MODULE 2:

2.1 CIRP
2.2 Fast track CIRP
2.3 Voluntary Liquidation Process
https://www.tickertape.in/glossary/liquidation-meaning-process-types-and-examples/
2.3 Liquidation Process
2.4 Prepackaged Insolvency Resolution Process
2.5 Adjudicating Authorities and Appellate Authorities
2.6 Offences and Penalties

CIRP
Introduction ---------------------------------------
An introduction to IBC Code

Meaning -------------------------------------------

Who can initiate CIRP?

- An application as per the code
- CIRP can be initiated by
Financial creditor (FC) under Section 7.
An operational creditor (OC) under Section 9.
A corporate applicant of a corporate debtor under Section 10 of the Code.

Consequences
It may be –
- Revival that go up to restructuring or new plan of the set up
- Liquidation

Stages in CIRP
1st Stage – Pre-admission process S 3 – S 11
A person who can apply to NCLT to initiate the CIRP process Under Section 7 as Financial
Creditor “FCs”, in Section 9 as an Operational Creditor “OCs”, or in Section 10 as a
Corporate Debtor “CDs”.

2nd Stage - Post-Admission Process (Sections 12 to 32A)

- After an application to NCLT, discretion to accept or reject
- Whole process in 180 days with one time extension of 90days
- In 330 days from the commencement date at max, otherwise a process of liuidtin
begins

3rd Stage - Liquidation Stage (Sections 33 to 42 and Sections 52 to 54)

- If resolution fails then it begins
- Key point to initiate if amount is RS 1 crore
- Financial creditors, operational creditors, or corporate debtors apply to recover their
debts before the adjudicating authority i.e. NCLT (National Company Law Tribunal).
 - NCLT within 14 days of receipt of an application passes an order to accept or In case
reject the application by giving notice to the applicant to rectify the default within 7
days from receipt of notice from the NCLT
- On acceptance of an application that date will be called the insolvency Commencement
Date.
- By acceptance of an application as per Section 14 of IBC. The moratorium period will
start
- By acceptance of an application as per Section 14 of IBC. The moratorium period will
start with, the appointment of an Interim Resolution Professional by an Adjudicating
Authority after that Public Announcement by an Interim Resolution Professional in
Form A of IBBI.

Main stakeholders
1. Interim Resolution Professionals (IRP)/ Resolution Professionals (RP).
2. Committee of Creditors (COC).
3. Resolution Applicant (RA).
4. National Company Law Tribunal (NCLT).
- One of the primary players who play a major role in CIRP is the Interim Resolution
Professional (IRP), who constitutes a Committee of Creditors (COC) as per Section 21
of IBC.
- The COC appoints or regularises a Resolution Professional by conducting a meeting as
per Section 24 of IBC after that the Resolution Professional should prepare an
Information Memorandum as per Section 29 and Regulation 36.
- ‘Resolution applicant’ means a person who presents a resolution Plan to the Resolution
Professional; however, a resolution applicant should fulfill the condition of Section
29A of IBC. Resolution Applicant submits a resolution plan with an affidavit that he is
not disqualified under Section 29A.
- The Committee of Creditors may approve a resolution plan by VOTING a minimum of
66% of the voting share of the Financial creditors.
- The Resolution Professional should submit a resolution to the National Company Law
Tribunal.
- The resolution plan is approved by a COC, followed by which the National Company
Law Tribunal gives the order to approve the plan should be binding on corporate
debtors and their employee, members, creditors, guarantors, and other stakeholders
involved in that plan.

