IBC bill in Lok Sabha; Pre-packaged insolvency solution on offer

Finance Minister Nirmala Sitharaman on Monday introduced the Insolvency and Bankruptcy Code (Amendment) Bill, 2021 in Lok Sabha.

The Bill seeks to amend the IBC to offer pre-packaged insolvency resolution process for micro, small and medium enterprises (MSMEs) and replace the Insolvency and Bankruptcy Code (Amendment) Ordinance promulgated in April this year.

Pre-packaged process allows creditors and shareholders to come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT). All resolution plans under the IBC need to be approved by NCLT.


The government had issued an ordinance in April this year to amend the IBC Code to provide a quicker and more cost effective mechanism for the MSME sector, which has been hit the hardest by the pandemic.

“The incorporation of pre-packaged insolvency resolution process for MSMEs in the Code will alleviate the distress faced by MSMEs due to the impact of the pandemic & the unique nature of their business,” the government had said while issuing the ordinance.

The government has pegged the minimum threshold for default at Rs 10 lakh for initiation of pre-pack insolvency resolution process by MSME corporate debtor.

“Pre-pack for MSMEs is a hybrid corporate rescue process, which blends elements and virtues of both formal and informal insolvency proceedings. A resolution plan is negotiated between debtor and its creditors before commencement of formal proceedings,” it had said.

Other expected impact and benefits of the amendment in Code are lesser burden on Adjudicating Authority, assured continuity of business operations for corporate debtor (CD), less process costs & maximum assets realization for financial creditors (FC) and assurance of continued business relation with CD and rights protection for operational Creditors (OC).