The Pre-Packaged Insolvency Resolution Process (PPIRP) was introduced as a timely and targeted reform within India’s insolvency framework, specifically addressing the unique needs of micro, small, and medium enterprises (MSMEs). The process aims to blend the efficiency of out-of-court settlements with the legal sanctity of the Insolvency and Bankruptcy Code (IBC). By allowing debtors and creditors to negotiate a resolution plan before triggering the formal process, PPIRP ensures a smoother and less disruptive journey toward debt resolution.
In essence, PPIRP is designed to protect viable MSMEs facing financial stress by facilitating early intervention, preserving enterprise value, reducing litigation, and ensuring a quicker turnaround. This process is not only cost-effective but also minimizes business interruptions and sustains employment during financially turbulent times.
Genesis of PPIRP
The conception of PPIRP can be traced back to deliberations held by the Insolvency Law Committee (ILC) during its meeting on 16 May 2020. Recognizing the economic strain caused by the COVID-19 pandemic and the resultant financial fragility of MSMEs, the Ministry of Corporate Affairs took proactive steps. A sub-committee was formed on 24 April 2020 under the leadership of Dr. M. S. Sahoo, then Chairperson of the Insolvency and Bankruptcy Board of India (IBBI). The committee’s mandate was to explore the feasibility and design of a pre-packaged insolvency mechanism suited to the Indian ecosystem.
The sub-committee submitted its report on 31 October 2020, outlining a comprehensive framework for pre-packaged insolvency. Its recommendations led to the introduction of an Ordinance on 4 April 2021, followed by the enactment of the Insolvency and Bankruptcy Code (Amendment) Act, 2021. The new framework became operational from 4 April 2021, specifically targeting MSME corporate debtors.
Objectives and Underlying Philosophy
The primary objective of PPIRP is to provide an efficient and less adversarial alternative to the regular corporate insolvency resolution process (CIRP). Unlike CIRP, which often leads to loss of management control and prolonged legal proceedings, PPIRP offers a collaborative platform where debtors and creditors can resolve distress consensually.
The PPIRP model encourages early identification of financial stress, allowing stakeholders to agree on a resolution plan before initiating formal proceedings. This pre-negotiation ensures that a resolution is ready for validation and implementation soon after the process begins. The emphasis is on maximizing asset value, protecting jobs, and preserving the core business, rather than liquidating or fragmenting viable enterprises.
Scope and Eligibility
PPIRP is currently available only to MSMEs, classified according to the criteria specified under the Micro, Small and Medium Enterprises Development Act, 2006. To be eligible for PPIRP, a corporate debtor must:
- Be classified as an MSME
- Be in default of at least Rs. 10 lakhs
- Not have undergone PPIRP or CIRP in the preceding three years
- Not be undergoing CIRP at the time of application
- Not be in liquidation
- Obtain approval from at least 66 percent of unrelated financial creditors
The eligibility conditions ensure that only genuine, viable MSMEs facing financial difficulties access the process, preventing misuse of the mechanism.
Key Features of PPIRP
Debtor-in-Possession Model
One of the distinguishing aspects of PPIRP is the debtor-in-possession model. The existing management continues to run the day-to-day operations of the business during the resolution process. This ensures operational continuity, reduces transition challenges, and minimizes the risk of business value erosion. However, if evidence of fraudulent conduct or mismanagement surfaces, the resolution professional can seek the transfer of management control.
Base Resolution Plan
The process commences with the corporate debtor submitting a base resolution plan to the resolution professional. This plan reflects the outcome of prior negotiations with creditors. If the base plan does not impair the claims of operational creditors, the Committee of Creditors (CoC) may approve it directly. However, if the base plan impairs such claims or is rejected by the CoC, competing plans are invited.
Shorter Timelines
PPIRP operates within a strict timeline of 120 days from the date of commencement. The resolution professional must file the approved plan with the Adjudicating Authority within 90 days. The Authority must pass an order within the next 30 days. This expedited timeline minimizes uncertainty and aligns with the broader goal of time-bound insolvency resolution.
Committee of Creditors (CoC)
The CoC comprises only unrelated financial creditors, enhancing the neutrality and objectivity of the resolution process. Their approval is essential not just for initiating the process but also for approving the resolution plan, which requires a 66 percent majority vote.