The Corporate Insolvency Resolution Process (‘CIRP’) is a recovery mechanism for the
creditors of a corporate debtor. A corporate debtor means a company or Limited Liability
Partnership (‘LLP’) that owes a debt to its creditors.
The Insolvency and Bankruptcy Code, 2016 (‘IBC’) lays down the provisions for conducting
insolvency or bankruptcy of individuals, partnership firms, LLP and companies. However, the
process of insolvency and liquidation of corporate debtors under the IBC applies where the
minimum default amount is Rs.1 crore only.
Creditors Under IBC
When a company or LLP becomes insolvent or commits a default, the financial creditor,
operational creditor or the corporate debtor can file an application to initiate the CIRP by the
Adjudicating Authority, i.e. National Company Law Tribunal (‘NCLT’).
A financial creditor is a person to whom the business owes a financial debt and includes a
person to whom such debt is legally transmitted or assigned. A financial debt means a debt
along with interest disbursed against the consideration for the value of money and includes-
• The amount borrowed against the payment of interest.
• The amount raised by acceptance under the acceptance credit facility or its
dematerialised equivalent.
• The amount raised under the note purchase facility or the issue of notes, bonds, loan
stock, debentures or any other similar instrument.
• The amount of the liability relating to a lease or hire purchase contract that is deemed
as capital or finance lease under the Indian Accounting Standards or such other
accounting standards.
• Receivables discounted or sold other than the receivables sold on a non-recourse basis.
• The amount raised under any other transaction, including any purchase agreement or
forward sale having the commercial effect of a borrowing.
• Any derivative transaction entered in connection with benefit from or protection
against fluctuation in any price or rate.
• Any counter-indemnity obligation relating to a bond, indemnity, guarantee,
documentary letter of credit or other instrument issued by a financial institution or
bank.
• The amount of liability relating to any of the indemnity or guarantee for any of the
points mentioned above.
An operational creditor is a person to whom the business owes an operational debt and
includes persons to whom such amount has been legally transferred or assigned for services or
goods given by them.
An operational debt means a claim relating to the provision of services or goods, including
debt or employment regarding payment of dues arising under any law in force and payable to
the Central Government, State Government or local authority.
Process of Corporate Insolvency Resolution
The conduct of the CIRP (CIRP) of a corporate debtor is provided in Part II of the IBC, which
are as follows-
Initiation of CIRP
The financial creditor can initiate the CIRP against the corporate debtor by applying to NCLT.
The operational creditor should first give a demand notice of an unpaid invoice to the
corporate debtor demanding the default payment amount. When the operational creditor does
not receive payment from the corporate debtor after the expiry of ten days of delivery of the
demand notice or invoice demanding payment, he can apply to NCLT for initiating the CIRP.
A partner or member of the corporate debtor authorised to initiate CIRP or a person in charge
of managing the affairs or who has control and supervision over the financial affairs of the
corporate debtor can initiate the CIRP with NCLT.
NCLT will pass an order within fourteen days of either admitting or denying the CIRP
application. The CIRP will commence from the admission date of the application by NCLT.
The CIRP completion period is 180 days from the admission date of the CIRP application.
Declaration of Moratorium and Public Announcement
After the admission of the CIRP application, NCLT will pass an order-
• Declaring a moratorium for prohibiting certain actions and transactions.
• Causing a public announcement of initiating the CIRP and call for the submission of
claims.
• Appointing an interim resolution professional.
NCLT orders on the CIRP commencement date declaring the moratorium for prohibiting the
following-
• Continuation or institution of suits or proceedings against the corporate debtor.
• Encumbering, transferring, disposing of or alienating by the corporate debtor of its
assets or beneficial interest or legal right.
• Any action to recover, foreclose or enforce any security interest created by the
corporate debtor relating to its property, including any action under the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002.
• Recovery of any property by a lessor or owner, where the property is in possession or
occupied by the corporate debtor.
The public announcement of the CIRP should contain the following information-
• Name and address of the corporate debtor.
• Name of the authority under which the corporate debtor is registered or incorporated.
• Last date for submission of claims.
• Details of the interim resolution professional who will be responsible for receiving
claims and take over the management of the corporate debtor.
• Penalties for misleading or false claims.
• The date of closure of the CIRP, i.e. 180th day from the admission date of the CIRP
application.
The interim resolution professional appointed will have the following powers relating to the
corporate debtor from the date of his appointment-
• Management of the affairs of the corporate debtor.
• Exercise the powers of the board of directors or partners of the corporate debtor and
suspension of the powers of the director or partner of the corporate debtor.
• Officers and managers of the corporate debtor will have to report to the interim
resolution professional and give access to the records and documents of the corporate
debtor.
• Financial institutions having and maintaining accounts of the corporate debtor will act
on the instructions of the interim resolution professional and furnish all available
information relating to the corporate debtor.
Committee of Creditors
The interim resolution professional will constitute a committee of creditors after collating all
received claims against the corporate debtor and determining its financial position. The
committee of creditors will consist of all the financial creditors of the corporate debtor.
The committee of creditors should hold the first meeting within seven days of the constitution
of the committee. The committee of creditors in their first meeting should decide to either
appoint or replace the interim resolution professional through a majority vote of not less than
66% of the voting share of the financial creditors.
Appointment of Resolution Professional
When the committee of creditors decide to continue with the interim resolution professional
appointed by NCLT as the resolution professional, it should communicate its decisions to
NCLT, the interim resolution professional and the corporate debtor.
When the committee of creditors decides to replace the interim resolution professional, it
should file an application to NCLT to appoint the proposed resolution professional along with
his written consent.
NCLT should forward the name of the proposed resolution professional submitted by the
committee of creditors to the Insolvency and Bankruptcy Board of India (‘Board’) for its
confirmation. NCLT shall appoint the proposed resolution professional after receiving
confirmation from the Board.
The resolution professional will conduct the entire CIRP and manage and control the
operations of the corporate debtor during the CIRP.
Preparation of Information Memorandum
The resolution professional should prepare an information memorandum in the form and
manner containing the relevant information as specified by the Board to formulate a resolution
plan. A resolution applicant should submit a resolution plan prepared on the basis of the
information memorandum to the resolution professional.
The resolution applicant is the person who submits a resolution plan either individually or
jointly with any other person. The resolution professional will examine each resolution plan
submitted to him for confirming that each resolution plan-
• Provides for the payment of the insolvency resolution process costs as specified by the
Board prioritising the payment of all other debts of the corporate debtor.
• Provides for the payment of debts of the operational creditors as specified by the
Board.
• Provides for managing the affairs of the corporate debtor after approval of the
resolution plan.
• Supervision and implementation of the resolution plan.
• It does not contradict the provisions of the law(s) in force.
• Confirms to such other requirements specified by the Board.
The resolution professional will present the resolution plan after its examination to the
committee of creditors for its approval. The committee of creditors can approve the resolution
plan by a vote of not less than 66% of the voting share of the financial creditors.
Approval of Resolution Plan
The resolution plan for the revival of the company or LLP should be approved within 180 days
from the commencement of the CIRP by the creditors. However, NCLT can extend the period
of 180 days by another 90 days.
NCLT will pass an order approving the resolution plan approved by the committee of creditors
after being satisfied that the resolution plan meets the requirements of the IBC. NCLT order of
approval of the resolution plan will be binding on the corporate debtor and its employees and
members.
NCLT order of approval of the resolution plan will also be binding on the guarantors and
stakeholders involved in the resolution plan and the creditors, including the Central or State
Government or any local authority.
NCLT can pass an order to reject the resolution plan if it is satisfied that the resolution plan
does not meet the requirements laid down under the IBC. When NCLT passes the order of
rejection of the resolution plan, it will pass an order of the liquidation of the corporate debtor.
After the approval of the liquidation of the corporate debtor, the committee of creditors will
appoint the liquidator to sell the corporate debtor’s assets and share them among the
stakeholders. The distribution of the assets will be made as per the provisions of the IBC.

Fast Track Corporate Insolvency Resolution

Process under IBC, 2016
The Insolvency and Bankruptcy Code, 2016 (IBC) introduced a comprehensive framework for
resolving corporate insolvencies in India. Within this framework, the Fast Track Corporate
Insolvency Resolution Process (CIRP) was designed to expedite the resolution of smaller
companies with simpler financial structures. This blog post provides a brief overview of the
Fast Track CIRP under the IBC, highlighting its key features and benefits for the corporate
sector.
Eligibility Criteria:
The Fast Track CIRP is available for certain eligible corporate debtors. To qualify for this
process, the debtor must meet the following criteria: a. The debtor should be classified as a
small company, as defined under the Companies Act, 2013. b. The debtor's aggregate
outstanding debt, including all creditors, should not exceed INR 1 crore (approximately USD
150,000) as specified by the central government. c. The debtor should not have undergone any
previous CIRP or completed a Fast Track CIRP within the preceding two years.
Time-bound Resolution:
The Fast Track CIRP is characterized by strict timelines, aiming to ensure swift resolution of
insolvency cases. The process must be completed within a maximum period of 90 days from
the insolvency commencement date, compared to 180 days for regular CIRP cases. This
accelerated timeline streamlines the resolution process and reduces the overall economic
impact on stakeholders.
Simplified Process:
The Fast Track CIRP follows a simplified procedure compared to the regular CIRP. The
debtor, within 10 days of the commencement of the process, is required to submit the
following: a. A list of creditors, along with their claims. b. A statement of its assets and
liabilities. c. A certificate from the financial institutions maintaining its accounts, confirming
that the debtor is eligible for the Fast Track CIRP.
Limited Role of Resolution Professional:
The role of the resolution professional (RP) in the Fast Track CIRP is relatively limited. The
RP's primary responsibility is to verify and confirm the debtor's eligibility for the Fast Track
CIRP, maintain a public record of claims, and monitor the debtor's assets during the process.
The reduced involvement of the RP ensures a more cost-effective and efficient resolution
process.
Restructuring Plan Approval:
During the Fast Track CIRP, the debtor, with the assistance of the RP, formulates a
restructuring plan for approval by the committee of creditors (CoC). The CoC comprises
financial creditors who evaluate the plan and vote on its acceptance. The plan must be
approved by a 66% majority of the voting share of the CoC, ensuring a fair and transparent
decision-making process.
Benefits for Stakeholders:
The Fast Track CIRP offers several advantages to stakeholders involved in the insolvency
resolution process. For the debtor, the swift resolution helps in preventing further deterioration
of the business and preserves its value. Creditors benefit from a quicker recovery process,
reducing potential losses and allowing them to reallocate their resources effectively.
Additionally, the simplified procedure and limited involvement of the RP lead to cost savings
for all parties involved.

