IBBI Report Reveals Limited Adoption Of PPIRP For MSMEs, Suggests Improvements

New Delhi, Oct 8 (KNN) In a recent annual publication, the Insolvency and Bankruptcy Board of India (IBBI) has reported that the Pre-Packaged Insolvency Resolution Process (PPIRP), introduced in 2021 for Micro, Small, and Medium Enterprises (MSMEs), has shown limited effectiveness. 

The PPIRP, designed to offer a swift and cost-effective alternative for MSME revival, has only admitted 10 applications since its inception. Of these, one case was withdrawn, five have approved resolution plans, and four remain ongoing as of March 2024.

The IBBI report, released on October 4, 2024, suggests that the muted response to PPIRP may be attributed to various factors related to debtors, creditors, and institutional infrastructure. 

One potential reason is the discomfort of defaulting MSME promoters with the intense scrutiny of company affairs and the delegation of certain powers to resolution professionals under the PPIRP framework.

Another factor highlighted in the report is the reluctance of lower-level bankers to make decisions regarding PPIRP approvals, often delegating this responsibility upwards. 

Obtaining approval from banks has emerged as the most challenging aspect of the PPIRP process, according to the findings.

The IBBI report also points out that the lack of a robust adjudicating infrastructure has contributed to delays in case resolution. 

These delays could potentially reduce the prospects for approval of the initial base resolution plan submitted during the PPIRP application, which might discourage corporate debtors from initiating the process.

To improve PPIRP adoption among MSMEs, the report suggests several measures. It calls for MSME lenders to be more willing to consider restructuring proposals and base resolution plans put forth by promoters. 

The report emphasises the importance of lender participation in establishing authority and direction for effective plan implementation, even if legal processes may be lengthy.

The IBBI publication also highlights the need for creditors to recognize the distinction between large enterprises and MSMEs in terms of operational continuity. 

It notes that unlike larger firms, MSME promoters typically remain closely involved in day-to-day operations. As such, the report encourages creditors not to hesitate in pursuing the PPIRP option, which allows for continued operation under the promoter's leadership.

Lastly, the report acknowledges that many MSMEs face short-term financial challenges that can often be overcome with time for recovery and minor adjustments accepted by creditors. 

This understanding could potentially lead to more flexible and accommodating approaches in resolving MSME insolvencies through the PPIRP framework.

(KNN Bureau)