Role of Resolution Professional
Unlike CIRP, where the resolution professional takes over the management, the role of the professional in PPIRP is more supervisory. The professional ensures compliance, manages procedural aspects, verifies claims, and facilitates meetings of the CoC. Their limited intervention aligns with the collaborative spirit of PPIRP.
Comparison with CIRP
PPIRP was designed to address some of the inherent limitations and challenges of CIRP, especially for MSMEs. The comparative advantages of PPIRP include:
- Faster resolution timelines, reducing financial and operational uncertainty
- Lower litigation and administrative costs due to advance planning
- Retention of management, which supports business continuity
- Greater predictability of outcomes through pre-negotiated plans
- Improved creditor engagement from the outset of the process
These features make PPIRP a pragmatic alternative for MSMEs that might otherwise struggle to navigate the complexities of CIRP.
Policy Rationale for MSME Focus
MSMEs are considered the backbone of the Indian economy, contributing significantly to GDP, exports, and employment. Yet, they are more vulnerable to financial stress due to limited access to capital, market volatility, and external shocks. Recognizing this vulnerability, policymakers designed PPIRP to serve as a tailored remedy that combines the benefits of informal workouts and formal resolution.
The focus on MSMEs also reflects the government’s broader objective of improving ease of doing business and fostering a more resilient economic environment. By offering a less disruptive and cost-efficient resolution mechanism, PPIRP helps ensure that viable MSMEs are not prematurely driven into liquidation.
Future Potential Beyond MSMEs
While currently limited to MSMEs, there is a growing view among legal and policy experts that PPIRP could be extended to larger corporate debtors. Its procedural efficiency and minimal disruption to operations make it a suitable candidate for broader application. The ILC’s sub-committee also acknowledged this possibility, suggesting the introduction of additional safeguards if the process is made available to larger entities.
Potential enhancements could include more stringent disclosure requirements, oversight mechanisms, or thresholds for creditor participation. A broader rollout could significantly expand the effectiveness of the insolvency framework in India.
Challenges and Considerations
Despite its many advantages, PPIRP is not without challenges. Key concerns include:
- Ensuring genuine stakeholder participation in pre-pack negotiations
- Preventing abuse of the debtor-in-possession model
- Maintaining transparency in the selection and approval of resolution plans
- Aligning regulatory oversight with the process’s flexible nature
Addressing these challenges will be critical to the long-term success and credibility of PPIRP. Continuous monitoring, stakeholder feedback, and adaptive regulatory responses will be essential.
Eligibility Criteria for Initiation
To ensure that only genuine and viable enterprises utilise the PPIRP, the IBC lays down specific eligibility conditions. These include:
- The corporate debtor must be classified as an MSME under the Micro, Small and Medium Enterprises Development Act, 2006
- The corporate debtor must not have undergone a CIRP or PPIRP in the preceding three years
- The corporate debtor must not be undergoing any CIRP at the time of application
- No liquidation order should have been passed against the corporate debtor
- The corporate debtor must be eligible under Section 29A to submit a resolution plan
- Financial creditors representing at least 66% of the debt must approve the initiation of PPIRP
These safeguards are in place to prevent abuse of the process and ensure responsible access to pre-pack benefits.
Preparatory Steps Prior to Filing
The success of PPIRP relies on the groundwork carried out before filing the application. The debtor and creditors are expected to work together to prepare a base resolution plan. The preparatory steps include:
- Board approval of the resolution
- Convening a meeting of unrelated financial creditors to seek approval
- Appointment of a resolution professional to assist with the process
- Drafting of the base resolution plan with disclosures
- Collation of documents and filing of Form P1 with the Adjudicating Authority
Once these preliminary steps are complete, the application for PPIRP is submitted to the National Company Law Tribunal (NCLT).
Admission and Commencement
Upon receiving the application, the NCLT assesses its completeness and may admit or reject it. If admitted, the pre-pack process is deemed to commence from the date of admission. A public announcement is made, and a moratorium under Section 14 of the IBC comes into effect.