What is corporate insolvency resolution process

The Insolvency and Bankruptcy Code, 2016 is uniform legislation brought in by the Parliament to deal
with various insolvencies. The law prescribes a set procedure to be undertaken by the creditors &
even the corporate debtor itself in case insolvency arises. This procedure is known as the Corporate
Insolvency Resolution Process. The Act consolidates and amends the laws relating to reorganization
and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound
manner for maximization of value of assets of these persons, to promote entrepreneurship,
availability of credit and balance the interests of all the stakeholders.

It is the creation of credit that gives rise to the debtor-creditor relationship and makes insolvency
possible in the first place.[i]

These proceedings per se start once an application for initiation of proceedings is filed by the financial
or an operational creditor. The adjudicating authority appoints an interim resolution professional and
makes a public announcement for the initiation of the insolvency proceedings. The interim resolution
professional is obliged to constitute a committee of creditors which thereafter appoints the resolution
professional who is responsible for the execution of the entire insolvency resolution process.

For the initiation of a CIRP petition, there must be an undisputed debt before the initiation of the
corporate insolvency resolution process. The Hon’ble Supreme Court has held that the adjudicating
authority has the power to reject the application at the stage of admission itself if it is of the view that
there is a dispute concerning the existence of a debt.[ii]

Corporate insolvency laws aim to accomplish the following tasks[iii]:

To lay down rules governing the distribution of the assets of an insolvent company, including rules
protecting the pool of assets available to creditors.
To provide for management of companies in times of crisis.
To facilitate the recovery of companies in times of financial crisis and to stimulate the rehabilitation of
insolvent companies and businesses as going concerns.
To balance the interests of different groupings and to protect the interests of the public and of
employees in the face of financial failures or management malpractices.
To encourage good management of companies by imposing sanctions on directors who are
responsible for financial collapses where there has been malpractice and by providing for the
investigation of the causes of corporate failure.

Meaning of fast track corporate insolvency resolution process

The main purpose behind the inclusion of the concept of fast track CIRP under the insolvency law was
to improve the ease of business ranking of our country. Fast track CIRP proceedings aim to eliminate
the excess delay which is caused due to the insolvency process of a small-scale company.

It is to be noted that under the IBC, 2016, the maximum no of days required to complete the
resolution process is 270 days.[iv] This timeframe has affected the small-scale companies which do not
require such no of days for winding up. The time limits prescribed were not appropriate from the
point of view of the small-scale enterprises since these cases were less complex in nature. Therefore,
Sections 55 to 58 were incorporated under the Code of 2016[v] to address the problem of excessive
delay faced during the insolvency proceedings of small-scale companies.

As the title to Chapter 4 of the IBC, 2016 rightly suggests, this process involves less no. of days
required for completion of the insolvency proceedings of a legal company therefore it is a faster and
more efficient way of winding up the insolvency procedure of a small-scale bankrupt company.

Fast track CIRP proceedings – A brief overview

The procedure pertaining to the fast track insolvency of small-scale enterprises is enshrined under Ss.
55 to 58 of the Insolvency and Bankruptcy Code, 2016 & the Insolvency and Bankruptcy Board of India
(Fast track Insolvency Resolution Process for Corporate Persons) Regulations, 2017. The provisions of
the Code specified under Part II. (Chapter II)

Before taking into consideration the procedure specified for the Insolvency Resolution process there
are a few aspects which we need to understand.

Who is corporate debtor vis a vis FTCIRP?

Section 55 of the Code of 2016[vi] (through notification)[vii] states that an application for initiation of
Corporate Insolvency Process can be made only against these below-mentioned corporate debtors:

Small-sized Companies (As defined under the Companies Act, 2013).

Start-up Company other than a Partnership Firm.
An Unlisted Company with total assets less than one crore rupees (as reported in the books of the
preceding financial year).
Manner of initiating the insolvency resolution process
An application for the fast track insolvency resolution process can be filed by either a creditor
(including both financial and operational creditor) or a corporate debtor itself.[viii]
Further, to support their claim, the creditor or the corporate debtor has to attach some documents as
mentioned below:

Proof of the existence of default substantiated through records available with the information utility.
Such other information specified by the Insolvency and Bankruptcy Board.
Procedure followed during FTCIRP
Appointment of Interim Resolution professional
After the filing of an application for initiation of the insolvency resolution process, an interim
resolution professional is appointed by the adjudicating authority. He shall be appointed as an interim
resolution professional only if he doesn’t possess any relation with the corporate debtor.[ix]
Moreover, he is entitled to make disclosures regarding the same at the time of his appointment as an
interim resolution professional.

Public announcement
The interim resolution professional is obliged to make a public announcement vis a vis his
appointment within three (3) days of his nomination. The announcement shall be made in two
languages i.e. in English & a regional language. The public announcement shall provide the last date
for submission of claims by the applicant which shall not be more than ten (10) days from the
appointment of the interim resolution professional.[x] Moreover, the announcement is to be posted
on the website, if any, of the corporate debtor.

All the expenses regarding the same are to be borne by the applicant itself and later he can get
reimbursement for the same from the committee of creditors.

Submission of the Claims and the veracity check

As already stated, the interim resolution professional is obliged to provide a period of ten (10) days for
the submission of claims. All claims by operational creditors, financial creditors workmen & employees
and other creditors are to be submitted before the resolution professional within the time period
prescribed along with additional documents in support of the claim.

These documents include records available with the information utility and other relevant documents
including the contract for the supply of goods, books of accounts, contract of employment, or any
other document which substantiates the claim.

The resolution professional or the interim professional thereafter makes verification of all the claims
submitted before him within seven (7) days of submission of the last claim before it[xi] and prepares a
list of creditors and amount due to them, amount admitted and security interest if any payable to
them. Also, if the amount claimed is not precise or cannot be determined due to any contingencies,
the resolution professional or the interim resolution professional shall estimate the amount based on
information available with him.

