For a small or medium company that has fallen behind on loans, a regular insolvency process can be a disaster for the promoters: management is handed to a professional, the business is put up for bidding and the people who built it often lose it. The pre-packaged insolvency resolution process, or PPIRP, was added to the Insolvency and Bankruptcy Code in 2021 as a gentler alternative for MSMEs.
In a pre-pack, the company and its lenders agree on a resolution plan in broad terms before going to the NCLT. The promoters stay in control of day-to-day management, a resolution professional supervises, and the process is designed to finish within 120 days. It is not suitable for every company, and uptake so far has been limited, but for the right MSME it can save the business and the promoters' role in it.
हिंदी में सारांश
पà¥à¤°à¥€-पैकेजà¥à¤¡ इनसॉलà¥à¤µà¥‡à¤‚सी (PPIRP) MSME कंपनियों के लिठà¤à¤• तेज़ और नरम दिवाला पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ है। इसमें कंपनी और उसके असंबंधित (unrelated) वितà¥à¤¤à¥€à¤¯ लेनदार पहले से à¤à¤• योजना पर सहमत होते हैं, फिर NCLT जाते हैं। पà¥à¤°à¤®à¥‹à¤Ÿà¤° रोज़मरà¥à¤°à¤¾ का पà¥à¤°à¤¬à¤‚धन संà¤à¤¾à¤²à¤¤à¥‡ रहते हैं और à¤à¤• रेज़ोलà¥à¤¯à¥‚शन पà¥à¤°à¥‹à¤«à¥‡à¤¶à¤¨à¤² निगरानी करता है। इसके लिठकम से कम ₹10 लाख की चूक और 66% असंबंधित वितà¥à¤¤à¥€à¤¯ लेनदारों की मंज़ूरी चाहिà¤à¥¤ पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ 120 दिनों में पूरी होनी होती है।
Is this your situation?
- Your company is registered as a micro, small or medium enterprise under the MSMED Act
- It has defaulted on loans of Rs 10 lakh or more and cannot repay on current terms
- The business itself is viable if the debt is restructured
- Your main lenders are open to a negotiated plan
- You want to keep running the company rather than hand it to a resolution professional
- The company has not gone through insolvency or a pre-pack in the last three years
Who is eligible
An MSME company
The corporate debtor must be classified as a micro, small or medium enterprise under Section 7(1) of the MSMED Act, 2006, based on investment and turnover.
A default of at least Rs 10 lakh
The central government has notified Rs 10 lakh as the minimum default for a pre-pack, far below the Rs 1 crore needed for regular insolvency.
No recent insolvency
The company must not be undergoing a regular insolvency process, must not have completed a pre-pack or regular process in the preceding three years, and must not be under a liquidation order.
Eligible promoters
The company must be eligible to submit a resolution plan under Section 29A, which disqualifies, for example, wilful defaulters and some persons with long-standing non-performing accounts. See Section 29A eligibility.
Lender support
Financial creditors who are not related parties, holding at least 66% in value of the financial debt owed to such creditors, must approve the proposed resolution professional before the company applies.
Shareholder approval
A declaration by a majority of directors and a special resolution of members (or approval of three-fourths of partners for an LLP) are needed.
How a pre-pack works
Preparatory talks with lenders
The company prepares a base resolution plan, typically a restructuring of debts with fresh funding or revised repayment. It discusses this informally with its main unrelated financial creditors.
Lender approval of the resolution professional
Unrelated financial creditors holding at least 66% of the relevant debt approve the name of the proposed resolution professional. The company also obtains director declarations and members' approval.
Application to the NCLT
The company applies under Section 54C to the NCLT bench covering its registered office, with the declarations, approvals and the professional's consent. The tribunal decides whether to admit within 14 days.
Debtor stays in possession
Once admitted, a moratorium protects the company. Management stays with the board, under the supervision of the resolution professional, who has access to records and must approve certain transactions.
Committee of creditors and the plan
The professional forms a committee of creditors. The company submits its base resolution plan. If the plan does not pay operational creditors in full, the committee may invite competing plans, so promoters must be prepared for a challenge.