The moratorium prohibits the institution of suits, continuation of pending suits, or any action to foreclose, recover, or enforce any security interest. It also restricts the transfer of assets or initiation of recovery actions by creditors.
Management and Role of Resolution Professional
In PPIRP, the management of the corporate debtor remains with the existing board of directors unless the Committee of Creditors decides, by a vote of 66%, to vest the management with the resolution professional due to fraudulent conduct or gross mismanagement.
The resolution professional has the following responsibilities:
- Constitution of the Committee of Creditors
- Verification and collation of claims
- Convening meetings of the CoC
- Evaluation of resolution plans
- Preparation of information memorandum and evaluation matrix
- Filing of the approved resolution plan with the Adjudicating Authority
Unlike CIRP, the resolution professional in PPIRP acts more as a facilitator than a controller of the process.
Submission and Evaluation of Plans
The base resolution plan submitted by the debtor is first considered by the CoC. If the plan does not impair claims of operational creditors and is deemed viable, the CoC may approve it directly. However, if the base plan impairs operational creditors’ claims or is otherwise unsatisfactory, the resolution professional invites competing plans from other prospective applicants.
Competing plans are evaluated based on the evaluation matrix and subjected to a competitive bidding process, ensuring transparency and value maximisation.
Voting and Approval by the CoC
The resolution plan, whether the base plan or a competing one, must be approved by at least 66% of the voting share of the CoC. The plan is evaluated on parameters such as:
- Viability and feasibility
- Maximisation of asset value
- Compliance with legal provisions
- Fair treatment of stakeholders
If no plan is approved within the prescribed timelines, the resolution professional files an application for termination of PPIRP.
Filing with the Adjudicating Authority
Once the CoC approves a resolution plan, it is submitted to the Adjudicating Authority for final approval. The NCLT examines whether the plan:
- Complies with the provisions of the IBC
- Provides for the payment of insolvency resolution process costs
- Treats operational and financial creditors fairly
If satisfied, the NCLT approves the plan and it becomes binding on all stakeholders. If not, the plan may be returned for modifications or the process may be terminated.
Timelines and Duration
The entire PPIRP is designed to be completed within 120 days:
- 14 days for NCLT admission of the application
- 90 days for submission of resolution plans and CoC approval
- 30 days for NCLT approval of the plan
These statutory timelines are intended to ensure swift resolution and prevent value erosion due to procedural delays.
Flexibility and Judicial Oversight
PPIRP maintains a balance between flexibility and regulatory control. While it allows debtor-initiated filings and pre-negotiated plans, judicial scrutiny by the NCLT ensures fairness, legal compliance, and stakeholder protection. This structure seeks to build trust and credibility in the pre-packaged model.
Evaluating the Outcomes and Future of the Pre-Packaged Insolvency Resolution Process (PPIRP)
As the Pre-Packaged Insolvency Resolution Process (PPIRP) completes its initial implementation phase, it becomes essential to assess its impact on the insolvency landscape, especially in the context of micro, small, and medium enterprises (MSMEs).
While the structure and rationale of PPIRP have been carefully laid out, its effectiveness depends largely on real-world adoption, stakeholder participation, and resolution outcomes. We explored the emerging trends, practical challenges, stakeholder perspectives, and the future potential of PPIRP.
Early Implementation and Observations
Since its introduction through the IBC (Amendment) Act, 2021, PPIRP has seen a measured uptake by eligible MSME debtors. The early adoption rate has been relatively modest, largely due to factors such as limited awareness, procedural complexity in initial filings, and the mandatory requirement of creditor approval.
Several cases have proceeded through the PPIRP route, setting early precedents. In these cases, resolution timelines have generally been adhered to more strictly than in traditional CIRP. The minimal disruption to business operations, combined with continuity in management, has helped preserve enterprise value and employee morale.
However, challenges have emerged, especially regarding creditor cooperation, valuation disagreements, and the interpretation of certain legal provisions. These practical hurdles must be addressed through regulatory clarification, judicial interpretation, and administrative facilitation.
Key Stakeholder Perspectives
Financial Creditors
Financial creditors have shown cautious optimism towards PPIRP. The ability to initiate a pre-negotiated plan offers them an opportunity to minimise credit losses while avoiding the time and cost burdens of CIRP. However, lenders have also raised concerns about transparency in the formulation of base resolution plans and the possible influence of existing promoters in shaping outcomes.
