When a corporate MSME can consider a pre-pack
The pre-packaged insolvency resolution process (PPIRP) combines pre-filing preparation with a formal process under Chapter III-A of the Insolvency and Bankruptcy Code, 2016 (IBC). Eligible corporate MSMEs, including qualifying companies and LLPs, can consider it. A sole proprietor or ordinary partnership is not a corporate debtor for this route. The notified minimum default is ₹10 lakh for PPIRP under S.O. 1543(E); the general notified threshold for standard corporate insolvency resolution (CIRP) is ₹1 crore. Default means the relevant unpaid debt when due, not the amount of the credit limit.
The 2026 Amendment Act changed specific pre-pack rules. The reductions in the pre-filing approval thresholds under sections 54A(2)(e) and 54A(3) came into force on 26 May 2026 under S.O. 2625(E). The May notification commenced only specified provisions; do not treat every amendment in the Act as operative from that date. Check the commencement notifications applicable to the filing date and use the current IBBI regulations and forms.
Eligibility and evidence under section 54A
| Gate | What to verify |
|---|---|
| Corporate debtor and MSME | Check corporate status, MSME classification under section 7(1) of the MSMED Act and documentary proof, including the applicable Udyam record. Current medium-enterprise ceilings are ₹125 crore investment and ₹500 crore turnover; also check the lower category thresholds and applicable classification rules. |
| Default and prior processes | Verify the default and three-year lookback for a previous PPIRP or completed CIRP. Check that the debtor is not already in CIRP and there is no liquidation order under section 33. Confirm any later commenced provisions relevant to another insolvency process. |
| Resolution applicant eligibility | Confirm the corporate debtor’s eligibility to submit a resolution plan under section 29A, read with the limited MSME exceptions in section 240A. |
| Pre-filing approvals | Obtain the applicable approval of unrelated financial creditors for the proposed resolution professional under section 54A(2)(e) and separately for filing under section 54A(3). The statutory threshold for each is at least 51% in value from 26 May 2026, replacing 66%. If there are no qualifying unrelated financial creditors, use the prescribed alternate procedure. |
| Management declaration and owner approval | A majority of directors or partners makes the prescribed declaration, including a filing period not exceeding 90 days and that the process is not initiated to defraud anyone. Obtain the members’ special resolution or approval of at least three-fourths of the total partners, as applicable. For a company special resolution, apply section 114(2) of the Companies Act to votes cast. |
| Materials for creditors and the NCLT | Provide the declarations, resolution, compliant base resolution plan and prescribed material to the relevant creditors before seeking filing approval. File the application under section 54C in the prescribed Form 1 with prescribed fees and documents, including the information required by amended regulation 18 and applicable IBBI formats. |
Management and promoter eligibility
Under section 54H, the board or partners ordinarily continue managing the debtor during PPIRP, subject to the resolution professional’s oversight and statutory duties. Under section 54J, management can vest in the resolution professional by NCLT order in the specified circumstances. In standard CIRP, management generally vests in the interim resolution professional and the powers of the board or partners are suspended. A qualifying MSME may rely on section 240A’s exceptions to section 29A(c) and (h) for the relevant resolution plan. Those exceptions are not blanket promoter immunity and do not remove section 29A(b) or the other applicable eligibility conditions. Do not assume PPIRP necessarily saves time or fees in a particular case.
How the plan is selected and approved
Section 54D provides 120 days from the commencement date for the process, with the resolution professional to submit the CoC-approved plan to the NCLT within 90 days or apply for termination if no plan is approved in that period. The debtor provides its base plan to the resolution professional within two days of commencement under section 54K. The Committee of Creditors (CoC) may approve the base plan directly if it does not impair operational creditor claims, subject to the applicable approval requirements. Plan approval under section 54K requires at least 66% of CoC voting share; the 51% pre-filing threshold does not replace it.
If the CoC does not approve the base plan directly or the plan impairs operational creditor claims, the resolution professional invites competing plans under section 54K and the applicable IBBI regulations. A significantly better plan can be selected for approval under the statutory route. Where the statutory conditions instead require competition with the base plan, apply the evaluation and improvement process in the regulations. A rival offer with a higher NPV does not automatically win, and the debtor has no blanket right to match it. The NCLT separately checks the legal requirements under section 54L; the CoC’s vote is not the approval order.
Moratorium and creditor treatment
The moratorium starts with admission and the order under section 54E, which applies the relevant provisions of section 14. Within its scope it restricts suits, execution, enforcement of security including SARFAESI action against the corporate debtor’s assets, and recovery of property occupied or possessed by the debtor. Check the terms and exceptions for essential or critical supplies, including payment for supplies during the process. A filing alone does not stop an auction, and the corporate debtor’s moratorium does not generally protect a surety under a guarantee.
Test plan distributions against the applicable version of section 30(2), read with sections 54K, 54L and 53. In particular, compute the operational creditor floor using the applicable statutory comparators, and distinguish the treatment of dissenting financial creditors. Review each statutory claim, security interest and governing law separately. Do not treat a GST claim as automatically secured based on Rainbow Papers, or infer the treatment of every PF or ESI balance from the exclusion of specified employee fund sums from the liquidation estate under section 36(4)(a)(iii).
Seven worked cases
These are hypothetical examples, not records of court orders or lender decisions.
