IBBI notifies new Rules introducing Pre-Packaged Insolvency Process for MSMEs

Written By: Radhika Deekshay, Intern

Using The Insolvency & Bankruptcy Board of India (IBBI) has notified new rules introducing pre-packaged insolvency process aimed at assisting MSMEs, where they are involved as Corporate Debtors in the Insolvency Process.

The new Rules, namely, the “Insolvency & Bankruptcy Board of India (Pre-Packaged Insolvency Process) Regulations, 2021” come into effect from 9^th April 2021.

As per the IBBI, the above Rules aim to provide an efficient alternative insolvency resolution process for MSME sector, ensuring quicker, cost effective and value maximizing outcome for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and which helps preserve jobs.

S. No.	Purpose	Rule and Key Highlights
1.	Eligibility of Resolution Professional and his terms of appointment	Rule 7 – Resolution Professional and his professional entity must be independent of corporate debtor, in order to be eligible. – Independent of corporate debtor i.e. eligible to be appointed as director in a professional entity of the corporate debtor, not a related party of corporate debtor, not an employee in the firm that provides auditing or legal consultancy services to corporate debtor.
2.	Eligibility of Registered Valuers	Rule 38 – Should not be a related party or auditor of corporate debtor. – Should not be relative of corporate debtor, partner/director or relative of partner/director of the professional entity to which Resolution Professional belongs.
3.	Identification and selection of authorized representative	Rule 15 – Resolution Professional first ascertains class of creditors; – For this class of creditors, he/she must then identify three insolvency professionals and obtain their respective consent to act as authorized representative; – Accordingly, seek the choice of creditors and select the insolvency professional with the highest votes as the creditors’ authorized representative.
4.	Public Announcement	Rule 19 – Public announcement to be made by the Resolution Professional within 2 days of commencement of the insolvency process. – All creditors and information utilities must be informed and the same be also published on website of Corporate Debtor and the IBBI.
5.	Claims of stakeholders	Rule 20 – Corporate debtor has to submit a list of all claims to the Resolution Professional, – who then confirms them by informing creditors and seeking their objections, and modifies them accordingly.
6.	Information Memorandum	Rule 40 – An information memorandum contains details of corporate debtor (assets, liabilities, latest financial statements, list of claims of creditors, particulars of the debts owed, details of any guarantees, material litigation, etc.)
7.	Meetings of Committee of Creditors	Rule 27 – Committee of Creditors (constituted as per Section 54I, IBC) – Meetings may be convened by Resolution Professional as and when necessary or when a request is made by atleast 1/3^rd of the members of the committee. Rule 28-37 – Deal with details regarding notice of meeting, quorum, participation, conduct and voting.
8.	Invitation for resolution plans	Rule 43 – Resolution professional publishes invites (as per Form P11) for Resolution Plans after 21 days from commencement of pre-packaged insolvency process. – Invitation to be published on website of corporate debtor, website of IBBI, any other manner decided by Committee. – Invitation must detail each step in the process, manner of interaction between Resolution Professional and applicant, basis for evaluation, basis for consideration of one resolution plan over another, manner of improving a resolution plan etc.
9.	Evaluation and consideration of Resolution Plans, Competition between base Resolution Plan and best Resolution Plan	Rule 47-48 – The Resolution Plans which are received are evaluated on the basis of evaluation, and scored accordingly. – Resolution Plan with the highest score is put to compete with the base Resolution Plan. – It is considered by the Committee if it is “significantly better” than the base resolution plan.
10.	Process for management of corporate debtor to be vested with Resolution Professional	Rule 50 – If the Committee of Creditors, under Section 54J of the IBC, vote to vest management of affairs of corporate debtor with a Resolution Professional, the latter must make an application for the same under Form P14.
11.	Termination of pre-packaged insolvency process	Rule 49, Form P13 – When the Committee of Creditors does not approve any Resolution Plan or approves termination of the process, an application under FORM P13 is required to be filed by the Resolution Professional.