Pre-Packaged Insolvency Resolution Process for MSMEs
A debtor-led, 120-day process for MSMEs in default, with a base plan on day one and promoters still in charge.
The pre-packaged insolvency resolution process (PPIRP), in Chapter III-A of the Code, lets a micro, small or medium enterprise in default negotiate a resolution plan with its financial creditors first and then bring it to the NCLT. The promoters stay in charge during the process, a base resolution plan is ready on day one, and the whole thing must finish in 120 days.
It applies only to a corporate debtor classified as an MSME under section 7(1) of the MSMED Act, 2006, and only where the default is at least ₹10 lakh, the threshold the Central Government notified on 9 April 2021. The rules below are the law at the exam cut-off of 4 February 2025, with the one 2026 change flagged.
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Conditions Before Filing (Section 54A)
- checkNo PPIRP undergone, and no CIRP completed, in the three years before the initiation date
- checkNot currently undergoing a CIRP, and no liquidation order passed under section 33
- checkThe corporate debtor itself is eligible to submit a resolution plan under section 29A
- checkUnrelated financial creditors holding at least 66% in value of the financial debt due to them approve the proposed resolution professional
- checkA majority of directors (or partners) declare that the application will be filed within 90 days, that the process is not meant to defraud anyone, and name the proposed resolution professional
- checkMembers pass a special resolution, or at least three-fourths of the partners pass a resolution, approving the filing
- checkUnrelated financial creditors holding at least 66% in value approve the filing, after receiving the declaration, the resolution and a base resolution plan
The 120-Day Process
- 1
Admission within 14 days
The NCLT admits a complete application or rejects an incomplete one within 14 days, after giving 7 days to cure defects (s. 54C(4)). The process starts on admission.
- 2
Moratorium and RP appointed
On admission the NCLT declares a moratorium on the lines of section 14 and appoints the RP named in the application (s. 54E).
- 3
Base plan and CoC
The corporate debtor submits the base resolution plan to the RP within 2 days (s. 54K(1)). The CoC is constituted within 7 days and meets within 7 days of that (s. 54-I).
- 4
Approval or Swiss challenge
If the base plan does not impair operational creditors' claims, the CoC may approve it. If the CoC does not approve it, or it impairs operational creditors, the RP invites competing plans, and a rival plan replaces the base plan only if it is significantly better (s. 54K(4)-(11)).
- 5
CoC vote
A plan needs at least 66% of the voting share (s. 54K(13)). Where a plan impairs claims, the CoC may require the promoters to dilute their holding, and must record reasons if it approves without that (s. 54K(14)).
- 6
Filing by day 90, NCLT by day 120
The RP files the approved plan within 90 days of commencement (s. 54D(2)). The NCLT approves within 30 days of receipt if section 30(2) is met (s. 54L(1)), and the process must end within 120 days (s. 54D(1)).
PPIRP and CIRP Side by Side
Who can start it
PPIRP
The corporate debtor, with unrelated financial creditors' approval
CIRP
Financial creditor, operational creditor or the corporate applicant (ss. 7, 9, 10)
Minimum default
PPIRP
₹10 lakh
CIRP
₹1 crore
Who manages the company
PPIRP
The board of directors or partners (s. 54H)
CIRP
The IRP, then the RP
Moving management to the RP
PPIRP
CoC by 66% resolves, NCLT finds fraud or gross mismanagement (s. 54J)
CIRP
Automatic on admission
Time limit
PPIRP
120 days
CIRP
180 days, one extension of up to 90 days, 330-day outer limit
Ineligibility
PPIRP
Section 29A, except clauses (c) and (h) for MSMEs (s. 240A)
CIRP
Section 29A, with the same MSME relief
| Feature | PPIRP | CIRP |
|---|---|---|
| Who can start it | The corporate debtor, with unrelated financial creditors' approval | Financial creditor, operational creditor or the corporate applicant (ss. 7, 9, 10) |
| Minimum default | ₹10 lakh | ₹1 crore |
| Who manages the company | The board of directors or partners (s. 54H) | The IRP, then the RP |
| Moving management to the RP | CoC by 66% resolves, NCLT finds fraud or gross mismanagement (s. 54J) | Automatic on admission |
| Time limit | 120 days | 180 days, one extension of up to 90 days, 330-day outer limit |
| Ineligibility | Section 29A, except clauses (c) and (h) for MSMEs (s. 240A) | Section 29A, with the same MSME relief |
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After the Cut-off
From 26 May 2026, both financial-creditor approvals in section 54A (naming the RP and approving the filing) need 51% in value instead of 66%. The 66% threshold for approving the plan itself is unchanged. The NCLT may also now give the CoC notice to fix defects before rejecting a plan (proviso to s. 54L(3)). The exam tests the 66% rule.
How the Limited Insolvency Examination Tests This
Pre-packaged insolvency has its own case study in the paper: four questions of two marks each. Expect an MSME with a ₹14 lakh default, unrelated financial creditors split 60:40 on the proposal, and a base plan that pays operational creditors 70% of their claims. The questions then ask whether the application can be filed, whether the CoC can approve the base plan directly, and what happens on day 91 with no approved plan.
The usual traps: forgetting that 60% falls short of the 66% the exam's law requires; treating any haircut to operational creditors as fatal, when it only triggers the Swiss challenge; and assuming the RP runs the company. On day 91 with no approved plan, the RP must apply the next day to terminate the process (s. 54D(3)).
FAQs
What is the pre-packaged insolvency resolution process under IBC?expand_more
It is a debtor-initiated process in Chapter III-A for MSMEs in default, in which the company agrees a base resolution plan with its financial creditors before filing, keeps management during the process, and must finish within 120 days of admission.
What is the minimum default for pre-pack insolvency?expand_more
₹10 lakh, notified by the Central Government on 9 April 2021 under the second proviso to section 4. The general CIRP threshold is ₹1 crore.
What is the Swiss challenge in pre-pack insolvency?expand_more
Where the CoC does not approve the base plan, or the base plan impairs operational creditors' claims, the RP invites competing plans. A competing plan is selected over the base plan only if the CoC finds it significantly better on its stated criteria.
Can a pre-pack be converted into a CIRP?expand_more
Yes. Before a plan is approved, the CoC can resolve by at least 66% of the voting share to initiate a CIRP, and the NCLT must pass the order within 30 days of the intimation (s. 54-O).
Next steps
- CIRP Stepsarrow_forward
- Section 29Aarrow_forward
- Committee of Creditorsarrow_forward
- Syllabusarrow_forward
65 questions, case-study format, negative marking.