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LOK SABHA PASSED INSOLVENCY BANKRUPTCY CODE (AMENDMENT) BILL 2021

LOK SABHA PASSED INSOLVENCY BANKRUPTCY CODE (AMENDMENT) BILL 2021

Context

On 28th July 2021, Lok Sabha passed the Insolvency and Bankruptcy Code (Amendment) Bill 2021.

About the Bill:

  • It proposes a pre-packaged insolvency resolution process for corporate debtors under the MSME Development Act, 2006, when Parliament is not in session.
  • The pre-pack is an informal way of providing a corporate rescue plan for which approval from the National Company Law Tribunal (NCLT) will be sought.
  • It will replace the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021 which was implemented on 4th April 2021.
  • On 4th April 2021, the government amended the Insolvency and Bankruptcy Code 2016.

Recent Amendment:

  • The government has notified that the threshold of a default that does not exceed Rs 1 crore for the initiation of a pre-packaged resolution process remains unchanged.

Insolvency:

  • It is a situation where a company or an individual is unable to pay their debt.

What is a pre-packed insolvency resolution mechanism?

  • It is a procedure in which a resolution arrangement is decided upon between the lender and the debtor before approaching the NCLT for receiving approval.
  • A debtor will initiate and participate in the resolution proceedings in tandem with the lender. This is done through an informal process that helps in avoiding costly and lengthy court procedures.

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