1. An auto components LLP and section 240A
A Pune LLP with 85 employees has ₹8.50 crore in bank borrowing, customer payments delayed by 180 days and a facility classified as NPA for 14 months. A SARFAESI notice gives 60 days. Assume a qualifying default exceeding ₹10 lakh, valid MSME classification and 78% eligible pre-filing creditor support. An illustrative plan offers full repayment of ₹8.50 crore principal over five years, or ₹1.70 crore a year on an even principal schedule before interest, supported by ₹1.20 crore of fresh promoter funding. Check section 29A with section 240A. The NPA duration alone does not disqualify this LLP’s plan. A hypothetical NCLT order on day 105 is within the 120-day period if the plan was submitted on time and all requirements were met.
2. Pre-filing support is distinct from the plan vote
Assume the eligible unrelated financial debt is ₹3.20 crore and three lenders hold 55%, 25% and 20% in value. The 51% pre-filing threshold represents ₹1.632 crore. The 55% lender represents ₹1.76 crore and can reach that threshold alone on these facts; with the 20% lender, support is 75%, or ₹2.40 crore. If the subsequent CoC voting shares are identical, 75% also clears the separate 66% plan threshold. Do not assume identical denominators or zero liquidation recovery for unsecured creditors; support the valuation and test the applicable waterfall.
3. Vendor haircut and competing plans
A textile company with ₹18 crore turnover proposes a 20% vendor haircut, paying ₹80 for each ₹100 of the admitted claim before timing effects. The base plan impairs operational creditor claims, so the resolution professional invites competing plans. A rival NPV of ₹5.50 crore is 10% above a ₹5 crore base on consistent assumptions; significance depends on the approved evaluation basis, not that percentage alone. If the applicable competition procedure permits improvement, a revised base plan may be considered under that procedure. An illustrative 84% CoC vote clears 66% but does not bypass the required selection and NCLT review.
4. Wilful default and promoter diligence
A managing director was classified as a wilful defaulter in 2022. Obtain the operative classification, any later order and the relationship between the person and the corporate debtor or proposed plan. Test section 29A(b) and any connected-person provisions. Section 240A does not waive those grounds. An actual disqualification depends on the statutory test and verified facts; do not assume a tribunal finding or a permanent bar from the date alone.
5. Auction scheduled after admission
A corporate debtor has an auction scheduled for 20 December 2026. It obtains 70% eligible creditor support, completes the separate corporate approval and files Form 1. Assume admission and the applicable moratorium order on 12 December, eight calendar days before the auction. Confirm that the asset and proposed sale are within the order and communicate it to the creditor and auction authority. If the application had only been filed, the section 54E protection would not yet have begun.
6. GST and provident fund balances
A borrower records ₹45 lakh GST and ₹8 lakh PF-related balances, or ₹53 lakh in total. Reconcile the creditor, admitted amount and legal character of each component. An illustrative proposal pays a verified ₹8 lakh PF balance in full in 30 days and spreads ₹45 lakh GST over 24 equal instalments of ₹1.875 lakh before interest or rounding. Those terms do not establish compliance: test the statutory treatment, applicable creditor floor and distribution, timing and other requirements before approving the plan.
7. An industrial LLP with four partners
An MSME LLP has ₹65 lakh in qualifying defaults and four total partners, all designated partners. Three signatures represent 75% and meet the three-fourths approval requirement on these facts. Count all partners if that population differs from the designated partners. Obtain the separate prescribed majority declaration and financial creditor approvals and prepare the statement of affairs and plan from reconciled evidence. Meeting the partner vote alone does not ensure admission.
Board decision checklist
Verify MSME status, default, insolvency history, eligibility and ownership approvals. Obtain separate documented creditor decisions, reconcile claims and valuations, and model operational creditor treatment and downside liquidity. Date the documents and track the section 54D milestones. Use current prescribed forms and keep the underlying records accessible to the resolution professional. A finance platform may help organise them; it cannot establish eligibility or guarantee approval.
Frequently asked questions
Can a proprietorship or ordinary partnership file?
No. This process concerns eligible corporate debtors. A qualifying LLP is a distinct corporate form.
Does management necessarily keep control?
It ordinarily continues under section 54H, but management can vest in the resolution professional under section 54J.
What is the minimum default?
The notified PPIRP minimum is ₹10 lakh. Other eligibility conditions and evidence still apply.
What if the base plan is rejected or impairs operational creditors?
The resolution professional invites plans under the statutory route. Selection, voting and approval remain separate; if no plan is approved within the statutory period, apply for termination under section 54D.
Can a promoter affected by an NPA participate?
Check section 29A and section 240A for the eligible MSME. The limited exceptions cover clauses (c) and (h), and do not waive other grounds.
How can a finance model help?
Use it to reproduce admitted claim and voting figures, valuations, proposed distributions and cash available to implement the plan.
Sources
- India Code: Insolvency and Bankruptcy Code, 2016, sections 4, 14, 29A, 30, 53, 54A–54P and 240A, read with later amendments
- Gazette: Insolvency and Bankruptcy Code (Amendment) Act, 2026
- Gazette: S.O. 2625(E), commencement of specified provisions on 26 May 2026
- Gazette: S.O. 1543(E), ₹10 lakh PPIRP default threshold
- Gazette: Insolvency and Bankruptcy (Pre-Packaged Insolvency Resolution Process) Rules, 2021
- Gazette: IBBI PPIRP Third Amendment Regulations, 2026, including application documents under regulation 18
- IBBI: 2 June 2026 PPIRP formats circular
- RBI: current MSME classification and lending directions
- Supreme Court: discussion of Rainbow Papers and the statutory priority of government dues
- India Code: Companies Act, 2013, section 114