Written By: Apoorv Agarwal, Saumya Aggarwal

Introduction

When a company cannot pay its debts, the law gives it two broad routes. One is a formal court process, where a tribunal takes charge and creditors are dealt with together. The other is an informal route, where the company and its lenders quietly negotiate a deal of their own.

A “pre-pack” is a hybrid of the two wherein the company and its main creditors agree on a rescue plan before going to court, and the court is then only asked only to approve a deal that is already done and make it binding. This was introduced in Insolvency and Bankruptcy Code (the Code) through Amendment Act, 2021 as Chapter III-A titled Pre-Packaged Insolvency Resolution Process (PPIRP).[1] This amendment specifically targeted only Micro, Small and Medium Enterprises (MSMEs) registered under Micro, Small, and Medium Enterprises Development Act, and only for defaults above ₹10 lakh.[2] Bigger companies, and bigger defaults, were left to the regular court process.

In January 2023, the Ministry of Corporate Affairs (MCA) invited public opinion on the expansion of PPIRP to larger companies[3] which largely received assenting opinions.[4] In 2026, Parliament finally responded with Amendment Act, 2026. This article asks whether PPIRP should be extended beyond MSMEs. It argues that the case for extension is genuinely strong — but that its failure to take off among MSME reveals very little about how it would work for the large companies. The pre-pack was, in a sense, built too heavy for the small businesses it was meant to serve.

I. What the MSME Pre-Pack Has Actually Done

A. The Good: The Debtor-In-Possession Model for Value Maximisation

The single most important feature of the pre-pack is the debtor-in-possession model: the existing owners stay in charge of the business throughout, rather than being replaced by an outside official. This is game-changing in a small firm as much of the company’s real worth lies in the owner’s personal relationships with suppliers, banks, and customers; and not within the tangible assets. The moment an outsider takes over, it signals to the market that the firm is dying. Suppliers stop supplying, customers leave, and that hidden value disappears. Keeping the owner in place avoids this.[5]

In plain economic terms, suppose a healthy business is worth more than its debts. Under the slow court process, which removes the owner and routinely drags past 270 days, the value of the business falls below the level of the debt, and the firm ends up being broken up and sold off for scrap. Under PPIRP, with the debtor-in-possession and the timeline limited to 120 days, the value stays above the debt as the dying signal is not received by the market, making the business survive. If a better outside offer appears during the process under the Swiss challenge,[6] the value can even rise.[7] The contrast with traditional CIRP regime is clear: under the earlier system, cases dragged on for an average of 5.8 years, and only 9% ended in a genuine rescue.[8]

Where the PPIRP has actually been used, these benefits show up. Amrit India Limited, the first company rescued this way, finished in 156 days. Its secured creditor recovered about 39% of its claim — better than the usual outcome for small firms in the regular process — and the business kept running.[9] More broadly, a study by IIM Ahmedabad of rescued companies found that, three years after resolution, their spending on employees had risen by 50% (approx.). In other words, a rescue does not merely save existing jobs; it lets the firm grow them back. Liquidation, which often returns as little as 4–6% to ordinary creditors, can do neither.[10]

B. The Bad: Almost Nobody Uses It, And the Weakest Lose Out When They Do

Surprisingly, PPIRP mechanism has barely been used. Eighteen months after it was launched, only two cases had been admitted.[11] By mid-2023, only ten;[12] by early 2025 it had increased by three;[13] and as on 31 March 2026, just eighteen applications had been admitted, with rescue plans approved in only ten of them.[14] Compared to the thousands of ordinary insolvency cases over the same period, this is almost nothing.

