Unpacking The Pre-Pack: The New MSME Insolvency Regime Explained

The Insolvency and Bankruptcy Code, 2016 (IBC) was amended recently through the Insolvency and Bankruptcy (Amendment) Ordinance, 2021 promulgated by the President of India. The amendment introduces an entirely new regime – the Pre-Packaged Insolvency Resolution Process (PPIRP).  The PPIRP aims to provide a quicker, more cost-effective and less invasive insolvency regime for micro, small and medium enterprises (MSMEs).

The amendment comes amidst a challenging financial environment in which businesses are facing stress due to Covid-19 and prospects of resolution are grim.  The amendment offers MSMEs the option to resolve financial stress through a semi-formal regime which allows for out-of-court resolution to some extent, while preserving the sanctity of a formal insolvency process under law.