The process mandates the approval of financial creditors for initiating PPIRP, ensuring alignment of interests. Yet, securing this approval has sometimes proven difficult, particularly in cases involving multiple lenders with divergent risk appetites or exposure levels.
Operational Creditors
Operational creditors, while included in the committee of creditors for voting on the resolution plan, often face uncertainty in terms of recovery. Given their subordinate position in the waterfall mechanism, they may receive limited returns unless protected through a well-negotiated resolution plan. Ensuring fair treatment for operational creditors remains a challenge that needs ongoing policy attention.
Corporate Debtors
For MSMEs struggling with financial distress, PPIRP offers a relatively non-adversarial solution. The ability to remain in control of day-to-day operations during the process appeals to many promoters.
Nevertheless, preparing a viable base resolution plan and securing creditor support require considerable negotiation skills, financial planning, and legal consultation. This may deter some MSMEs from initiating the process. Corporate debtors have also called for broader access to PPIRP beyond MSME classification, especially for small and mid-sized companies not currently covered.
Insolvency Professionals
Resolution professionals (RPs) play a vital role in PPIRP, albeit with limited management powers compared to CIRP. Their duties include reviewing the base resolution plan, managing the information memorandum, and overseeing compliance with the Code.
RPs have appreciated the focused scope and defined timeline but have sought clearer guidelines on handling competing resolution plans and fraudulent transactions. Capacity building among insolvency professionals and continued training specific to PPIRP nuances can further enhance the process’s credibility and efficiency.
Judiciary and Adjudicating Authorities
The National Company Law Tribunal (NCLT) has the responsibility of approving PPIRP initiation and resolution plans. In early rulings, the NCLT has shown a preference for procedural adherence and transparency.
Some delays have occurred due to lack of experience or backlog, but over time, adjudicating authorities are expected to develop jurisprudence that clarifies ambiguous provisions. Faster case disposal, streamlined hearing schedules, and digital filings can improve PPIRP’s success from a judicial administration standpoint.
Key Challenges Identified
Limited Awareness and Capacity
Many MSMEs remain unaware of PPIRP or lack the capacity to navigate its technicalities. Legal and financial literacy remains a significant barrier to adoption, especially for family-owned or first-generation enterprises. Awareness campaigns, regional workshops, and simplified guides could help overcome this challenge.
Difficulty in Securing Creditor Approval
Requiring approval from unrelated financial creditors holding 66% of the debt can be a double-edged sword. While it ensures credibility, it also complicates access to PPIRP for debtors who face fragmented lending relationships or have unresolved defaults.
Procedural Complexity and Documentation
Although PPIRP aims for simplicity, the documentation requirements can be burdensome, especially for MSMEs unfamiliar with insolvency processes. Preparing a base resolution plan that satisfies financial creditors and regulatory conditions is not always feasible without professional assistance.
Risk of Misuse
There is a concern that existing promoters may use PPIRP to regain control of assets at discounted values. This potential for abuse could erode creditor trust and jeopardise the process’s credibility. Strong safeguards against undervalued transactions, conflict of interest, and related-party favoritism are essential.
Absence of Market Competition
In several cases, no competing resolution plans are received, and the base resolution plan is approved by default. While this expedites the process, it may not always result in the best value for creditors. Measures to enhance market participation in bidding are needed to preserve fairness and transparency.
Performance Metrics and Case Analysis
To comprehensively evaluate PPIRP’s effectiveness, performance indicators such as resolution rate, average recovery percentage, adherence to timelines, and stakeholder satisfaction should be tracked. Early data indicates moderate success in terms of meeting deadlines and reducing litigation.
However, recovery rates vary significantly across cases. The absence of a broad base of participants in the bidding process may limit value maximisation. Monitoring trends over the next few years will provide more conclusive insights.
Case studies of successful PPIRPs demonstrate the potential for collaborative restructuring. In some cases, distressed companies have been turned around through infusion of fresh capital, restructuring of liabilities, and improved operational management. These instances serve as models for wider adoption.