The reasons lie not in how the process is designed but in how the market has received it. A survey of bankers, insolvency professionals and business owners has discovered that 65% of the people did not know of the existence of PPIRP. Moreover, 90% feared the voluntary haircuts[15] the process requires, and worried about being blamed later for having accepted them. Around 79% saw that the process lacked transparency, and 86% pointed to the difficulty of arranging fresh funding for the rescued firm.[16] Additionally, introduction special COVID-era relief schemes like, the government’s credit-guarantee scheme and the Reserve Bank’s loan-restructuring framework, which gave lenders an easier way to deal with stressed loans, at the same time as introduction of PPIRP, further pushed the mechanism aside.[17]

A deeper problem resides in the gains that come at the expense of the weakest stakeholders when the PPIRP works. In the Amrit India case, the speed was real, but so was the cost to others: contingent creditors[18] recovered just 8.58% of their claims — a loss of more than 91% — and small shareholders saw their holdings cut down in a ratio of 200 to 1. The tribunal, deferring to what the lenders had decided, did not address the imbalance.[19] Unlike the European Union’s restructuring rules, India’s pre-pack sets no minimum recovery floor for unsecured creditors.[20] And another early case, GCCL Infrastructure, took 721 days — almost six times the legal limit — destroying the entire point of choosing a “fast” process in the first place.[21] The promise is real; the delivery has been thin and, when it lands, often one-sided.

II. How This Compares with the traditional CIRP

A. Can large companies already get the pre-pack’s benefits in the regular process? No.

The regular insolvency route – the Corporate Insolvency Resolution Process (CIRP) – is the opposite of PPIRP in almost every way. The moment a CIRP begins, the company’s board is removed and a Resolution Professional takes over the management of the firm; this is the creditor-in-control model.[22] The company is put up for open bidding in the market, and there is no shortcut for a quiet, pre-negotiated deal to be approved quickly.[23] So the speed, the privacy, the continuity, and the owner-led turnaround that make a pre-pack attractive are simply not offereed to a large company under the standard route. Thus, procedures like PPIRP were invented to bridge this gap.[24]

B. If large companies could use it, would it actually help? The puzzle at the centre.

Here the sources point in two directions at once, and the tension is the real heart of the question. On one hand, research on informal restructuring shows that pre-negotiated pland succeed best when a company has a simple debt structure – a few lenders, mostly banks, who all want roughly the same outcome. As the number and variety of creditors grows, so does the risk of hold-outs[25] – creditors who refuse to agree unless they are paid more, and who can threaten to derail the whole deal.[26] Following this logic, large companies, which usually owe money to many different kinds of creditor, look like poor candidates for a negotiated rescue, and extending the PPIRP mechanism to them seems like another failed venture.

However, the same fact argues for such extension. What separates a PPIRP from a pure informal deal is that it forces dissenters to fall into line: once 66% of the committee of creditors (CoC) approve the plan, the rest are bound, and a court-ordered moratorium stops anyone from breaking the distribution priority order.[27] That power to overrule hold-outs is the most valuable precisely where hold-outs are most likely, i.e., in large companies with many creditors. The pre-pack therefore becomes more useful, as the company’s debt structure grows more complicated.

The safeguards built into India’s PPIRP – a formal CoC, a detailed information document carrying legal liability, and two separate trips to the tribunal for admission and approval – are heavy and often not worth the cost for an MSME with only a few lenders. Yet those same safeguards are sensible and appropriate for a larger company.[28] In short, the tool was built heavy and then handed to its lightest users. Extending it to larger companies would finally match the design to the borrower.

A closer look at why MSMEs have stayed away supports this. Some of the obstacles are specific to small firms and would simply vanish for larger ones: low awareness of the scheme, the requirement to be formally registered (which an estimated 90% of enterprises are not), and the nervousness of junior bank officers about approving small write-offs they may later be questioned over.[29] Other obstacles like, doubts about valuation, weak transparency, and slow tribunals, would carry over, and might even worsen in bigger cases.[30] But on balance, the main things holding PPIRP from gaining foothold are MSME specific problems. Therefore, an extension could improve take-up rather than merely copy the failure across.