Formation of Committee of Creditors (CoC) & its meetings

The resolution professional is obliged by the law to form a committee of creditors consisting of
financial and operational creditors of the corporate debtor. In the absence of a financial creditor or
where the financial creditors are not independent of a corporate debtor, in that case, only the
operational creditor shall be included in the committee of the creditors.[xii]

In case the committee comprises of only the operational creditor, then the members should include
the following:

Eighteen largest operational creditors; provided if the no is less than eighteen then all should be
included in the committee;
One chosen representative on behalf of workmen other than those included in subclause (1);
One chosen representative on behalf of all the employees other than those included in subclause (1).
The voting rights of these members shall be determined proportionately following the debt due to
such members and the total debt.

The interim resolution professional is mandated to file a report warranting the constitution of the
committee before the adjudicating authority within 21 days from the date of his appointment.[xiii]
Furthermore, if the professional believes that the applicability of the fast track process is
unwarranted, he may apply to the adjudicating authority for the conversion of the process to the
corporate insolvency resolution process.[xiv]

In the end, the first meeting of the committee is held within seven (7) days of the filing of the report
by the resolution professional. The meeting can be conducted by the resolution professional who shall
act as chairman of the meeting of the committee. A seven (7) day prior notice is to be given to the
creditors.

Time period for completion of the process

The fast track corporate insolvency process aims to eliminate the delay which is caused in the
corporate insolvency resolution process under Part II (Chapter II) of the Insolvency and Bankruptcy
Code of 2016.

The time period for the completion of the fast track insolvency as incorporated under the provisions
of the Code of 2016 is ninety (90) days. This time period can be further extended for a period of forty-
five (45) days. This extension can be granted only once.[xv]

Appointment of registered valuer

A registered valuer is a person who is entrusted with the responsibility of carrying out the valuation of
the assets of the corporate debtor under different classes and to determine the fair value and
liquidation value for the same. A registered valuer is appointed by the resolution professional within
seven (7) days of his appointment. The registered valuer so designated will present expected
liquidation esteem after specifically confirming the stock and fixed resources of corporate indebted
individuals. Moreover, the following persons cannot be appointed as the registered valuer:

A relative of the resolution professional;

A related party;
An auditor of the Corporate debtor within five (5) preceding years;
A partner or director of the insolvency resolution entity.
The registered valuer thereafter makes a fair estimate of the fair value and the liquidation value of the
corporate debtor following the international valuation standards. The figures of this valuation is sent
to the committee members. An information memorandum is also prepared by the resolution
professional and is sent to all the members of the committee in an electronic form.

Resolution plan: Its formation and submission

Under section 35-A, the resolution professional invites the resolution plan from all the resolution
applicants which is to be submitted at least 15 days prior its submission before the adjudicating
authority.[xvi] Resolution plan specifies all the sources of funds that are to be used for payment of the
costs incurred & value due to the creditors.

It is to be noted that after submission of the resolution plan by the resolution applicant to the
resolution professional, it is to be further submitted for approval of the committee. The resolution
professional then submits it before the adjudicating authority at least 15 days before the expiry of the
time permitted for the process.

Liquidation Process
The process of winding up a business
The assets of the business are sold to generate funds.
Used to settle existing debts and pay off creditors.
The liquidation definition can also involve selling off or divesting some of the
business’s assets to cut losses

• Liquidation is the winding up of a business and sell business assets to pay

off liabilities.
• Liquidation can be forced or voluntary.
• There is a specific liquidation process wherein expert liquidators are
appointed to conduct the necessary protocol.
Types
1. Forced or compulsory liquidation
A forced or compulsory liquidation happens when the creditors of a business lose
faith in the business’s repayment capacity. They appeal to the court to get the
business dissolved, and the court may pass the liquidation order.
2. Members voluntary liquidation
Liquidation not only happens when the business becomes insolvent or bankrupt.
In some cases, the owners might decide to wind up the business even if it is
solvent. In such cases, the members would opt for voluntary liquidation.
 3. Creditors voluntary liquidation
This type of liquidation happens when the business becomes insolvent and fears
legal intervention or compulsory liquidation. As such, the Board decides to
liquidate voluntarily since it is not financially feasible to continue operations.

The Insolvency and Bankruptcy Code, or IBC, is a tool for resolving business
insolvency.
It is a code to help businesses take care of their insolvency issues. Under the
code, debtors and creditors start their recovery process when the business is still
continuing. All possible steps are taken to ensure business continuity and
solvency. However, if every measure fails, liquidation may serve as the last
resort.

Liquidation process
The liquidation process under the IBC code can be listed in the following order –
• The liquidation starts after the AA passes a liquidation order
• A liquidator is appointed, and his fee is negotiated and determined
• The liquidator consults with stakeholders and collects the debts the
company is yet to receive
• The liquidator forms a liquidation estate wherein the assets of the business
are listed with their values
• The creditors are paid off
• Unsold assets are distributed among the stakeholders
What are assets?
Assets are the different types of investments, property and other things that a
business owns which can generate revenue. In liquidation, the assets are sold off
to realise funds which are then distributed among the creditors and shareholders.
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Assets of a business include the following –
• Plant and equipment
• Investments
• Inventory
• Furniture and fixtures
• Land, building and property
• Vehicles
• Any outstanding income that the business is supposed to receive
 • Accounts receivable
• Cash in hand or at the bank
Paying off creditors
The funds realised from selling assets are used to pay off creditors. The priority
of payment, however, depends on the type of creditors that a business has. Given
below are the types of creditors listed in order of their priority –
1. Secured creditors
Debts that are secured against an asset are paid first. For instance, a loan against
property is a secured loan. If the business sells off the property, the loan needs to
be settled first.
2. Unsecured creditors
After the secured creditors are paid off, the unsecured creditors take precedence.
3. Shareholders
After all the creditors are paid off, the remaining funds are distributed among
shareholders. In this case, also, preference shareholders are paid first, followed
by equity shareholders.
Liquidation specialists
Liquidation is a complicated process. That is why specialised businesses conduct
the liquidation process on behalf of companies. Businesses can hire liquidation
specialists to buy their assets, sell them off, generate funds and then pay off
creditors.
Liquidation order
A liquidation order is an order to liquidate a business. Only the Adjudicating
Authority (AA) can pass the liquidation order, and that too under the following
instances –
• When a business resolution plan is not submitted on time
• If the resolution plan is rejected by the National Company Law Tribunal
(NCLT), which is the AA
• If the Committee of Creditors (CoC) approve the liquidation
• If the corporate debtor contradicts or opposes the approved plan of
resolution
Liquidator
Once the AA has passed the liquidation order, the authority appointed for making
a resolution plan can become the liquidator.
The AA can also replace the liquidator if needed. The IBC code specifies the
eligibility of a liquidator. Moreover, the liquidator would be duty-bound to
oversee and complete the whole liquidation process.
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Consequences of liquidation
Once the liquidation proceedings start, the rights of shareholders and owners are
lost. The appointed liquidator determines the manner of liquidating the assets.
If the company winds up, employees might end up losing jobs. Moreover, the
name of the company is also removed from the Registrar.
Costs and fees of liquidating a company
The costs and fees for liquidating a company are specified under the Insolvency
and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. It is
calculated as a percentage of the amount realised by selling off the assets.
Moreover, the percentage reduces with time.
Examples of liquidation
Some businesses in India that underwent liquidation include the following –
• DHFL
• Essar Steel
• Bhushan Steel
• Jet Airways
• Bhushan Power and Steel
What happens when a company goes into liquidation?
When a company goes into liquidation, its name is removed from the Registrar.
The employees also lose their jobs, and shareholders might suffer a loss
of capital if their stocks do not fetch the right price.
Timeframe
The Insolvency and Bankruptcy Board of India has specified the timeframe for
completing the liquidation. It is as follows –
• If claims from creditors have been received – the liquidation process
should be completed within 270 days from the date of initiation of the
process.
 • If claims from creditors have not been received – the liquidation process
should complete within 90 days.
Do employees get paid?
Payment to employees is usually made in full during the liquidation of a
company if employees were working when the resolution professional was
appointed (to manage the company as a going concern). In other cases,
employees might not get paid.
What happens to the directors?
Directors lose their managerial and decision-making powers when the company
goes into liquidation.
Conclusion
Companies may voluntarily or, due to several reasons, wind up their business.
This process is termed liquidation. The assets of a company are sold off during
the liquidation process to pay off creditors. IBC in India resolves liquidation and
bankruptcy issues for companies. Understand the liquidation process to read
businesses and their activities better and to analyse good investment options.

