Lok Sabha Question No. 2773 (UNSTARRED), answered on 2022-03-21
Subject: Proceedings under Special Insolvency Resolution Framework
Ministry: CORPORATE AFFAIRS
Asked by: Debasree Chaudhuri

## GOVERNMENT OF INDIA MINISTRY OF CORPORATE AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 2773 ANSWERED ON MONDAY THE 21 ST  MARCH, 2022 PHALGUNA 30, 1943 (SAKA)

## PROCEEDINGS UNDER SPECIAL INSOLVENCY RESOLUTION FRAMEWORK QUESTION

2773. MS. DEBASREE CHAUDHURI:

Will the Minister of CORPORATE AFFAIRS

be pleased to state:

- (a)  whether  only  debtors  will  be  able  to  initiate  proceedings  under  Special Insolvency  Resolution  Framework  for  Micro,  Small  and  Medium  Enterprises (MSMEs); (b) if so, the intended benefits of allowing only debtors to initiate proceedings; (c) the steps being taken by the Government to protect dues of MSMEs sector in resolution under the Insolvency and Bankruptcy Code, particularly in view of MSMEs and delayed payments Acts; (d)  the  steps  being  taken  by  the  Government  towards  simplification  of procedural requirements for the resolution; and (e)  the  steps  being  taken  by  the  Government  to  ensure  that  valuations  of MSMEs in resolution plans adequately factor in the informal nature of MSMEs
- and a majority of their transactions?

## ANSWER

MINISTER OF  STATE  (INDEPENDENT  CHARGE)  OF  THE  MINISTRY  OF STATISTICS  AND  PROGRAMME  IMPLEMENTATION;  MINISTER  OF  STATE (INDEPENDENT CHARGE) OF THE MINISTRY OF PLANNING; AND MINISTER OF STATE IN THE MINISTRY OF CORPORATE AFFAIRS

[RAO INDERJIT SINGH]

(a) and (b): Yes Sir. Under special insolvency resolution framework for Micro, Small and Medium Enterprises (MSMEs), called the pre-packaged insolvency resolution process (pre-pack), provided in the Insolvency and Bankruptcy Code, 2016 (the Code/IBC), only eligible corporate debtors (CDs) may file applications for resolution under this framework. Such a provision was intended to address specific requirements of MSMEs owing to the unique nature of their businesses and simpler corporate structures, so that resolution is done in a least disruptive manner to ensure the continuity of their businesses and preserving jobs.   The framework  is  a  debtor-in-control  model  envisaging  a  consensual  approach wherein the creditors and CD reach a mutual understanding about the course of action for insolvency resolution before formal initiation of the process. (c):    Under  the  Code,  MSMEs  as  operational  creditors  (OCs)  are  eligible  to initiate  insolvency  proceedings  against  CD  in  the  event  of  default.  In  the resolution plan under pre-pack framework or a corporate insolvency resolution process,  protection  for  OCs  is  provided  under  section  30(2)(b)  of  the  Code which provides that OCs shall receive higher of the two (i) the amount to be paid in the event of liquidation of the CD; or (ii) the amount that would have been paid, if the amount to be distributed in the resolution plan is distributed in accordance with the provisions of section 53 of the Code. Also, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provide that such payments to OCs shall be made in priority over financial creditors. (d): The pre-pack framework is a simple process that is largely informal as it empowers stakeholders to resolve the stress of a CD as a going concern, with minimum intervention of the Adjudicating Authority. It is a time bound process requiring 120 days for completion. It aims at providing a faster, cost effective and efficient resolution of stress with minimal business disruptions. (e): The pre-pack framework has been designed taking into account the unique nature of business of the MSMEs and has provisions in place to ensure that the resolution plan maximises value of the CD.  The debtor remains in possession of  the  business  and  runs  it  as  a  going  concern,  thus  maintaining  its  value. Further, the base resolution plan is prepared by the CD itself in accordance with the requirements of section 54K of the Code. In case the base resolution plan  is  not  approved  by  the  committee  of  creditors  (CoC)  or  it  impairs  any claims owed by the CD to OCs, the resolution professional is required to invite prospective resolution applicants to submit resolution plans to compete with base resolution plan in accordance with the Insolvency and Bankruptcy Board of India (Pre-Packaged Insolvency Resolution Process) Regulations, 2020. The CoC  then  considers  these  plans  and  takes  its  decision  on  acceptance,  or otherwise, of a plan in accordance with laid down criteria and subject to certain conditions provided in the regulations.

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