India introduced the Pre-Packaged Insolvency Resolution Process (PPIRP) in 2021 to provide MSMEs a faster, lower-cost alternative to traditional CIRP, aiming to preserve business value while promoting debtor–creditor collaboration. Designed to conclude in roughly 120 days, PPIRP allows promoters to remain involved and addresses early-stage financial stress before irreversible asset deterioration occurs. Despite its advantages of speed, efficiency, and lower litigation costs, adoption has been limited due to practical bottlenecks: 66% creditor approval is required before filing, perceptions of promoter bias, limited market competition, NCLT delays, and low awareness among MSMEs. Critics warn that without safeguards, pre-packs risk sidelining operational creditors and encouraging promoter-favored settlements. Early case studies show mixed results, with success dependent on credible promoters, aligned lenders, and clean books. The upcoming IBC Amendment Bill 2025 offers an opportunity to expand eligibility, strengthen safeguards, improve market testing, streamline admissions, and enhance awareness, potentially making PPIRP a robust restructuring tool for struggling MSMEs.
Here’s a clear-eyed analysis of India’s pre-pack journey so far.
Why Pre-Pack Insolvency Was Introduced
PPIRP was designed with specific goals in mind:
- Faster resolution than the 180–330 days CIRP timeline
- Lower cost for distressed MSMEs
- Debtor–creditor collaboration through a negotiated plan
- Continuity of business without the uncertainty of a full CIRP
- Protection of value by avoiding lengthy moratorium-driven delays
The idea was simple: Rescue viable MSMEs before value destruction becomes irreversible.
Strengths of the Pre-Pack Framework: What Works Well
1. Speed and Efficiency
With most work completed before formal admission, PPIRP can theoretically close in 120 days, making it one of India’s fastest insolvency tools.
2. Lower Costs
No public announcements, limited litigation, and pre-negotiated plans reduce professional and administrative costs significantly.
3. Keeps Promoters Involved
Unlike CIRP, promoters remain in control unless fraud is detected. For MSMEs highly dependent on promoter know-how, this is critical.
4. Best Fit for Early-Stage Stress
Many MSMEs suffer from cash-flow issues, not structural insolvency. PPIRP allows restructuring before assets deteriorate.
Where Pre-Pack Fails: Practical Bottlenecks
Despite a promising design, very few PPIRPs have been admitted. Ground-level challenges include:
1. Requirement of 66% FC Approval Before Filing
Creditors must approve the base plan before the process begins. Debt-heavy MSMEs often struggle to secure this consensus.
2. Perception of “Promoter-Friendly” Process
Since promoters stay in control, some lenders view pre-packs as lacking independence and transparency.
3. Limited Market Competition
CIRP invites all prospective bidders. PPIRP allows a base plan from the debtor, with limited challenge options. This reduces competitive bidding and valuation maximization.
4. Lack of Awareness Among MSMEs
Many smaller businesses don’t understand the process or see insolvency as a stigma, not a restructuring tool.
5. NCLT Bottlenecks Still Impact Admission
Despite being fast on paper, PPIRP applications still face delays in listing and admission.
Is Pre-Pack a Risky Shortcut?
Some critics argue that PPIRP:
- may encourage promoters to negotiate favourable terms
- sidelines operational creditors
- lacks rigorous market testing
- reduces transparency compared to full CIRP
This risk becomes higher when promoters have contributed to the company’s stress.
Without safeguards, PPIRP could become a backdoor settlement mechanism, diluting IBC’s discipline.
What Needs Improvement in 2025
The IBC Amendment Bill 2025 and upcoming reforms offer a chance to unlock true PPIRP potential. Key changes India needs:
- Expand Pre-Pack Beyond MSMEs
Large stressed companies, particularly in manufacturing, could benefit from structured pre-packs under strong oversight.
- Stronger Safeguards Against Promoter Misuse
Clear criteria to prevent abusive “self-serving” base plans.
- Improve Creditor Protection & Competition
Structured challenge mechanism for base plans
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mandatory independent valuation
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market testing where required
- Streamlined NCLT Admission
Fast-track benches or e-admission for PPIRP cases.
- Build Awareness & Tech Support for MSMEs
Digital templates, automated data submission, and simplified claim filing will increase adoption.
Case Study Snapshot: Mixed Results in Early PPIRP Cases
Case 1 — Successful Pre-Pack (Manufacturing MSME)
- promoter cooperation
- early-stage stress
- unanimous lender support
- base plan competitive
Outcome: Completed within 120 days, business revived with clean debt.
Case 2 — Failed Pre-Pack (Service Sector MSME)
- lenders rejected base plan
- disputes over related-party claims
- valuation mismatch
- NCLT admission delays
Outcome: Escalated to CIRP; liquidation probability high.
Learning:
PPIRP works only when promoters are credible, lenders are aligned, and books are clean.
Is Pre-Pack the Future of Indian Insolvency?
Pre-packs offer speed, flexibility, and value preservation that CIRP often cannot match.
But without strong transparency mechanisms, they risk becoming promoter-led settlements that hurt creditors.
The next phase of insolvency reform must strike the right balance between:
- speed vs. transparency
- collaboration vs. independence
- flexibility vs. accountability
If implemented well, pre-packs could become India’s most powerful restructuring tool — especially for MSMEs that need revival, not liquidation.
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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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