1. Background of the PPIRP (Pre-packaged Insolvency

Resolution Process)
After considering experience of Insolvency Code, the Insolvency Law Committee (ILC), at its meeting on
16-5-2020, decided to constitute a sub-committee to study pre-packaged Insolvency Resolution Process
(PPIRP) for speedier resolution of insolvency, and submit their recommendations. Accordingly, a sub-
committee of ILC was constituted by Ministry of Corporate Affairs vide order dated 24-4-2020, under
Chairmanship of Dr. M S Sahoo, Chairperson of IBBI.

The sub-committee submitted its recommendations on 31st October, 2020 to Government. On basis of
the recommendations of sub-committee, it was decided to amend Insolvency Code. An Ordinance was
issued on 4-4-2021, making amendments to Insolvency Code. The amendments are effective from 4-4-
2021. The Ordinance has been converted into IBC (Amendment) Act, 2021 w.r.e.f. 4-4-2021.

A pre-packaged insolvency resolution process (PPIRP) for corporate persons classified as micro, small and
medium enterprises has been introduced by on 4-4-2021.

Chapter III-A [sections 54A to 54P] has been introduced in Part II of Insolvency Code w.e.f. 4-4-2021.

1.1 Purpose and philosophy of PPIRP

As per preamble to the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 issued on 4-4-
2021, purpose of Ordinance is to help MSME to get over difficulties faced due to COVID-19 pandemic.
However, really, this is not the major (or even real) objective of Ordinance. Scope of PPIRP is much wider
than Covid-19.

In fact, the report dated 31-10-2020 of sub-committee of Insolvency Law Committee hardly talks of
Covid-19 in their report.

Some important observations made in the sub-committee are as follows –

Pre-pack is preferred hybrid framework to resolve stress as a going concern, with minimum assistance
of Government – Pre-pack has emerged as an innovative corporate rescue method that incorporates the
virtues of both informal (out-of-court) and formal (judicial) insolvency proceedings. It seems to be
preferred hybrid framework, as it empowers stakeholders to resolve the stress of a CD as going concern,
with the minimum assistance of the State. It is considered fast, cost efficient, and effective in resolution
of stress, much before value deteriorates, with the least business disruptions and without attracting the
stigma attached with the formal insolvency process. It starts with an informal understanding, engages
the stakeholders in between, and ends with a judicial blessing of the outcome, though the nuances differ
across jurisdictions. The insolvency laws around the world provide a variant of pre-pack, in addition to
regular resolution process – para 1.36 of sub-committee on PPIRP report dated 31-10-2020.

Basic Structure of PPIRP – The sub-committee of Insolvency Law Committee delineated the three
principles that should guide the design of pre-pack framework. These are: (i) the basic structure of the
Code should be retained; (ii) there should be no compromise of rights of any party; and (iii) the
framework should have adequate checks and balances to prevent any abuse. It identified three features,
namely, creditor in control, moratorium during resolution and binding nature of an approved resolution
plan, which could be considered as part of basic structure of the Code. It envisaged a pre-pack
framework that provides a level playing field and does not disturb the balance of power too much to
preserve the credit discipline that has been achieved with implementation of the Code in the last three
years – para 1.44 of sub-committee on PPIRP report dated 31-10-2020.

Advantages of PPIRP over CIRP – Pre-pack combines “the best of both worlds” so that insolvency
proceedings cause minimal disruption to debtors’ business activities by combining the efficiency, speed,
cost, and flexibility of workouts with the binding effect and structure of formal insolvency proceedings. It
offers several advantages as compared to the regular resolution process. Most of these emanate from
two elements, namely, (a) the informal process, and (b) shorter time for closure. Since the process prior
to commencement of formal proceeding is informal, pre-pack provides the stakeholders flexibility in
working out a consensual, but efficient, strategy for effective resolution and value maximisation that may
be difficult under the formal insolvency procedure. It takes less time because a substantial part of the
proceedings is undertaken before the commencement of the formal proceeding by the court. The sub-
committee took note of benefits of a typical pre-pack process – para 2.14 of sub-committee on PPIRP
report dated 31-10-2020.

PPIRP should be extended to all Corporate Debtors in phases – The sub-committee recommends making
pre-pack available for all CDs, but it could be implemented in phases – para 3.17 of sub-committee on
PPIRP report dated 31-10-2020.
Co-operation of management of CD essential for success of PPIRP – The success of the pre-pack hinges
upon the co-operation and active participation of the CD, its promoters, management, and Board of
Directors in the process – para 3.17 of sub-committee on PPIRP report dated 31-10-2020.

Corporate Debtor is the best and often the only person for resolution of stress – The CD understands
the company, its stress, and the possibility of its resolution better. In many cases it could be the only
person who is interested in resolution of stress of the CD and can do so. In recognition of this, the pre-
pack framework in every other jurisdiction allows only the CD to initiate the process voluntarily and
obtain consent of key stakeholders before approaching the Court. When it does so voluntarily with
consent of stakeholders, the threat of losing company or the possibility of liquidation reduces
considerably – para 3.19 of sub-committee on PPIRP report dated 31-10-2020.