Approval within the timeline
The resolution plan must be presented to the NCLT within 90 days of commencement, and the whole process must close within 120 days. If no plan is approved, the process may be converted into a regular insolvency process.
Benefits and risks, honestly
What a pre-pack offers
- Promoters keep control: management stays with the board during the process, unlike a regular insolvency.
- Speed: the 120-day timeline is much shorter than the 330-day outer limit for regular cases.
- Lower cost and less disruption: customers, suppliers and employees see continuity, which protects business value.
- A negotiated outcome: the plan reflects what the company can actually pay, agreed with lenders in advance.
What can go wrong
- Lenders can take over management: the committee can vote to hand management to the resolution professional if the company's affairs are being run fraudulently or with gross mismanagement.
- Competing plans: if operational creditors are not paid in full, the committee may test the base plan against outside bids.
- Conversion to regular insolvency: a failed pre-pack can turn into the full process, where promoters may lose control altogether.
- Section 29A: promoters who are ineligible under Section 29A cannot use the route at all.
For a company whose problem is short-term cash flow rather than deep insolvency, a bilateral restructuring with banks may still be simpler. We help you compare. A compromise or arrangement under Section 230 is another option for larger restructurings.
Time and typical cost
Our fees are agreed in writing for each stage and do not depend on the outcome. The resolution professional's fee is separate and is approved by the creditors.
| Stage | Usual time | What it involves |
|---|---|---|
| Preparation and base plan | 4 to 8 weeks | Financial projections, lender meetings |
| Lender, director and member approvals | 2 to 4 weeks | Resolutions, declarations, consent of professional |
| Admission by NCLT | 14 days from application, by law | Application and hearing |
| Process to plan approval | Plan within 90 days; process within 120 days | Committee meetings, possible competing bids |
| Implementation | As per plan | Monitoring by lenders |
Documents you will need
Company status
- Udyam registration showing MSME classification
- Certificate of incorporation, MOA and AOA
- Latest audited financial statements and provisional figures
Debt position
- List of all financial and operational creditors
- Loan agreements, sanction letters and account statements
- Record of the default and its date
Approvals
- Approval of unrelated financial creditors (66%) for the professional
- Declaration of majority of directors
- Special resolution of members
- Written consent of the proposed resolution professional
The plan
- Base resolution plan with cash-flow projections
- Proposed sources of funds
- Treatment proposed for each class of creditor
A component maker and a pre-pack
Here's a made-up example. A small auto-component maker in Faridabad, classified as a small enterprise, defaulted on a term loan and working capital limit totalling Rs 6 crore after a large customer collapsed. Orders were coming back, but it could not service the old debt.
Its two banks, both unrelated financial creditors, were open to a plan that extended tenure and converted part of the interest into a funded interest term loan, backed by a fresh promoter contribution. They approved the proposed resolution professional, and the company applied to NCLT Chandigarh under Section 54C. Operational creditors were to be paid in full under the base plan, so no competing bids were invited. The plan was approved within the 120-day period, and the promoters stayed in charge throughout.
Mistakes MSMEs make with pre-packs
- Approaching lenders without a credible plan: banks will not approve a resolution professional for a pre-pack unless they see realistic cash flows and fresh money from promoters.
- Ignoring Section 29A: a promoter who is a wilful defaulter or otherwise disqualified cannot use the route, even with the MSME relief.
- Underestimating operational creditors: if the base plan does not pay them in full, the committee may test it against outside bids. Plan for that possibility.
- Weak records: lenders and the resolution professional will examine the company's books closely. Gaps or unexplained related-party transactions undermine trust.
- Missing the timeline: the plan must reach the NCLT within 90 days and the process must close in 120. Delays can lead to conversion into regular insolvency.
- Not checking MSME status: classification depends on investment and turnover under current notifications. Confirm Udyam registration is accurate.
