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Pre-Packaged Insolvency Resolution Process

Context:

The Pre-packaged Insolvency Resolution Process (PPIRP) has resulted in the full settlement of operational creditors’ claims in five cases.

Relevance:

GS III: Indian Economy

About Pre-packaged Insolvency Resolution Process:

Introduction:

  • Launched in April 2021 in response to the Covid pandemic to alleviate stress on small and mid-sized companies.
  • Aimed at addressing the unique needs of distressed MSMEs.

Purpose:

  • Offers an alternative and faster resolution mechanism for micro, medium, and small enterprises in financial distress.

Process:

  • Negotiation: The debtor and creditors negotiate and agree on a resolution plan before formally starting the insolvency process.
  • Approval: The agreed resolution plan is submitted to the National Company Law Tribunal (NCLT) for approval, resembling an out-of-court settlement.
  • Drafting: Debtor and creditors draft a resolution plan before formal initiation.
  • Final Submission: The finalised plan, once approved by the required majority of creditors, is submitted to NCLT.

Initiation:

  • The pre-packaged insolvency process is voluntarily initiated by the debtor.

Significance:

  • The pre-negotiated and finalised resolution plan before NCLT filing significantly reduces resolution time compared to the corporate insolvency resolution process, minimizing disruptions.

-Source: The Economic Times


June 2024
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