Process flexibility before admission of application for PPIRP – In the interest of flexibility which makes
pre-pack advantageous, the process before the admission should be flexible and not codified. It should
be left to mutual understanding among the stakeholders and such understanding or process of
understanding should be informal. For example, the law should not prescribe whether a meeting of
creditors is required to obtain approval, when it should be organised, who will chair the meeting, how
votes will be taken, etc. It should be sufficient if the proposal to explore pre-pack has approval of
majority of unrelated FCs – para 3.19 of sub-committee on PPIRP report dated 31-10-2020 – para 3.33 of
sub-committee on PPIRP report dated 31-10-2020.

1.2 Purpose of PPIRP as per the preamble

As per preamble to the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 issued on 4-4-
2021, COVID-19 pandemic has impacted businesses, financial markets and economies all over the world,
including India, and has impacted the business operations of micro, small and medium enterprises
(MSME) and exposed many of them to financial distress. Government had taken several measures to
mitigate the distress caused by the pandemic, including suspending filing of applications for initiation of
corporate insolvency resolution process in respect of the defaults arising during the period of one year
beginning from 25th March 2020. The suspension has ended on 24-3-2021.

Micro, small and medium enterprises (MSME) are critical for India’s economy as they contribute
significantly to its gross domestic product and provide employment to a sizeable population. Hence, it
was necessary to urgently address the specific requirements of micro, small and medium enterprises
relating to the resolution of their insolvency, due to the unique nature of their businesses and simpler
corporate structures.

Hence, it is proposed to provide an efficient alternative insolvency resolution process for corporate
persons classified as micro, small and medium enterprises under the Insolvency and Bankruptcy Code,
2016, ensuring quicker, cost-effective and value maximising outcomes for all the stakeholders, in a
manner which is least disruptive to the continuity of their businesses and which preserves jobs.

Purpose as given in preamble is not real purpose at all – Really, the purpose as given in preamble is not
real purpose at all. It seems a political gimmick.

1.3 Advantages of PPIRP over CIRP

Normal procedure as specified in Part II Chapter II of Insolvency Code [sections 4 to 32A] are
cumbersome. Hence a comparatively simple procedure has been prescribed in Chapter III-A [sections
54A to 54P] in Part II of Insolvency Code.

In PPIRP, provisions from UK have been mainly adapted to our Indian law but similar procedures exist in
France, Netherlands, Germany etc.

PPIRP has following inherent advantages over CIRP. These advantages have been noted in the report
dated 31-10-2020 of sub-committee of Insolvency Law Committee.

Preliminary work already done before filing application to Adjudicating Authority – CIRP does not
involve any preliminary steps before filing application to Adjudicating Authority (AA). However, PPIRP
process commences only after (a) at least 66% of financial creditors approval proposal for PPIRP and
approve name of Resolution Professional (b) Corporate debtor passes special resolution on 75% of
members approve (c) Corporate Debtor prepares a Base Resolution Plan (d) Name of Resolution
Professional has been approved by Financial Creditors and Corporate Debtors.

Thus, initial spade work is done before making application to Adjudicating Authority (NCLT) and some
sort of informal understanding has been reached with financial creditors.

Informal understanding with creditors before making formal application to AA for approval – Pre-Pack
Insolvency resolution plan allows creditors and debtors to work on an informal plan and then submit to
Adjudicating Authority (AA) for approval. Thus, flexibility is available in initial stages.

Practically and effectively, it is a joint application by Corporate debtor and Financial Creditors. Thus,
chances of opposition at admission stage are less as it is usually a ‘win-win’ situation.

In my view, Banks and Financial Institutions may find this an easy option as ‘audit objections’ and
‘objections from RBI’ are likely to be much less if approval is accorded by quasi-judicial authority like
NCLT.

Fast approval and reduction of burden on NCLT – Since informal understanding has already been
reached between financial creditors and corporate debtor, approval will be fast as practically there may
not be opposition to resolution plan. At stage of admission, detailed examination of issues will not be
required.

Management continues with corporate debtor and hence no disturbance in running of enterprise – In
CIRP, Management of corporate debtor is handed over to Interim Resolution Professional (IRP).
Practically, it is impossible for him to manage an enterprise of which he has no idea or exposure at all.
Thus, effectively, management has to continue with corporate debtor himself.

In PPIRP, the management continues with corporate debtor himself, except in case of fraud. Thus,
disturbance in routine management of enterprise is negligible.

Base Resolution Plan is good starting point – It is rightly said that one who wears the shoes knows
where shoe pinches. Thus, the management of corporate debtor, which has inside knowledge of
business, is in the best position to determine way of recovery (unless of course he is crook). The Base
Resolution Plan prepared by corporate debtor having inside knowledge of business is a good starting
point. In fact, if there is no impairment of operational creditors, Committee of Creditors can accept the
Base Resolution Plan itself, with some improvements.
Corporate debtor is allowed to be partner with other person – It is specifically clarified that the
corporate debtor may submit the base resolution plan either individually or jointly with any other person
– Explanation I to section 54K of Insolvency Code. Thus, he can rope in financial or technical or marketing
partner (as per requirement) and submit best possible resolution plan.

Swiss challenge method to get best possible resolution plan – A ‘Swiss challenge’ is a method where a
bid is published and third parties are invited to match or better it. This system has been specifically
provided in PPIRP regulations.

A Swiss challenge is a method of bidding, in which an interested party initiates a proposal for a contract
or the bid for a project. The details of the project are out in the public and invites proposals from others
interested in executing it. On the receipt of these bids, the original contractor gets an opportunity to
match the best bid.

The ‘Swiss Challenge’ allows a seller to mix-and-match the features of both an open auction and a closed
tender to discover the best price for an asset.

The submitter of the resolution plan under regulation 48(3) of IBBI (PPIRP) Regulations shall have an
option to improve its plan in the following manner:-

(a) The submitter of resolution plan, which has lower score, shall have an option to improve its
resolution plan by at least a tick size

(b) then the submitter of the other resolution plan shall have an option to improve its resolution plan by
at least a tick size

(c) then the submitter under clause (a) shall have an option to improve its resolution plan by at least a
tick size

(d) then the submitter under clause (b) shall have an option to improve its resolution plan by at least a
tick size.

The process of improvement shall continue till either of the submitters fails to use the option within the
time specified in the invitation for resolution plans – Regulation 48(4) of IBBI (PPIRP) Regulations, 2021.

1.4 No reason to restrict the PPIRP scheme to MSME only

PPIRP has some inherent advantages compared to normal CIRP (Corporate Insolvency Resolution
Process) as explained above. In my view, there is no reason to restrict the scheme to corporate MSME
only and should be extended to all body corporates, may be with some stricter controls. This is view of
sub-committee of Insolvency Law Committee also.

