The Insolvency and Bankruptcy Code, 2016 (IBC) was amended recently through the Insolvency and Bankruptcy (Amendment) Ordinance, 2021 promulgated by the President of India. The amendment introduces an entirely new regime – the Pre-Packaged Insolvency Resolution Process (PPIRP).  The PPIRP aims to provide a quicker, more cost-effective and less invasive insolvency regime for micro, small and medium enterprises (MSMEs).

The amendment comes amidst a challenging financial environment in which businesses are facing stress due to Covid-19 and prospects of resolution are grim.  The amendment offers MSMEs the option to resolve financial stress through a semi-formal regime which allows for out-of-court resolution to some extent, while preserving the sanctity of a formal insolvency process under law.

This article answers some basic questions regarding the new regime. 

  1. What is a pre-pack or pre-packaged insolvency?

The term 'pre-pack' is not defined under the IBC but is recognized in various jurisdictions including the US and UK. The term is generally understood to mean a restructuring plan that is agreed between the debtor and its creditors before initiating a formal court process or filing. 

In the Indian context, the new PPIRP regime is referred to as 'pre-packaged' because before a defaulting MSME can formally initiate the PPIRP process, it has to approach its creditors with a base resolution plan for its revival/restructuring and obtain creditors' approval to initiate PPIRP.

  1. Who is eligible for pre-packaged insolvency resolution or PPIRP under the IBC? A company or LLP that classifies as an MSME under Section 7(1) of the Micro, Small and Medium Enterprises Development Act, 20061. The MSME should fulfill the following conditions.
    1. It should have failed to pay a due and payable debt of INR 1 million or more.
    2. It should not have undergone a PPIRP or corporate insolvency resolution process (the regular insolvency process under IBC) (CIRP) during the past 3 years.
    3. No liquidation orders should have been passed against it.
    4. It should not be a person who is disqualified under Section 29A of the IBC2.
  1. What are the key requirements to be fulfilled for initiating PPIRP?
    1. Proposal of a resolution professional (RP) for the MSME by its financial creditors (not related parties) representing at least 10% of the value of total financial debt.
    2. Approval of the proposed RP by financial creditors representing at least 66% of the above value.
    3. Declaration from majority of the directors or partners of the MSME stating: (a) that PPIRP application will be filed within 90 days; (b) that PPIRP is not initiated to defraud anyone; and (c) the name of the approved RP.
    4. Approval for PPIRP from the shareholders or partners of the MSME by a special resolution of 3/4th
    5. Formulation of a base resolution plan by the MSME for its revival/restructuring and submission of the plan to financial creditors.
    6. Approval for PPIRP from financial creditors3 (not related parties) representing at least 66% in value of total financial debt.
    7. Filing of a PPIRP application.
  1. Who can initiate PPIRP?

The corporate debtor, i.e., the MSME itself, by filing an application for initiation of PPIRP.  The application can be filed through an authorized shareholder or partner of the MSME or an individual who manages the MSME's operations or resources or controls and supervises its financial affairs.

  1. Are creditors of MSMEs permitted to file an application to initiate PPIRP?


  1. Which court/tribunal has jurisdiction to consider the PPIRP application?

The National Company Law Tribunal (NCLT) bench having territorial jurisdiction over the place where the registered office of the MSME is located.

  1. What are the key steps involved once PPIRP is initiated?
    1. Step 1: Admission of PPIRP application by NCLT within 14 days (provided application is complete)
    2. Step 2: Commencement of PPIRP. Declaration of moratorium and appointment of RP by NCLT. Public announcement of PPIRP by RP
    3. Step 3: Submission of base resolution plan by MSME to RP
      • MSME to submit base resolution plan to RP within two days from PPIRP commencement
      • MSME to submit list of claims of creditors to RP
      • MSME to submit preliminary information memorandum to RP containing information about the MSME's assets, financials, liabilities, litigations, employees, etc.
    1. Step 4: Formation of committee of creditors (COC) by RP
    2. Step 5: Evaluation of base resolution plan by COC
    3. Step 6: Approval of base resolution plan
      • COC can approve base resolution plan provided it does not impair any claims of the MSME's operational creditors


      Step 6: Invitation of competing plans (‘Swiss Challenge')

