Introduction: Pre-Pack Was Meant to Be Transformational—But Remains Constrained
The introduction of the Pre-Packaged Insolvency Resolution Process (“PPIRP”) under the Insolvency and Bankruptcy Code, 2016 was widely viewed as a paradigm shift—a mechanism that promised speed, confidentiality, value preservation, and reduced litigation.
However, nearly four years since its introduction, PPIRP remains confined to MSMEs, functioning more as a limited exception than a mainstream resolution tool. While the legislative caution behind this restriction is understandable, the question that now demands serious consideration is:
Has the time come to expand the pre-pack insolvency framework to mid-sized and large corporates?
The Original Rationale for Limiting PPIRP to MSMEs
The restriction of PPIRP to MSMEs was driven by several legitimate concerns:
- Risk of promoter abuse and backdoor entry
- Information asymmetry in larger, complex corporate structures
- Potential marginalisation of operational creditors
- Judicial discomfort with creditor-negotiated outcomes outside open bidding
For MSMEs—where promoter continuity is often essential for survival—these risks were considered manageable. For larger corporates, the fear was that pre-packs could undermine transparency and creditor democracy.
Yet, this cautious approach may now be out of sync with market realities.
Why the MSME-Only Approach Is Becoming Inadequate
1. Complexity Does Not Necessarily Mean Abuse
Large and mid-sized corporates already engage in:
- Structured debt restructurings,
- Inter-creditor agreements,
- Out-of-court settlements that lack statutory protection.
Ironically, these informal restructurings often provide less transparency and weaker creditor safeguards than a regulated pre-pack under IBC.
2. Value Destruction Due to Public CIRP Stigma
For mid and large corporates:
- Loss of key customers,
- Vendor disengagement,
- Employee attrition,
- Regulatory distrust
begin the moment a public CIRP is admitted.
A confidential, creditor-negotiated pre-pack—subject to judicial approval—may preserve far greater going-concern value than a traditional CIRP.
3. Litigation, Not Resolution, Dominates Large CIRPs
Empirical experience suggests that large CIRPs are increasingly characterised by:
- Prolonged litigation on eligibility, valuation, distribution,
- Multiple rounds of bidding,
- Delays far exceeding statutory timelines.
In such cases, the supposed “transparency” of open CIRP often comes at the cost of value erosion and stakeholder fatigue.
Global Perspective: Pre-Packs Are Not MSME-Specific
Internationally, pre-pack insolvency mechanisms are extensively used for large corporates:
- United States: Chapter 11 pre-packs for large conglomerates
- United Kingdom: Pre-pack administrations with post-hoc scrutiny
- Singapore: Scheme of arrangement-based pre-packs
These jurisdictions recognise a core truth that Speed and certainty often matter more than procedural perfection in preserving enterprise value.
India’s MSME-only approach is therefore an exception, not the norm.
Key Risks in Expanding PPIRP—and How They Can Be Addressed
1. Promoter Backdoor Entry
Concern: Promoters may regain control without market testing.
Mitigation:
- Mandatory Swiss Challenge for non-promoter plans
- Higher voting thresholds for CoC approval
- Enhanced disclosure norms for connected parties
2. Marginalisation of Operational Creditors
Concern: Pre-negotiated plans may sideline OCs.
Mitigation:
- Statutory minimum payout benchmarks
- Mandatory RP certification on fairness of distribution
- Limited judicial scrutiny focused on stakeholder equity
3. Valuation Manipulation
Concern: Pre-packs rely heavily on valuation.
Mitigation:
- Dual independent valuations
- Disclosure of valuation assumptions (without breaching confidentiality)
- Liability framework for mala fide valuation suppression
Role of Insolvency Professionals: From Process Managers to Deal Architects
An expanded PPIRP regime would fundamentally elevate the role of Insolvency Professionals:
- From administrators to transaction facilitators
- From compliance managers to value-preservation custodians
However, this shift must be accompanied by:
- Clear statutory safe harbour for good-faith actions
- Defined accountability standards
- Reduced hindsight-based scrutiny
Without such protection, risk-averse behaviour will defeat the very purpose of pre-packs.
Is the Judiciary Ready for Pre-Packs in Large Corporates?
Judicial concern over pre-packs often stems from fear of opacity. However, structured, front-loaded scrutiny is preferable to years of post-approval litigation.
NCLTs can play a constructive role by:
- Verifying process integrity,
- Ensuring creditor consent thresholds,
- Avoiding commercial re-evaluation post-approval.
Judicial review should validate the process, not renegotiate the deal.
The Way Forward: A Phased Expansion Model
Rather than an immediate blanket expansion, India may consider:
- Allowing PPIRP for corporates up to a defined asset or debt threshold
- Sector-specific pilots (real estate, infrastructure, manufacturing)
- Sunset review after 2–3 years
This calibrated approach balances innovation with institutional caution.
Conclusion: Pre-Pack Is Not a Shortcut—It Is a Smarter Route
Pre-pack insolvency is often misunderstood as a dilution of discipline. In reality, it is a commercially mature mechanism that recognises the cost of delay and the value of certainty. Restricting PPIRP to MSMEs may have been appropriate at inception. Continuing that restriction indefinitely may now be counter-productive.
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If the IBC is to evolve from a recovery-centric law into a true resolution framework, the question is no longer whether pre-packs should be expanded—but how responsibly and how soon.
Author Note: The author is an Insolvency Resolution Professional with extensive experience in managing multiple CIRP and liquidation assignments. For queries or professional discussions related to the Insolvency and Bankruptcy Code (IBC), you may reach out to: Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.
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