C. Is there a real need? What other countries do, and what scholars say.

No major country limits PPIRP to small firms. In the United States, PPIRP are a standard tool for large corporate rescues, often completed in about 80 days and sometimes in under 24 hours, because the law lets creditors vote on the plan before the case even reaches court.[31] In the United Kingdom, PPIRP is open to companies of every size, with newer rules added to curb abuse where the business is sold back to its own owners.[32] Singapore’s PPIRP is available to all companies and even allows the company to go straight to court for approval without a separate creditors’ meeting.[33]

India, by confining its pre-pack to MSMEs, is the odd one out. The idea of expansion to all enterprises has been strongly supported for the benefit of value maximisation.[34] The government’s 2023 consultation proposed both widening the scheme and lowering its main approval threshold from 66% to 51%.[35]

III. Conclusion: How the 2026 Amendment Answers the Question

The Insolvency and Bankruptcy Code (Amendment) Act, 2026, which became law in April 2026, has answered the extension question, but in an indirect way that fits the analysis above.[36] Rather than simply opening the existing MSME pre-pack to large companies, the Parliament did three separate things.

First, it made the PPIRP mechanism easier to use, lowering several approval thresholds from 66% to 51%, in conformity with the 2023 consultation.[37] Second, and more importantly, it created a brand-new procedure in a new Chapter IV-A: the Creditor-Initiated Insolvency Resolution Process (CIIRP). This is an out-of-court, supervised process in which the company’s management keeps running the business, and which is open to companies in categories that the government will notify, defined by their size, income or level of debt. Most observers expect this to bring mid-sized and larger companies into a pre-pack-style route for the first time.[38] Third, the amendment laid the legal groundwork for handling group companies and cross-border cases that are major problems  for large, complex businesses.[39]

The lesson is twofold. The basic argument that the benefits of pre-packs should not be reserved for the smallest businesses has clearly been accepted. But Parliament chose to deliver those benefits through a new, creditor-driven tool rather than by simply widening the owner-driven PPIRP. That choice quietly concedes that the debtor-in-possession PPIRP, however neat in theory, never won the confidence of lenders for larger and more complex companies.[40] So India has kept the simple, owner-led pre-pack for small firms and built a separate, lender-led version for everyone else.

Whether this new version succeeds will depend on the one thing: whether India’s tribunals can actually keep to the deadlines the law sets.

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[1]The Insolvency and Bankruptcy Code (Amendment) Act, No. 26 of 2021; Report of the Sub-Committee of the Insolvency Law Committee on Pre-Packaged Insolvency Resolution Process (2020).

[2]The Insolvency and Bankruptcy Code, No. 31 of 2016, § 54A.

[3]Ministry of Corporate Affairs, Invitation of Comments on Changes Being Considered to the Insolvency and Bankruptcy Code, 2016, File No. 30/38/2021-Insolvency, ¶ 7 (Jan. 2023).

[4]See, e.g., Hiteshkumar Thakkar & Krishna Agarwal, Pre-Packaged — Integration of Debtor Centric Model with Creditor in Control Model: Indian Insolvency Regime, Bank Quest (J. Indian Inst. Banking & Fin.), Jan.–Mar. 2022, at 5, 15.

[5]Aayushi Chaturvedi, Institutional Resilience and the Transition to Debtor-in-Possession Models: A Comprehensive Evaluation of the Pre-packaged Insolvency Resolution Process (PPIRP) for MSMEs under IBC 2.0, at 2 (2025) (manuscript).

[6] A mechanism in which rival bidders are invited to come forward and beat the owner’s plan.

[7]Thakkar & Agarwal, supra note 4, at 7, 15–16.

[8]Chaturvedi, supra note 5, at 1.

[9]Manoj Kumar Anand & Rajiv Sharma, Pre-Packaged Insolvency in India: Balancing Efficiency and Equity through the First Successful Case of Amrit India Limited, 6(2) Int’l J. Dynamic Educ. Rsch. Soc’y 94, 103–04 (2025) (In re Amrit India Ltd., IA No. 1599/PB/2023, NCLT).