Recommendations for Strengthening PPIRP
Broaden Eligibility
Expanding PPIRP beyond MSMEs to include small and mid-sized companies can increase its utility. A phased rollout with appropriate safeguards can ensure broader access while maintaining risk control.
Simplify Procedures
Introducing templates for resolution plans, digital submission portals, and simplified checklists can reduce procedural burden. Government bodies and professional institutions can provide hand-holding support for MSMEs.
Improve Creditor Engagement
Financial institutions must be encouraged to adopt proactive policies towards pre-packaged resolution. Creating dedicated PPIRP cells within banks or financial institutions can facilitate smoother coordination.
Enhance Oversight Mechanisms
Introducing external audits or regulatory checks for high-value or related-party transactions can safeguard creditor interests. Strengthening the role of the resolution professional in reviewing transactions can prevent abuse.
Encourage Bidding and Market Competition
Incentives for third-party bidders, transparency in information sharing, and support for investor outreach can promote greater participation in the process. Market interest enhances value discovery and stakeholder confidence.
Capacity Building and Training
Regular training sessions for insolvency professionals, company secretaries, and legal advisors on PPIRP nuances can create a more capable ecosystem. Building expertise will make the process smoother and more effective.
Judicial Reforms
Improving infrastructure and staffing of NCLT benches, especially in regions with high insolvency caseloads, is essential. Fast-tracking pre-pack applications through a dedicated bench or procedural track can support faster resolutions.
Potential for International Replication
Several countries have adopted or are considering pre-packaged insolvency regimes. India’s PPIRP model offers useful lessons in balancing creditor protection with debtor-in-possession principles. Its experience may influence insolvency reforms in jurisdictions with similar business landscapes.
Cross-border insolvency mechanisms can also incorporate elements of pre-packaged resolution for multinational distressed entities. Cooperation among regulators, alignment of disclosure norms, and recognition of foreign resolutions can aid in developing a robust international framework.
Role of Technology and Digital Tools
Technology can significantly enhance the PPIRP ecosystem. Digital tools for filings, real-time tracking of timelines, automated alerts for compliance, and virtual COC meetings can increase efficiency. Using AI and data analytics for valuation support, credit analysis, and bidder outreach can also improve decision-making.
Blockchain solutions for maintaining transparent audit trails of transactions during the resolution process are being explored. A digital-first approach will reduce administrative costs and improve stakeholder trust.
Long-Term Vision for PPIRP
In the long run, PPIRP should evolve into a mainstream resolution option, complementing both CIRP and informal workout models. Its agility, stakeholder-centric design, and lower cost make it well-suited for India’s diverse and growing enterprise base.
A successful PPIRP ecosystem will require continued refinement of laws, proactive regulatory support, and a shift in market behavior. With the right incentives and safeguards, PPIRP can become a sustainable and efficient instrument for business rescue and value preservation.
Conclusion
The Pre-Packaged Insolvency Resolution Process represents a pivotal evolution in India’s insolvency framework, especially tailored to address the financial distress of micro, small, and medium enterprises. Designed as a hybrid of informal out-of-court negotiations and formal court-supervised proceedings, PPIRP combines the flexibility of a debtor-in-possession model with the structure and oversight of the Insolvency and Bankruptcy Code.
By empowering corporate debtors to collaborate with financial creditors and prepare a base resolution plan before entering the formal process, PPIRP significantly reduces disruption to business operations. Its emphasis on speed, cost-efficiency, and stakeholder consensus ensures that viable businesses are preserved, employment is protected, and asset value is maximised. The process mitigates the adversarial nature typically associated with insolvency proceedings, offering a more constructive and efficient route to resolution.
While the current framework restricts PPIRP to MSMEs, its benefits suggest broader applicability. Expanding its scope to larger corporations, with suitable checks and balances, could enhance the overall effectiveness of India’s insolvency regime. The process also demonstrates a growing maturity in insolvency jurisprudence, reflecting the shift towards solutions that are commercially sensible and legally sound.
In sum, PPIRP stands as a forward-thinking model that aligns with the goals of economic continuity, stakeholder protection, and swift debt resolution. Its continued refinement and potential expansion will likely play a crucial role in strengthening the financial resilience of Indian enterprises in the years to come.