Preface: COVID-19 pandemic has impacted businesses, financial markets and economies all over the world, including India, and has impacted the business operations of micro, small and medium enterprises – MSME sector and exposed many of them to financial distress. The Government has taken several measures to mitigate the distress caused by the pandemic including increasing the minimum amount of default for initiation of corporate insolvency resolution process to one crore rupees and suspending filing of applications for initiation of corporate insolvency resolution process in respect of the defaults arising during the period of one year beginning from 25th March 2020. Such suspension for filing of applications for initiation of corporate insolvency resolution process has ended on 24th March 2021.

Micro, small and medium enterprises are critical for India’s economy as they contribute significantly to its gross domestic product and provide employment to a sizeable population it is expedient to provide an efficient alternative of insolvency resolution process for entities classified as micro, small and medium enterprises ensuring quicker, cost-effective and value maximising outcomes for all the stakeholders, in a manner which is least disruptive to the continuity of their businesses and which preserves jobs & in order to achieve these objectives, it is considered expedient to introduce a Pre-Packaged Insolvency Resolution Process – “P I R P” for MSMEs i.e the corporate persons classified as micro, small and medium enterprises as per MSME Act 2006 as amended in July 2020.

What is MSME Sector in India…?

Class of MSME Cap in Investment in Plant and Machinery or Equipment (Crore) Cap in Turnover (Crore) PIRP Applicability
Micro Enterprise 1 crore 5 crores Yes
Small Enterprise 10 crores 50 crores Yes
Medium Enterprise 50 crores


250 crores Yes

What is the Pre-packaged Insolvency Resolution Process (“P I R P”) under Insolvency Code…?

Important & notable points under PIRP for the MSMEs i.e Companies / LLPs which is referred to as Corporate Debtor in the process
1.        Nature of the process:

PIRP is basically in the nature of One Time Settlement (“OTS”) with lenders before NCLT

2.        Introduction of PIRP in IBC:

In Chapter III of the Principal IBC Act, the Chapter III A is inserted (Section 54 A to section 54 P)- Pre-Packaged Insolvency Resolution Process

3.        Default amount to go for PIRP:

PRIP can be initiated only when there is default in repayment of loan of Rs. 10 lacs & more. There is no upper limit prescribed for the default amount but off course the criteria being MSME should be satisfied to opt for PIRP process.

4.        Cooling period of 3 years:

Company has not undergone pre-packaged insolvency resolution process or completed corporate insolvency resolution process, as the case may be, during the period of three years preceding the initiation date.

5.      Eligibility:

Persons not eligible to be resolution applicant (Section 29A): 

This applies to the PPIRP framework. Broadly, it seems that the sub-committee is unwilling to provide a second chance to habitual/chronic defaulters. This is a departure from international practice, which allows CDs to submit resolution plan without any bar. There is a strong case for allowing CDs, irrespective of eligibility under section 29A of the Code, to submit resolution plan that will maximise value of the CD. The FCs are now more in tune with the insolvency regime and can take commercially wise decisions and consequently, we are of the view that the CoC should have the power to decide on all resolution plans including by an ineligible promoter and should not be mandated under law. Some kind of relaxation like exemptions for non-compliance with section 29(A)(c) (NPA of at least 1 year), should be considered so that a promoter is not disqualified due to other group entities. This can be particularly relevant for MSME’s. Certain checks and balances like resolution value not less than the fair value of the CD can be introduced to address any concern on habitual/chronic defaulters.

6.        Authorisations OR Approvals:

  • Board of directors in Board Meeting
  • Shareholders to approve the move with special resolution in general meeting
  • Financial Creditors with 66% majority in COC meeting
  • National Company Law Tribunal i.e Adjudicating Authority – NCLT
7.        Trade creditors / operational creditors interest:

 PIRP can be exercised only when trade creditors / operational creditors interest is not affected

8.        Limited role of Insolvency Resolution Professional:

Directors can engage consultant / Insolvency Professional to prepare the resolution plan for restructuring the debt obligations of the company to be submitted before the lenders / bankers of the company.