      • If COC does not approve base resolution plan, or if the base resolution plan impairs claims of operational creditors, RP to invite competing resolution plans from prospective resolution applicants
      • COC may give MSME an opportunity to revise base resolution plan before inviting competing plans
    1. Step 7: Evaluation of competing plans and selection of one competing plan
    2. Step 8: Evaluation of base resolution plan against selected competing plan
      • If selected competing plan is considered ‘significantly better' than base resolution plan (based on scoring and criteria laid down by COC), selected plan to be put up for COC voting
      • If selected competing plan not ‘significantly better', submitters of base resolution plan and competing plans to be given an option to improve their plans. Highest scored plan amongst the improved plans to be put up for COC voting
      • If no competing plans received, base resolution plan to be put up for COC voting
      • COC to approve a resolution plan for submission to NCLT by 66% vote
    1. Step 9: Approval/rejection of resolution plan by NCLT
      • NCLT to approve COC-approved resolution plan provided it is compliant with IBC and contains provisions for effective implementation
      • If above conditions are not met, or if there is fraud or gross negligence in the conduct of the MSME's affairs, NCLT may reject the plan
      • If no resolution plan approved by COC, PPIRP to be terminated
  1. What is the overall timeline for completion of the PPIRP?

The PPIRP must be completed within 120 days from the date of PPIRP commencement.  The RP has to submit the COC-approved resolution plan to the NCLT within 90 days from PPIRP commencement.  The NCLT has 30 days to approve the plan.

  1. Who manages the affairs of the MSME during PPIRP?

Ordinarily, the management of the MSME's affairs continues to be with its board of directors or partners.  To this extent, the PPIRP is a debtor-in-possession regime, unlike CIRP, in which the RP is in possession and responsible to manage the debtor's affairs.  This regime provides an incentive for the MSME's promoters to voluntarily opt for the PPIRP.

Having said that, the NCLT has powers to vest the MSME's management in the RP if there is fraud or gross mismanagement in the MSME's affairs.

The PPIRP also has elements of a 'creditor-in-control' regime as it restricts the MSME from carrying out certain activities during the PPIRP without COC approval.  Raising interim finance over specified limits, creating security over assets, entering into related party transactions, changing capital structure and amending constitutional documents are some such activities.

  1. What is the RP's role during PPIRP?

The RP's role is to conduct the PPIRP, ensure its transparency and fairness and safeguard the interests of relevant stakeholders.  The RP forms the COC, confirms the list of claims, maintains information, monitors compliance and timelines and monitors management of the MSME's affairs.  The RP has powers to attend meetings of the directors or partners of the MSME, access books, accounts, records, etc.

  1. Can the PPIRP be terminated before the period of 120 days?

Yes, PPIRP can be terminated by the NCLT at any time before the approval of the resolution plan by COC, provided the COC approves such withdrawal by 66% vote.

  1. What are the key differences between PPIRP and CIRP?
    1. PPIRP applies only to MSME debtors.
    2. PPIRP can be initiated only by the debtor, i.e., the MSME, unlike CIRP which can also be initiated by creditors.
    3. PPIRP involves a pre-pack, i.e., the MSME has to approach its financial creditors along with a base resolution plan and obtain their approval before formally initiating PPIRP.
    4. PPIRP is a debtor-in-possession regime while CIRP involves RP-in-possession.
    5. The MSME debtor has to submit a base resolution plan against which competing plans are evaluated and one plan is finally selected. The MSME can also improve the base resolution plan submitted.  CIRP does not provide these options to debtors.
    6. NCLT has a limited role in PPIRP.
    7. PPIRP must be completed within a period of 120 days while the limit for a CIRP is 180 days (extendable up to 330 days).
  1. Can CIRP be initiated against an MSME during the PPIRP?

Normally, no. The NCLT cannot consider a CIRP application against an MSME if a PPIRP application has been filed first or within 14 days from the CIRP filing.  In these cases, the NCLT has to first dispose of the PPIRP application.  Having said that, the NCLT has the power to approve conversion of a PPIRP into a CIRP at any time before approval of the resolution plan, provided the COC grants approval by 66% vote.


1 A manufacturing enterprise whose investment in plant and machinery or equipment is not more than INR 10 million (micro) or INR 100 million (small) or INR 500 million (medium) or annual turnover is not more than INR 50 million (micro) or INR 500 million (small) or INR 2.5 billion (medium).

2 A person who has an account which is classified as an NPA for at least 1 year before the commencement of the insolvency process (or who manages or controls entities who meet this condition) or a person who is a wilful defaulter as per RBI or has any connected person who meets these disqualifications (amongst other criteria).

3 Approval from operational creditors is required if there are no financial creditors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.