[10]Chaturvedi, supra note 5, at 3; see also Insolvency & Bankr. Bd. of India, Quarterly Newsletter (Jan.–Mar. 2025).

[11]Alekha Charan Rout & Girija Shankar, Pre-Packaged Insolvency Resolution Process (PPIRP) under the Insolvency & Bankruptcy Code (IBC), 2016: Why a Non-Starter?, Mgmt. Acct., Oct. 2022, at 88, 90.

[12]Anand & Sharma, supra note 8, at 95 (eight cases by May 2023); A Critical Analysis of India’s Pre-pack Regime for MSMEs, at 3 (2024) (manuscript) (six applications admitted as on 30 June 2023, one withdrawn and one resolved).

[13]Chaturvedi, supra note 5, at 3 – 4.

[14]ICRA Ltd., Sharp Decline in IBC Recoveries in 2025-26, at 2 (May 2026).

[15]A “haircut” is the portion of its claim that a lender agrees to give up so that a rescue can proceed.

[16]Rout & Shankar, supra note 10, at 90 – 91.

[17]Id. at 92.

[18]“Contingent creditors” are those owed amounts that are conditional or disputed – for example, penalties or guarantees that may or may not fall due – and who therefore rank low in any distribution.

[19]Anand & Sharma, supra note 8, at 102–08.

[20]Id. at 99, 108.

[21]Chaturvedi, supra note 5, at 4.

[22]Under the “creditor-in-control” model the company’s board is suspended on admission, and a court-appointed resolution professional manages the business — the opposite of the debtor-in-possession model used in a pre-pack.

[23]The Insolvency and Bankruptcy Code, No. 31 of 2016, §§ 17, 20, 29A, INDIA CODE; A Critical Analysis of India’s Pre-pack Regime for MSMEs, supra note 11, at 8–9.

[24]Fancy C. Too, Corporate Restructuring: Towards More Informal and Flexible Models, 1 Afr. J. Com. L. 23, 28–29, 39–40 (2019).

[25]A “hold-out” is a creditor who withholds consent to a restructuring in the hope of extracting better terms than the others, and who can thereby block or delay an otherwise viable deal.

[26]Too, supra note 23, at 31, 44–45.

[27]The Insolvency and Bankruptcy Code, No. 31 of 2016, §§ 54E, 54K, INDIA CODE.

[28]A Critical Analysis of India’s Pre-pack Regime for MSMEs, supra note 11, at 15–17.

[29]Chaturvedi, supra note 5, at 5 (over 90% of enterprises unregistered under Udyam); Rout & Shankar, supra note 10, at 91.

[30]A Critical Analysis of India’s Pre-pack Regime for MSMEs, supra note 11, at 18; Rout & Shankar, supra note 10, at 91.

[31]11 U.S.C. §§ 1121, 1126(b) (2018); A Critical Analysis of India’s Pre-pack Regime for MSMEs, supra note 11, at 4; Anand & Sharma, supra note 8, at 95.

[32]Insolvency Act 1986, c. 45, sch. B1 (UK); The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021, SI 2021/427 (UK); see Too, supra note 23, at 42–44.

[33]Insolvency, Restructuring and Dissolution Act 2018, No. 40 of 2018, § 71 (Sing.); A Critical Analysis of India’s Pre-pack Regime for MSMEs, supra note 11, at 6.

[34]Thakkar & Agarwal, supra note 4, at 7, 14–15.

[35]Ministry of Corporate Affairs, supra note 3, ¶ 7.

[36]The Insolvency and Bankruptcy Code (Amendment) Act, No. 6 of 2026, INDIA CODE (Presidential assent Apr. 6, 2026).

[37]Id. (amending §§ 54A, 54C, 54F, 54L and 54N, including reduction of certain approval thresholds from 66% to 51%); cf. Ministry of Corporate Affairs, supra note 3, ¶ 7.

[38]The Insolvency and Bankruptcy Code (Amendment) Act, No. 6 of 2026.

[39]Id.

[40]Rout & Shankar, supra note 10, at 91.