The role of resolution professionals during the PPIRP is mostly supervisory in nature and not managing the CD like in a CIRP under the Code. The resolution professionals have to work in tandem with the management of the company i.e corporate debtor i.e CD who continue to manage the CD especially for collation of claims, preparation of information memorandum (“IM”), reporting avoidance transactions, and ensuring transparency and fairness of the entire process, safeguard stakeholders interests and compliance with laws. There is scope for friction between resolution professional and management of the CD, however, as highlighted earlier, the premise of the PPIRP is the willingness of the management of the CD to resolve the CD – without which pre-pack cannot be a viable option for resolution. Resolution professionals will need to be careful to avoid conflict of interest and maintain their independence and objectivity as required as regulated persons by the Insolvency and Bankruptcy Board of India (“IBBI”). The PRIRP framework does not provide for replacement of resolution professional, which we think is not in the best interests and FCs should have the option to replace a resolution professional if unsatisfied.

9.        Deliberation between Bankers / Lenders / Financial Creditors:

In case the lenders in consultation with each other finds it appropriate to accept the restructuring plan as envisaged by the company as duly approved by the shareholders of the company the same can be filed before the Adjudicating Authority I.e National Company Law Tribunal (“NCLT”) for its approval.

10.    Committee of Creditors – COC

Committee of Lenders / bankers (financial creditors who are not related parties to the company) shall be formed to take the decisions in the process.

11.   Appointment of Resolution professional:

While filing the application before NCLT for initiating the PIRP the Resolution Professional shall be appointed by the lenders – as may be suggested by the company or of the choice of lenders

12. Appointment of registered valuers:

The resolution professional shall within three days of his appointment, appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor:

Fair value and liquidation value:

The registered valuers appointed under regulation 38 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor;

The average of the value determined by the two registered valuers shall be considered the fair value or the liquidation value, as the case maybe.

After the receipt of resolution plans in accordance with the Code and these Regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person.

13.        Control over the company:

The existing management shall remain intact and the control of the company shall remain with the promoters / management of the company only and not taken over by the lenders in the PIRP unlike CIRP –

This is the biggest relief to the promoters of the company

14.    Resolution professional – the facilitator instead of manager:

Resolution professional shall run the PIRP process as may be required under the provisions of IBC & directions of lenders & promoters. He shall act as facilitator between the company, lenders & the NCLT to smoothly complete the process.

15.        PIRP Cost:

The cost of running the PIRP is the responsibility of the company. As compared to CIRP the cost of running PIRP is very lesser as basically it is kind of a voluntary restructuring of the company by the promoters and hence no unnecessary litigations and delay in completing the process.

16.        Duration:

Time duration to complete the PIRP is 90 days

17.        NCLT Approval:

Restructuring or resolution Plan as provided by the company shall be put before NCLT for its approval only when 66% of the COC members vote in favour of such plan under PIRP

18.       Preference to PRIP Over CIRP by NCLT

Where an application filed under section 54C is pending, the Adjudicating Authority shall pass an order to admit or reject such application, before considering any application filed under section 7 or section 9 or section 10 during the pendency of such application under section 54C, in respect of the same corporate debtor.

19.        What if PIRP failed…?

In case the COC not approved the restructuring plan then PIRP ends there only and the company shall stand at its original position of pre pre-pack initiation and there is no event of taking off the control of the company from the promoters / management of the company by the bankers / COC.

Considering the existing stressed financial position the Pre-Packaged Insolvency Process – PIRP shall prove as a boon if tried for considering the expedient initiative by the Government in the resolution of financially stressed conditions with little cost & bigger benefits with no additional risk or losses or fear of losing the company to bankers.

Types of arrangements / resolution or restructuring plans as envisaged under IBC:

As envisaged in regulation 37 of CIRP regulations:
A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following:                                            Resolution Strategies
1.        transfer of all or part of the assets of the corporate debtor to one or more persons
2.        sale of all or part of the assets whether subject to any security interest or not
3.        restructuring of the corporate debtor, by way of merger, amalgamation and demerger
4.        the substantial acquisition of shares of the corporate debtor, or the merger or

consolidation of the corporate debtor with one or more persons;

5.        cancellation or delisting of any shares of the corporate debtor, if applicable
6.        satisfaction or modification of any security interest;
7.        curing or waiving of any breach of the terms of any debt due from the corporate debtor;
8.        reduction in the amount payable to the creditors;
9.        extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;
10.    amendment of the constitutional documents of the corporate debtor;
11.    issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose;
12.    change in portfolio of goods or services produced or rendered by the corporate debtor;
13.    change in technology used by the corporate debtor; and
14.    obtaining necessary approvals from the Central and State Governments and other authorities
15.    Any other type of resolution strategy may be introduced by the resolution applicant considering its legality and viability.

