IBBI notifies prepack insolvency resolution process regulations for MSMEs
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The norms, effective from Friday, enable the operationalisation of the prepack process, according to a statement from the ministry of corporate affairs.
The move comes on the back of the ordinance amending the Insolvency and Bankruptcy Code to establish the framework for prepacks, promulgated on Wednesday.
The prepack regulations define the eligibility and terms of appointment of resolution professionals, the norms for meetings between creditors and provide the modalities for the evaluation of resolution plans.
To initiate the process, the corporate debtor will have to serve notices of a meeting to all unrelated financial creditors five days in advance, to seek their approval. Meeting may be in any combination of physical and virtual.
The framework requires 66% approval from unrelated financial creditors to initiate formal prepack proceedings, which follows the debtor-in-control model.
In the absence of unrelated financial creditors, the CoC will consist purely of authorised representatives and only of operational creditors and representatives of employe in the absence of any financial creditors
Creditors will have a seven-day period to object, after receiving a notice of claims submitted to the resolution professional by the corporate debtor.
The regulations bar the appointment for any part of the process, including valuation, of an auditor of the debtor during the last five years preceding the prepack process commencement date.
An invitation for resolution plans will have to be published by the resolution professional within 21 days of the commencement of formal proceedings, in the event the base resolution plan is not satisfactory.
The regulations provide guidelines for a point system of evaluation of resolution plans where the CoC may decide the specifics of how to score a resolution plan and the amount of points that define a “significantly better” plan.
In what experts regard as the most difficult part of the prepack process, the resolution professional will have to form an opinion regarding any preferential or fraudulent transactions on the part of the debtor within 30 days of the prepack process commencement date.
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