2. Basic design of pre-packaged insolvency resolution process (PPIRP)

The basic aspects of PPIRP are as follows –

• The PPIRP applies only to MSME which are corporates (Company or LLP or body
corporate with limited liability) – section 54A(1)
• Except where specific provisions have been made in respect of PPIRP, most of
other provisions relating to CIRP apply to PPIRP also with suitable modifications
[section 54L and section 54P]

• PPIRP process commences only after (a) at least 66% of financial creditors
approval proposal for PPIRP and approve name of Resolution Professional (b)
Corporate debtor passes special resolution on 75% of members approve (c)
Corporate Debtor prepares a Base Resolution Plan (d) Name of Resolution
Professional has been approved by Financial Creditors and Corporate Debtors (e)
Draft information memorandum is prepared- section 54A

• Minimum default should be ` ten lakhs – Notification No. S.O. 1543(E) dated 9-4-
2021.

• CIRP cannot be initiated by a financial creditor or an operational creditor of a

corporate debtor which is undergoing a pre-packaged insolvency resolution
process – section 11(aa). What is meant is that if MSME is undergoing PPIRP,
Financial Creditor or Operational creditor cannot file CIRP against that MSME.
The Financial Creditor or Operational creditor can of course file CIRP against
some other corporate debtor. The drafting of this clause needs improvement to
clarify the intention.

• Corporate debtor is required to prepare base resolution plan and submit to

Financial Creditors before they agree to commence PPIRP – section 54A(4)(c)

• Fees of resolution professional are to be borne by resolution applicant if PPIRP

not filed by corporate debtor or is rejected by AA, for which a separate bank
account is required to be opened – Regulation 8

• After special resolution and approval of at least 66% of creditors, application

shall be filed with Adjudicating Authority (AA) (NCLT) by corporate applicant in
Form 1 as prescribed in PPIRP Rules, with required annexures – section 54C(1)

• Further process starts if AA (NCLT) admits application – [section 54C(4)]

• PPIRP gets priority if application filed before application for CIRP of application
filed within 14 days of filing application for CIRP – section 11A(1). It is impossible
to complete all formalities within 14 days and hence corporate applicant may file
application with whatever details within 14 days and then request time to
complete formalities [hope this works]

• PPIRP cannot be filed if CIRP already commenced against corporate debtor-

section 11A(4)

• On admission of PPIRP, AA shall declare moratorium, appoint Resolution

Professional and order public announcement – section 54E(1)

• After order of AA, resolution plan should be submitted within 90 days

(otherwise PPIRP terminates) and entire PPIRP process should be completed
within 120 days – section 54D(1)
• CoC should be constituted in seven days – section 54F(2)

• The resolution professional shall finalise the information memorandum with

details under regulation 40(2) and submit to members of the committee within
14 days.

• The financial institutions maintaining accounts of the corporate debtor shall

furnish all information relating to the corporate debtor available with them to
the resolution professional – section 54F(4)

• The corporate debtor shall submit a list of claims under section 54G(1) of
Insolvency Code in Form P10 to the resolution professional – Regulation 20(1).
Claims will be updated from time to time.

• The management of the affairs of the corporate debtor shall continue to vest in
the Board of Directors or the partners, unless conducted in fraudulent manner –
section 54H

• CoC can resolve to vest management of corporate debtor with RP with 66%
voting, approval of AA is required – section 54J(1)

• Base resolution Plan to be submitted to CoC – section 54K(1). It can be revised

and improved.

• CoC may approve the base resolution plan for submission to the Adjudicating
Authority if it does not impair any claims owed by the corporate debtor to the
operational creditors – Section 54K(4)

• CoC can invite Resolution Applicant to submit resolution plan, if base resolution
plan not accepted – section 54K(5)

• Any person can be resolution applicant even if (a) His account has been
classified as NPA or (b) he has given guarantee to corporate debtor, which has
been invoked by creditor but remains unpaid.- section 240A

• Performance security by resolution applicant is mandatory

• Scoring and improvement of resolution plans will be done as per Regulation 48

of IBBI (PPIRP) Regulations, 2021 – Swiss Challenge

• CoC will approve a resolution plan with best score with minimum 66% voting-
section 54K(9)

• Termination of PPIRP if resolution plan not approved by CoC – section 54K(11)

• Submission of Resolution plan approved by CoC to Adjudicating Authority for

approval – section 54K(15)

• Approval of resolution plan by AA – section 54L(1)

• AA can order liquidation if PPIRP terminated – section 54N(4)

 • CoC may terminate PPIRP if corporate debtor eligible for CIRP – section 54-O

• Order of liquidation if PPIRP terminated (or transfer as CIRP, but that will be an
exercise in futility)

2.1 Distinction between CIRP and PPIRP

The distinctions are as follows:

Pre-Packaged Insolvency Resolution Process

Corporate Insolvency Resolution Process (CIRP)
(PPIRP)

Applicable only to Corporate Debtor which is

Applicable to any Corporate Debtor
MSME

PPIRP gets priority if application filed before

Priority to CIRP only if CIRP already commenced
CIRP or filed within 14 days of filing of CIRP
– [section 11A(3) and 11A(4)]
[section 11A(1) and 11A(2)]

Minimum default – ` one crore [Notification No. Minimum default – ` ten lakhs [Notification No.
S.O. 1205(E) dated 24-3-2020 under section 4] S.O. 1543(E) dated 9-4-2021 under section 4]

Preliminary work before filing application to AA

No preliminary work before filing application to (NCLT) – (a) Special Resolution (b) Approval of at
NCLT by financial creditor or operational least 66% Financial Creditors (c) Name of
creditor. Resolution Professional (d) Base Resolution Plan
Corporate debtor has to only pass special by Corporate Debtor (e) Other prescribed
resolution information (f) Report by Resolution
Professional- section 54A and section 54B

Following persons can initiate CIRP – (a) a

Only corporate applicant (normally corporate
financial creditor (section 7) (b) an operational
debtor itself or its promoters/directors) can
creditor (section 8) or (c) the corporate debtor
initiate PPIRP [section 54C(1)]
itself or its promoters (section 10)

Admission or rejection of application by AA Admission or rejection of application by AA

[section 7, 8 or 10] [section 54C]

Time limit for completion of CIRP – 180 days Time limit for completion of PPIRP 120 days
(maximum 330 days) [section 12] [section 54D]
 Pre-Packaged Insolvency Resolution Process
Corporate Insolvency Resolution Process (CIRP)
(PPIRP)

Moratorium, appointment of IRP, public Moratorium, appointment of RP and public

announcement after admission of application announcement after admission of application
[sections 13(1) and 14] [section 54E]

