Pre-Packaged Insolvency Resolution Process (PPIRP) for MSMEs under the IBC: How It Works and What Changed in 2026

A conventional corporate insolvency resolution process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”) removes the board of directors and hands control to an insolvency professional. For a small, owner-run business, that can destroy the very value creditors hope to recover. The pre-packaged insolvency resolution process (“PPIRP”) offers an alternative for corporate micro, small and medium enterprises (“MSMEs”): the company and its unrelated financial creditors negotiate a plan first, and the formal process is used to test and bind that plan. The 2026 amendment to the PPIRP framework has lowered one of its key approval thresholds.

Legal Framework

PPIRP was introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, promulgated on 4 April 2021 and replaced by the Insolvency and Bankruptcy Code (Amendment) Act, 2021. It is contained in Chapter III-A of Part II of the IBC (Sections 54A to 54P), supplemented by the Insolvency and Bankruptcy (Pre-packaged Insolvency Resolution Process) Rules, 2021 and the IBBI (Pre-packaged Insolvency Resolution Process) Regulations, 2021.

Who can use PPIRP?

According to the framework as summarised by the Insolvency and Bankruptcy Board of India (“IBBI”), a corporate debtor may apply if it:

• is an MSME under Section 7(1) of the Micro, Small and Medium Enterprises Development Act, 2006;
• has committed a default of at least ₹10 lakh;
• is eligible under Section 29A to submit a resolution plan;
• has not undergone a PPIRP, or completed a CIRP, in the three years preceding the initiation date;
• is not undergoing a CIRP; and
• is not required to be liquidated under Section 33.

Unlike CIRP, PPIRP may also be used in respect of defaults that arose between 25 March 2020 and 24 March 2021, the period for which Section 10A bars CIRP applications. Only the corporate debtor, acting as corporate applicant, may file.

The Pre-Initiation Stage

The informal stage is largely driven by the company and its creditors:

1. Creditor approvals. The corporate debtor convenes meetings of unrelated financial creditors, or of unrelated operational creditors where there are no unrelated financial creditors. Those creditors must approve the proposed resolution professional (Section 54A(2)(e)) and the filing of the application (Section 54A(3)).
2. Declarations and resolutions. A majority of directors must declare, among other things, that the application will be filed within a stated period not exceeding ninety days and that the process is not being initiated to defraud any person. Members must pass a special resolution approving the filing.
3. Base resolution plan. The corporate debtor prepares a base resolution plan meeting the requirements of Section 54K.
4. Resolution professional’s report. The proposed resolution professional confirms that the corporate debtor is eligible and that the base resolution plan meets the requirements.

Change from 26 May 2026. The approval threshold in Sections 54A(2)(e) and 54A(3) has been reduced from sixty-six per cent to fifty-one per cent in value of the debt due to the relevant unrelated creditors, by clause 34 of the Amendment Act as brought into force by notification S.O. 2625(E) dated 22 May 2026. This makes it easier to begin a PPIRP where a simple majority of unrelated creditors support it.

Admission and the Formal Stage

Under Section 54C, the Adjudicating Authority is to admit or reject the PPIRP application within fourteen days, giving seven days to rectify defects before rejection. The PPIRP 2026 Amendment substituted Section 54C(3) to require the applicant to furnish such information as may be specified.

On admission, the Adjudicating Authority declares a moratorium and appoints the resolution professional. Key features of the PPIRP process are:

• Debtor in possession. Under Section 54H, management of the corporate debtor’s affairs continues with its board of directors or partners, who must preserve value and run the business as a going concern.
• Supervision. The resolution professional monitors management and conducts the process under Section 54F. The 2026 amendment substituted Section 54F(5) to require present and former personnel, promoters, persons associated with management and persons under a contract for service to cooperate with the resolution professional.
• Transfer of management. Under Section 54J, where the committee of creditors resolves by not less than sixty-six per cent of the voting share to vest management in the resolution professional, the resolution professional applies to the Adjudicating Authority, which may make such an order if the affairs of the corporate debtor have been conducted fraudulently or there has been gross mismanagement.
• Timeline. The process is to be completed within 120 days from the PPIRP commencement date, and a resolution plan must be submitted to the Adjudicating Authority within ninety days of commencement.

