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The Union Government has moved an ordinance on Pre-Packaged Insolvency Resolution options

The Union Government has moved an ordinance to introduce pre-packaged insolvency resolution options for micro, small and medium enterprises. The ordinance inserts a new Chapter-IIIA in the IBC 2016 to provide for making an application for initiating pre-packaged insolvency resolution process in respect of a corporate debtor classified as a micro, small or medium enterprise (MSME) under subsection (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006. In addition to companies, the scheme will also cover businesses incorporated as partnerships. The option is only available to entities that have not undergone bankruptcy proceedings in the preceding three years, and are not facing liquidation orders.


Businesses can file for a pre-pack scheme by adopting a special resolution by the board, or a resolution by three-fourths of the partners. The existing management is permitted to maintain control of the affairs of the firm during the process. To file an application for the intiation of the process, the corporate debtor has to obtain approval from financial creditors representing a minimum of 66% of the financial debt. The entire process must be completed within 120 days from the initiation of insolvency proceedings.

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