Pre-packaged insolvency is an alternative insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 that allows Micro, Small and Medium Enterprise (MSME) corporate debtors to negotiate a resolution plan with their creditors before formally entering insolvency, while retaining management control of the business under a debtor-in-possession model. Under Indian law, pre-packaged insolvency is governed by Sections 54A to 54P (Chapter IIIA) of the IBC, introduced by Ordinance on 4 April 2021.
Legal definition
Section 54A(1) of the Insolvency and Bankruptcy Code, 2016 provides the eligibility criteria:
An application for initiating pre-packaged insolvency resolution process in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006, may be made by the corporate debtor.
Key eligibility conditions under Section 54A(2):
(a) the corporate debtor is not undergoing CIRP or pre-packaged insolvency resolution process;
(b) no order for liquidation has been passed against the corporate debtor;
(c) the corporate debtor is not a defaulter with respect to prior pre-packaged or corporate insolvency resolution within three years;
(d) the corporate debtor has obtained approval of not less than sixty-six per cent of unrelated financial creditors in value for filing the application;
(e) the corporate debtor has filed a declaration regarding the existence of a base resolution plan.
The process must be completed within 120 days from the pre-packaged insolvency commencement date (Section 54K).
How courts have interpreted this term
Tine Interiors Pvt. Ltd. (NCLT Ahmedabad, 2022)
In one of the early PPIRP cases, the NCLT Ahmedabad admitted a pre-packaged insolvency application filed by an MSME corporate debtor. The Tribunal noted that the PPIRP framework is designed to provide a quicker, less adversarial resolution mechanism for MSMEs and that the 66% financial creditor approval at the pre-filing stage distinguishes it from the traditional CIRP. The Tribunal also observed that the base resolution plan filed by the corporate debtor must meet the minimum standards under Section 30(2).
Encore Jewel Pvt. Ltd. (NCLT, New Delhi, 2022)
The NCLT admitted a PPIRP application and observed that the process was specifically designed to address the unique challenges faced by MSMEs — limited resources, informal business structures, and the existential threat that formal CIRP proceedings pose to their business continuity. The Tribunal emphasised that the debtor-in-possession feature ensures minimal disruption to the MSME's operations.
GLAS Trust Company LLC v. BYJU's Alpha Inc. (NCLT Bengaluru, 2024)
This case raised questions about the applicability of PPIRP to larger corporate groups with MSME subsidiaries, highlighting the evolving jurisprudence around the eligibility criteria and the boundary between PPIRP and regular CIRP.
Why this matters
The pre-packaged insolvency framework addresses a fundamental limitation of the regular CIRP for MSMEs. Under the standard process, the corporate debtor loses management control to a resolution professional, the process takes up to 330 days, and the costs of the resolution process can consume a substantial portion of the MSME's enterprise value. For many MSMEs, formal CIRP amounts to a death sentence rather than a rescue mechanism.
PPIRP offers three critical advantages: first, the debtor-in-possession model allows the promoter to continue managing the business, preserving the goodwill and operational knowledge that are often the MSME's most valuable assets. Second, the 120-day timeline is significantly shorter than the 330-day CIRP ceiling. Third, the requirement of a base resolution plan before filing ensures that the process begins with a concrete proposal on the table, reducing uncertainty.
For practitioners, the PPIRP process involves a hybrid governance structure. While the promoter retains management control, a resolution professional is appointed to supervise the process. The CoC can replace the base resolution plan with a competing plan if it receives a better offer through the Swiss Challenge method (where the base plan is opened to competition). The 66% financial creditor pre-approval requirement ensures that the process has creditor buy-in from the outset.
The limited adoption of PPIRP since its introduction reflects practical challenges: the MSME classification threshold, the 66% pre-approval hurdle, and the requirement to prepare a base resolution plan before filing create barriers that many distressed MSMEs struggle to overcome.
Related terms
Alternative process:
Key components:
Adjudicating authority:
Frequently asked questions
Which companies can use the pre-packaged insolvency process?
Only corporate debtors classified as Micro, Small, or Medium Enterprises under the MSMED Act, 2006. The company must have a default of at least Rs. 10 lakh, must not be undergoing CIRP or liquidation, and must not have completed a PPIRP or CIRP within the preceding three years.
Does the promoter retain control during PPIRP?
Yes. PPIRP follows a debtor-in-possession model, meaning the promoter continues to manage the affairs of the corporate debtor during the process. However, a resolution professional is appointed to supervise the process and can report any misconduct to the NCLT, which may order a switch to regular CIRP.
What is a base resolution plan?
The base resolution plan is a resolution plan prepared by the corporate debtor and its promoters before filing the PPIRP application. It must meet the requirements of Section 30(2) of the IBC. The CoC can accept this plan or invite competing plans through the Swiss Challenge method, where other resolution applicants can submit improved plans.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.