Pre-pack versus regular insolvency for an MSME
| Point | Pre-pack (PPIRP) | Regular insolvency (CIRP) |
|---|---|---|
| Who starts it | The company, with lender support | Creditor or company |
| Minimum default | Rs 10 lakh | Rs 1 crore |
| Management during process | Board, supervised by the resolution professional | Resolution professional |
| Plan | Base plan from the company; competing plans only in some cases | Plans invited from the market |
| Timeline | 120 days | 180 days, extendable to 330 |
| Risk for promoters | Conversion to CIRP if the plan fails | Loss of control from admission |
What lenders look for in an MSME pre-pack
Lenders approving a pre-pack want comfort on three things. First, that the business has a future: orders, margins and a reason why the stress was temporary. Second, that promoters are contributing, through fresh equity, personal assets or giving up some control. Third, that the process is honest: full disclosure of liabilities and related-party dealings, and a resolution professional the lenders trust. A short information pack covering these points, shared before the formal approval is sought, makes the difference between a quick yes and months of hesitation.
Checklist before starting a pre-pack
- Confirm that the company is registered as an MSME under the MSMED Act
- Confirm that the default is at least Rs 10 lakh
- Check that there has been no pre-pack or CIRP in the last three years
- Prepare a base resolution plan with realistic numbers
- Approach financial creditors not related to you for 66% approval to start
- Choose a resolution professional with their consent
- Prepare a declaration from the majority of directors that the plan will be filed within 90 days
- Plan how operational creditors will be treated
The Swiss challenge
If the base resolution plan impairs the claims of operational creditors, the resolution professional must invite other prospective resolution applicants to compete. This is called a Swiss challenge: other bidders may submit better plans, and the promoter gets a chance to match. The aim is to make sure the promoter does not keep the business at an unfairly low price.
Where the base plan pays operational creditors in full, the CoC may approve it without inviting competing plans. Promoters should therefore think carefully about operational creditors, who are often their regular suppliers. A plan that pays them in full can avoid the Swiss challenge and keep supply relationships intact. See also voluntary insolvency under Section 10 and Section 29A on promoter eligibility.
A food processor saves its business
Here's a made-up example. A Ghaziabad food processor, registered as a small enterprise, had borrowed Rs 6 crore from two banks. A fall in exports caused defaults. The promoters had found an investor to inject Rs 2 crore and proposed to repay the banks Rs 4.5 crore over two years.
The banks, holding all the financial debt, approved the pre-pack. The base plan paid all operational creditors in full, so no Swiss challenge was needed. The CoC approved it within the 90-day limit, and NCLT New Delhi approved the plan. The promoters kept the business, the banks recovered most of their dues, and suppliers were paid in full.
Frequently Asked Questions
Which companies can use a pre-pack?
Companies classified as micro, small or medium enterprises under the MSMED Act, with a default of at least Rs 10 lakh, that are eligible under Section 29A and have not been through insolvency in the past three years.
Do the promoters lose control?
Not ordinarily. Management stays with the board under the supervision of the resolution professional. The committee can vote to transfer management to the professional in cases of fraud or gross mismanagement.
How long does a pre-pack take?
The resolution plan must be filed within 90 days and the whole process completed within 120 days of commencement.
Do all creditors have to agree in advance?
No. Before applying, unrelated financial creditors holding at least 66% of the relevant debt must approve the resolution professional. The plan itself is approved later by the committee of creditors.
What happens to operational creditors?
If the base plan does not pay them in full, the committee may invite competing plans. If it does, the base plan can be considered on its own.
Can a pre-pack fail?
Yes. If no plan is approved in time, or the committee decides, the process can be converted into a regular insolvency process.
Is a pre-pack better than a bank restructuring?
Not always. A bilateral restructuring is simpler if all lenders agree. A pre-pack helps when you need a binding plan with the protection of a moratorium.
How are your fees decided?
By the size of the company and the complexity of the plan, agreed in writing for each stage. They do not depend on the result.
Is a Pre-Pack Right for Your MSME?
Share your Udyam certificate, latest accounts and loan statements. We will tell you whether a pre-pack is realistic and what your lenders are likely to ask for.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Need help with Pre-Packaged Insolvency for MSMEs?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