Provision for appointment of interim resolution

Direct appointment of RP [section 54E]
professional (IRP) [section 16(1)]

Management of corporate debtor continues

Management of corporate debtor vests with IRP with Corporate Debtor unless fraud involved
on insolvency commencement date [section [section 54H] CoC can resolve to vest
17(1)] management with Resolution Professional
[section 54J]

Claims and proof of claims to be submitted to Claims and proof of claims to be submitted to RP
IRP [section 35(1)(j)] [section 54G]

Constitution of Committee of Creditors within 30 Constitution of Committee of Creditors within

days [section 21(1)] seven days [section 54F(2)]

Resolution Professional already appointed under

Resolution Professional appointed in first section 54A before making application to AA,
meeting of CoC [section 22(1)] which is to be only confirmed by AA under
section 54E

Filing of Application for avoidance of Filing of Application for avoidance of

transactions [section 25(2)(j)] transactions [section 54F(2)(h)]

Preparation of information memorandum by

Preparation of information memorandum by
corporate debtor and finalisation by RP [section
resolution professional [section 29(1)]
54G]

No provision for Base Resolution Plan by Corporate debtor may improve Base Resolution
Corporate Debtor Plan and CoC may approve the same (may be
 Pre-Packaged Insolvency Resolution Process
Corporate Insolvency Resolution Process (CIRP)
(PPIRP)

with improvements), if it does not impair

operational creditors [section 54K(4)]

Invitation to resolution applicants as per criteria Invitation of Resolution Plan with criteria
approved by CoC to submit resolution plan approved by CoC [section 54K(5)] and
[section 25(2)(h)] and submission of resolution submission of resolution plan by resolution
plan by resolution applicant [section 30(1)] applicant [section 54K(5)]

Resolution plan to meet requirements specified

Resolution plan to meet requirements specified
in section 30(2) and Regulation 45 of IBBI (PPIRP)
in section 30(2)
Regulations, 2021

Submission of resolution plan approved by CoC Submission of resolution plan approved by CoC
to AA (NCLT) – section 30(4) to AA (NCLT) – section 54K(15)

“Evaluation matrix” as approved by the

Scoring and improvement of resolution plans will
committee, for consideration of resolution plans
be done as per Regulation 42
for its approval – Regulation 2(1)(ha)

No specific provision for Swiss challenge though Introduction of concept of Swiss Challenge to get
no prohibition either best possible resolution plan

Approval of Resolution Plan by AA [section Approval of Resolution Plan by AA [section

31(1)] 54L(1)]

Liquidation to commence if Resolution plan

AA can order liquidation [section 54N(4)]
rejected [section 33(1)]

Appeal can be filed before NCLAT against order Appeal can be filed before NCLAT against order
of AA [section 61(3)] of AA [section 61(3)]

3. Application of provisions of CIRP to PPIRP

Part II Chapter III-A of Insolvency Code [sections 54A to 54P] make special provisions for PPIRP. Except
those special provisions, other provisions of CIRP apply to PPIRP also.
As per section 54P(1) of Insolvency Code inserted vide IBC (Amendment) Act, 2021 w.r.e.f. 4-4-2021, save
as provided under Chapter III-A (Pre-packaged insolvency resolution process), the provisions of sections
24, 25A, 26, 27, 28, 29A, 32A, 43 to 51 of Insolvency Code, and the provisions of Chapters VI and VII of
Part II of Insolvency Code shall, mutatis mutandis apply, to the pre-packaged insolvency resolution
process, subject to the following, namely:―

(a) reference to “members of the suspended Board of Directors or the partners” under section 24(3)(b)
of Insolvency Code shall be construed as reference to “members of the Board of Directors or the
partners, unless an order has been passed by the Adjudicating Authority under section 54J of Insolvency
Code”.

(b) Reference to section 25(2)(j) under section 26 of Insolvency Code shall be construed as reference to
section 54F(2)(h) of Insolvency Code.

(c) Reference to “section 16” under section 27 of Insolvency Code shall be construed as reference to
“section 54E” of Insolvency Code.

(d) Reference to “resolution professional” in sections 28(1) and 28(4) of Insolvency Code shall be
construed as “corporate debtor”.

(e) Reference to “section 31” under section 61(3) of Insolvency Code shall be construed as reference to
section 54L(1)” of Insolvency Code.

(f) Reference to “section 14” in sections 74(1) and 74(2) of Insolvency Code shall be construed as
reference to “section 54E(1)(e)” of Insolvency Code.

(g) Reference to “section 31” in section 74(3) of Insolvency Code shall be construed as reference to
section 54L(1) of Insolvency Code.

The brief contents of sections which are specifically made applicable to PPIRP are as follows –

Section 24 – Meeting of creditors.

Section 25A – Voting by authorised representative of class of financial creditors if financial creditors give
conflicting directions, his remuneration.

Section 26 – Filing of application for avoidance of transactions by the resolution professional shall not
affect the proceedings of the corporate insolvency resolution process.

Section 27 – Committee of Creditors (CoC) can change the resolution professional with 66% voting,
subject to a written consent from the proposed resolution professional in the specified form.

Section 28 – Prior approval of Committee of Creditors (CoC) for certain actions by resolution
professional.

Section 29A – Persons not eligible to act as resolution applicant. This provision applies to PPIRP also,
except where exemption has been given to MSME under section 240A of Insolvency Code.

Section 32A – Immunity from prosecution of corporate debtor after approval of PPIRP, in respect of past
transactions, if there was change in management.
Sections 43 to 51 – Preferential transactions (sections 43 and 44), Undervalued transactions (sections 45,
46, 47 and 48), section 49 (Action if corporate debtor had defrauded creditors), sections 50 and 51
(extortionate credit transaction)

Chapter VI – Adjudicating Authority for corporate persons and penalties- sections 60 to 67

Chapter VII – Offences and punishments – sections 68 to 77A

3.1 Some other sections of CIRP which are applicable to PPIRP

Besides sections specified above, some other sections of CIRP are applicable to PPIRP through other
sections, which are as follows –

Section 14(1) and 14(3) – Moratorium [Refer section 54E(1)]

Section 21 – Meeting of Committee of Creditors [Refer section 54-I(3)]

Section 30(1), 30(2) and 30(5) – Requirements and contents of resolution plan [Refer section 54K(3)]

Section 31(1) – Resolution plan once approved by AA binding on all [see section 54L(2)]

Section 31(3) – Moratorium ceases after approval of resolution plan and records to be returned [see
section 54L(2)]

Section 31(4) – Approval from other authorities within specified period after approval of resolution plan
[see section 54L(2)]

Section 33 – Liquidation if resolution plan contravened by corporate debtor [refer section 54N]