overview of the Insolvency and Bankruptcy Laws, the paper will study and analyze the application of the Insolvency and Bankruptcy Code (Amendment) Act, 2021.
This paper seeks to analyze the advantages of the amendment for the owners of these MSMEs with some comparison to the previously followed liquidation method and Corporate Insolvency Resolution Process.


The covid-19 pandemic has hit the economy across the globe and there is a rise in corporate insolvency. It is commonly noticed in micro, small and medium enterprises maybe because of their small business structure and limited resources. Due to the prevailing economic conditions in India, the Government of India announced the suspension of filing fresh applications for initiation of Corporate Insolvency Resolution Process (CIRP) in respect of default arising after 25th of March 2020, extending up to a period of one year with the aim of protecting MSMEs from financial stress during the pandemic.

Initially, the insolvency resolution for MSMEs was according to the act under which they are registered therewith. In case an enterprise is registered under Companies act, the insolvency proceedings were carried out as per liquidation provisions of the act. In case of partnerships, which are registered under the Indian Partnership Act, the insolvency proceedings were carried out as per the provisions mentioned thereunder. Due to various checks and barriers, these proceedings take a lot of time in finalizing the process, which is not convenient as per the prevailing times. To make the process simpler, the Insolvency Law Committee recognized the need for a hybrid framework, which combines out-of-court restructuring schemes and formal process (semi-formal) to prevent delays. The committee implemented “pre-packaged insolvency resolution” (PIRP) as a supplement to the Insolvency and Bankruptcy Code.


Pre-pack is a way of resolving the financial problems of creditors and owners of a distressed business. Under this resolution, the creditors and owners of a business agree to sell the business to an interested buyer before going to the court to sanction the agreement. The pre-pack is introduced to help micro, small and medium enterprises who have been hit hard by the pandemic.

A company or LLP classified as MSME shall fulfill the following conditions to be eligible under PIRP:
• It should have failed to pay a due and a payable debt of INR 10 lakhs or more.
• It should not have undergone a PIRP or CIRP during the past 3 years.
• No liquidation orders have been passed against it.
• It should not be a person who is disqualified under section 29A of the IBC.


A pre-packaged insolvency resolution process relates to the resolution of the debt of a distressed company. It works through a direct agreement between the secured creditor and existing owners and investors, if any. Then the creditors negotiate with the terms of the interested buyer. Once the terms are agreed to, they seek approval of the resolution plan from NCLT. It is up to the NCLT to either accept the plan or reject it before considering a petition for a CIRP. PIRP is more of a smoother way of handling insolvency resolutions especially when the threshold value is maximum INR 1 Crore.


The main objectives of this amendment are revival of corporate debtors, optimizing value of assets and rehabilitation of MSMEs. The PIRP seeks to encourage resolution of the corporate debtor, with liquidation only as the last resort. Insolvency laws across the globe seek to maximize the value of the assets, as they are subject to the claims of the creditors. Due to the active and significant contribution of memes in the growth of the country, the government is promoting its establishment. Simpler resolution mechanism will attract more people to start their own businesses. It offers opportunities for amendment of the base resolution plan, sufficient time for examination, a Swiss challenge for the procurement of the most viable solution, safeguards against fraudulent activity to ensure the rehabilitation of the corporate debtor. The introduction of the Swiss challenge method ensures transparency and maximization of value. Under the Swiss challenge model, the corporate applicant submits a base resolution plan, which shall be compared with plans submitted by the invited prospective resolution applicants. Ultimately, the most feasible plan, which fulfills the prescribed criteria, shall be sanctioned for the resolution of the corporate debtor.


Section 54A of the Act speaks about the eligibility of the Corporate Debtors for PIRP. As per this provision, an application for initiating PIRP may be made in respect of a corporate debtor classified as MSME under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006[9] . Section 54A(2) lays down conditions which need to be fulfilled before initiating PIRP. A prior approval has to be obtained from the financial creditors, not being its related parties, representing not less than sixty-six per cent, in value of the financial debt due to such creditors[10] , where the debtor has to provide a base plan resolution[11] .

Section 54B of the Act talks about duties of insolvency professionals where they will have to prepare a report on whether the corporate debtor has been fulfilling all the requirements mentioned in the act and if the base resolution plan is sound[12]

Under Section 54C of the Act, a corporate applicant can file an application with the Adjudicating Authority to initiate PIRP. The applicant has to comply with subsection (3) and (4) mentioned thereunder. The Adjudicating Authority has to accept or reject the application within 14 days.

The PIRP shall be completed within a period of 120 from the date of commencement[13]

During the PIRP, the Resolution Professional shall perform the obligations prescribed under Section 54F, which include confirming and maintaining an updated list of claims, constituting the Committee of Creditors, convening and attending meetings, preparing the information memorandum and the evaluation matrix, etc. It also contains the rights and powers enjoyed by the Resolution Professional to ensure smooth facilitation of the pre-pack process.

In CIRP, all the control is in the hands of the creditors when the debtor fails to perform. However, the PIRP promotes a debtor-in-possession model. Section 54H of the Act states that during the process the control of the affairs of the corporate debtor shall vest in its Board of Directors or its partners. However, a committee of creditors is constituted by the Resolution Professional within seven days of the commencement of PIRP[14]

Using the Swiss challenge model as discussed above, Section 54K of the Act provides for the submission of a ‘base resolution plan’ by the corporate debtor within two days of the pre-packaged insolvency commencement date.

Thereafter, the Committee of Creditors may approve the resolution plan if it does not impair any claims owed to the operational creditors of the corporate debtor and offers the best value; or else, it may invite prospective resolution applicants for a Swiss challenge[15]

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors, subject to the conditions provided in it, it shall, within thirty days of the receipt of such resolution plan, by order, approve or reject the resolution plan[16] If the plan is rejected, the applicant can raise an appeal against the order[17] Accessed on 24.09.2021.

It is observed that the PIRP is more effective than CIRP. The CIRP demands heavy regulations and statutes and it is a time-consuming process (330 days to complete the entire process).

However, its default limit is above INR 1 Crore, but it cannot be a point of distinction because the PIRP is only for corporate debtors classified as micro, small and medium enterprises.


To sum up it can be said that the introduction of PIRP is a boon to the legal framework. The NCLT mostly wants to avoid the liquidation process and help in reviving the business by corporate restructuring. Liquidation for small businesses is not only lengthy but also not feasible. Bringing MSMEs in the purview of IBC will help in reducing the burden on the courts. However, certain issues may come up with the course of time, as it might become difficult to meet the timeline. As the number of cases keeps increasing, it might become difficult to keep track of all the details. There is also a chance of leaving some loose ends as due to the paucity of time some required details may be overlooked, which will cause prejudice to the interest of the debtors and creditors.




Anshika Gautam

5th Year, B.A.LL.B (Hons), Symbiosis Law School, Pune


1, 2, 3, 4, 5, 6
7 Bhumika Indulia Pre-packaged Insolvency Resolution Process for MSMEs, introduced vide IBC (Amendment) Act, 2021, published on august 13, 2021
8 Diganth Raj Sehgal, Analysing the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, published on May 2, 2021
9, 10, 11, 13, 14, 16
17 Accessed on 24.09.2021



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