Pre-pack insolvency resolution – PIRP Vs normal IBC process i.e CIRP:

Criteria Pre-Packaged Insolvency Resolution Process (PIRP) Corporate Insolvency Resolution Process (CIRP)


Eligibility Only MSMEs All corporate debtors
Default threshold Minimum Rs 10 Lacs Minimum Rs 1 crore
Initiation by Only Corporate Debtor (CD), post approval by shareholders & unrelated Fin Creditors Financial Creditor/Operational Creditor/Corporate Debtor


90 days to submit resolution plan to adjudicating authority, 120 days for entire process. No extension 180 days extendable upto max 330 days
Management Control Corporate Debtor-in-Possession with Creditor-in-Control Creditor in control
Resolution plan CD to submit Base Resolution Plan. If CoC rejects, or if Operational Creditors not paid in full, competing bids can be invited. EOIs invited from all prospective resolution applicants.
Section 29A applicability Section 29A applicable Section 29A applicable
Consequence of failure Termination of PIRP, or liquidation or initiation of CIPR Liquidation
Moratorium Moratorium protection from date of commencement Moratorium protection from date of filing of plea
Termination  Can terminate process with min 66% CoC votes Section 12A to withdraw from CIRP with 90% vote of CoC
Other terms If promoters not diluting equity as part of resolution, CoC needs to record reasons for it

PIRP cannot run in parallel to CIRP

3-year cool-off period from any other PIRP, CIRP


List of FORMS / FORMATS prescribed under PIRP Process Regulations –

Sr No FORMS Particulars
1.        Form-1 Application by corporate applicant to initiate pre-packaged insolvency resolution process under chapter iii-a of the code
2.        FORM P1 WRITTEN CONSENT of the resolution professional to act as the RP in the matter
3.        FORM P2 List of creditors of the corporate debtor I,e company
4.        FORM P3 Approval of terms of appointment of resolution professional
5.        FORM P4 Approval for initiating pre-packaged insolvency resolution process by the bankers / FCs
6.        FORM P5 Written consent to act as authorised representative for class of creditors if any
7.        FORM P6 Declaration by director/partners – eligibility
8.        FORM P7 Declaration regarding existence of avoidance transaction(s)
9.        FORM P8 Report of the insolvency professional
10.    FORM P9 Public announcement – FOR THE ATTENTION OF THE CREDITORS OF
11.    FORM P10 List of claims
12.    FORM P11 Invitation for resolution plans
13.    FORM P12 Compliance certificate for the resolution plan by Resolution Professional
14.    FORM P13 Application For Termination Of Pre-Packaged Insolvency Resolution Process
15.    FORM P14 Application for vesting management with resolution professional


We believe that the PIRP process is a great enabler to the MSME Sector in India in the present situation of totally messed-up business conditions due to various reasons including Covid 19 pandemic. MSMEs can take advantage of this expedient initiative of PIRP process and streamline their businesses by having the restructuring of debts with lenders with the blessings of NCLT. Since the process shall be finally approved by the NCLT Tribunal the bankers / lenders shall be more enthusiastic to try for the best resolutions as there would be no suspicion on the part of bank officials with respect to the concessions given to the MSME companies under PIRP including any haircut taken by the bankers.

It will be a boon for the MSMEs and consequently boon for the nation at large as after all as per the govt. data approximately 70% companies’ falls under MSME sector in India.


Authored by – CS Prashant Thakre | Practicing Company Secretary | P S Thakre & Co. | E-Mail: [email protected]

Author Bio

Qualification: CS
Company: P S Thakre & Co.
Location: MUMBAI, Maharashtra, India
Member Since: 08 May 2020 | Total Posts: 2
P S Thakre is a Practicing Company Secretary (PCS) in Mumbai, Maharashtra & runs his PCS Firm called P S Thakre & Co. based out in Mumbai. He has completed graduation in commerce (B.Com) from Nagpur University and then completed his Company Secretaries Professional Degree from the Instit View Full Profile

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May 2021