Approval of the Plan

If the base resolution plan does not impair the claims of operational creditors, the committee of creditors may approve it for submission to the Adjudicating Authority. If it does impair those claims, or is not approved, the resolution professional invites competing plans. Under Section 54K and the regulations, a competing plan that is significantly better may be preferred, and the corporate debtor is given an opportunity to improve its base plan.

Under Section 54L, the Adjudicating Authority approves or rejects the plan. From 26 May 2026:

• Section 54L(2) now applies Section 31(5) and (6), so that licences and permits associated with the approved plan are protected if obligations are complied with, and prior claims not provided for in the plan are extinguished.
• A proviso to Section 54L(3) allows the Adjudicating Authority, before rejecting a plan, to give notice to the committee of creditors to rectify defects.

Termination and Conversion

A PPIRP ends on approval of a plan, on rejection, if no plan is submitted within ninety days, or on termination. Under Section 54O, the committee of creditors may, by at least sixty-six per cent of the voting share, resolve to initiate a CIRP if the corporate debtor is eligible for one, at any time before a resolution plan is approved; the Adjudicating Authority then terminates the PPIRP and initiates CIRP within thirty days. The reduction to fifty-one per cent in 2026 applies to the pre-initiation approvals in Section 54A and does not change the threshold for conversion.

Assessing PPIRP as an Option

Potential advantages. Continuity of management, a shorter prescribed timeline, a plan negotiated before filing, and the binding effect of an approved plan on all stakeholders.

Limitations. Availability is restricted to corporate MSMEs; the corporate debtor must be eligible under Section 29A (subject to the relaxation for MSMEs in Section 240A); operational creditors can trigger a competing-plan process if their claims are impaired; and management may be displaced if misconduct is shown.

Whether PPIRP suits a particular business depends on its creditor profile, the level of creditor support and the eligibility of those who wish to retain control. Publicly available IBBI data on PPIRP usage should be consulted for current figures.

Frequently Asked Questions

What is the PPIRP 2026 Amendment?
The PPIRP 2026 Amendment introduced changes to the pre-packaged insolvency resolution process for eligible MSMEs, including reducing certain creditor approval thresholds.

What is the new PPIRP creditor approval threshold?
From 26 May 2026, the approval threshold under Sections 54A(2)(e) and 54A(3) was reduced from 66% to 51% in value of the debt due.

Who is eligible for PPIRP under the IBC?
PPIRP is available to eligible corporate debtors that qualify as MSMEs and satisfy the requirements under Section 54A of the IBC.

How long does a PPIRP take?
The PPIRP is required to be completed within 120 days from its commencement date, with the resolution plan generally submitted within 90 days.

Can PPIRP be converted into CIRP?
Yes. The committee of creditors may resolve to initiate CIRP under Section 54O, subject to the statutory requirements and the applicable voting threshold.

Legal Information Disclaimer

This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.

Sources / Authorities

1. Insolvency and Bankruptcy Code, 2016 — Chapter III-A of Part II, Sections 54A to 54P; Sections 10A, 29A, 31 (as amended) — IBBI – Legal Framework
2. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), clauses 34 to 38 — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
3. Insolvency and Bankruptcy Code (Amendment) Act, 2021
4. Insolvency and Bankruptcy (Pre-packaged Insolvency Resolution Process) Rules, 2021; IBBI (Pre-packaged Insolvency Resolution Process) Regulations, 2021 — IBBI – Regulations
5. IBBI, Pre-Packaged Insolvency Resolution Process — Information Brochure — IBBI
6. Micro, Small and Medium Enterprises Development Act, 2006 — Section 7(1)