Pre-Packaged Insolvency Resolution Process: formula sheet

Key formulas

Eligible debtor (section 54A(1))

Corporate debtor classified as MSME under section 7(1) of the MSMED Act, 2006

MSME status shows the debtor belongs to the class that may apply under this sub-section. It does not replace the sub-section (2) conditions, the approvals in sub-section (3), or the documents required under section 54C(3). Sub-section (2) also extends the route to other debtors that commit a default under section 4 and meet the listed conditions.

Cooling-off condition (section 54A(2)(a))

No pre-pack or completed CIRP in the 3 years preceding the initiation date

Both a past pre-pack and a completed CIRP count.

Creditor approval (section 54A(2)(e) and (3))

Unrelated financial creditors holding ≥ 66% in value of financial debt

Needed for naming the resolution professional and for approving the filing. Related parties are excluded.

Member approval (section 54A(2)(g))

Special resolution of members, or resolution of at least 3/4 of total partners

The company needs a special resolution; a partnership-type debtor needs three-fourths of partners.

Declaration timeline (section 54A(2)(f)(i))

Application to be filed within a definite period ≤ 90 days

The directors' declaration must state this period.

Admission timeline (section 54C(4))

Admit or reject within 14 days of receipt; defect notice gives 7 days to rectify

The process commences on the date of admission (section 54C(5)).

Termination order (section 54N(1))

Adjudicating Authority orders termination within 30 days of the resolution professional's application

Also applies where the committee of creditors decides to terminate by a vote of at least 66% of voting shares (section 54N(2)).

Penalty for fraudulent management (section 67A)

Penalty ≥ ₹1,00,000 and up to ₹1,00,00,000

Imposed on an officer of the corporate debtor who manages its affairs with intent to defraud creditors or for any fraudulent purpose. The resolution professional makes the application.

Eligible class (section 54A(1))

Corporate debtor classified as MSME under section 7(1), MSMED Act, 2006

A separate entry route. Section 54A(2) applies without prejudice to it and covers a defaulting corporate debtor that meets the conditions.

Debtor conditions (section 54A(2)(a)-(d))

No pre-pack or completed CIRP in preceding 3 years; not in CIRP; no section 33 liquidation order; eligible under section 29A

All conditions must be met. The default must be one referred to in section 4.

Creditor approval of IP and of filing

Unrelated financial creditors holding ≥ 66% in value of financial debt due to such creditors

Needed twice: to approve the proposed resolution professional (54A(2)(e)) and to approve the filing (54A(3)). Related parties are excluded.

Director or partner declaration (54A(2)(f))

Majority of directors or partners declare: filing within a definite period ≤ 90 days; not to defraud any person; name of proposed IP

The 90 days is the outer limit for the time period stated in the declaration.

Member or partner approval (54A(2)(g))

Special resolution of members, or ≥ 3/4 of total partners by resolution

Approves filing the application.

Documents to creditors before approval (54A(4))

Declaration + special resolution or resolution + base resolution plan conforming to section 54K + other specified documents

Must be supplied before seeking the 66% approval for filing.

Admission timeline (section 54C(4))

Tribunal orders within 14 days of receipt; defect notice gives 7 days to rectify

Admit if complete; reject if incomplete after notice. The process commences on the date of admission.

Orders on commencement (section 54E(1))

Admission order under 54C + moratorium + RP appointed + public announcement by RP immediately after appointment

The moratorium and RP appointment are made on the commencement date, along with the admission order.

Duration of moratorium (section 54E(2))

From the date of the order till the pre-pack process period ends

Moratorium is under section 14(1) read with 14(3), mutatis mutandis.

Choice of RP (section 54E(1)(b))

Named in application if no disciplinary proceeding pending; else on Board's recommendation

The Tribunal does not freely choose the RP.

RP's duties (section 54F(2))

Confirm and update claims, inform creditors, monitor management, inform CoC of board breaches, constitute CoC and attend meetings, prepare information memorandum, file avoidance or wrongful-trading applications

Learn them as a list; each is a likely sub-point.

RP's information window (section 54F(3)(f))

Business operations and financial and operational payments for previous two years from commencement date; assets and liabilities as on initiation date

Used to spot avoidable or wrongful transactions.

Vesting management in RP (section 54J)

CoC vote ≥ 66% of voting shares + Tribunal opinion of fraudulent conduct or gross mismanagement

Both conditions are needed. The RP applies to the Tribunal.

Penalty for fraudulent management (section 67A)

Not less than ₹1,00,000 and up to ₹1,00,00,000 on the officer

Imposed by the Adjudicating Authority on the RP's application, on and after the commencement date.

Overall time-limit (section 54D(1))

Completion within 120 days from the pre-packaged insolvency commencement date

Outer limit for the whole pre-pack process.

Plan submission limit (section 54D(2))

RP submits CoC-approved plan to the AA within 90 days from the pre-packaged insolvency commencement date

Submission is under section 54K(4) or 54K(12), as the case may be.

Default on approval (section 54D(3))

No CoC-approved plan within 90 days → RP files termination application on the day after the period expires

The word is 'shall'. The RP has no discretion.

AA's order on termination (section 54N(1))

AA terminates the process within 30 days of the application

Applies to applications under section 54D(3) and the proviso to section 54K(12). The AA also provides for continuing avoidance proceedings.

Voluntary termination by CoC (section 54N(2))

CoC vote of not less than 66% of voting shares, before plan approval by the AA

RP intimates the AA, which then passes the termination order.

CoC switch to CIRP (section 54-O)

CoC vote of not less than 66% of voting shares → AA decides within 30 days of intimation

Only if the debtor is eligible for CIRP under Chapter II. Pre-pack costs become CIRP costs.

Regular CIRP for contrast (section 12)

180 days + one extension up to 90 days; overall cap 330 days

Extension needs a CoC vote of 66% of voting shares.

Base plan submission

Corporate debtor → resolution professional within 2 days of pre-packaged insolvency commencement date

The resolution professional then presents it to the CoC (section 54K(1)).

CoC approval of base plan

Allowed only if no claim of operational creditors is impaired

Impaired means confirmed claims are not paid in full (Explanation II to section 54K).

Competing plans trigger

CoC does not approve base plan OR base plan impairs operational creditors → RP invites resolution plans

Section 54K(5).

CoC voting threshold

Not less than 66% of voting shares

Considers feasibility, viability, manner of distribution and priority under section 53(1), including secured creditors' security interest (section 54K(13)).

Alternative plan vs base plan

Selected plan 'significantly better' than base plan → goes for approval; otherwise it competes with base plan

Section 54K(10) and (11).

Promoter dilution

If plan impairs claims, CoC may require promoters to dilute shareholding, voting or control rights

If the plan has no dilution, CoC must record reasons before approving (section 54K(14)).

Timelines

Plan to Adjudicating Authority within 90 days; process complete within 120 days; AA order within 30 days of receipt

Sections 54D(1), 54D(2) and 54L(1).

Mandatory rejection

If order under section 54J(2) was passed and plan does not change management or control to a person who was not a promoter or in management → reject, terminate, order liquidation

Section 54L(4). Pre-pack costs become part of liquidation costs.

Trigger 1 and 2: RP application

RP applies under proviso to s.54K(12) or s.54D(3) → Authority terminates within 30 days of application

Section 54D(3) application is filed on the day after the 90-day plan-submission period expires with no CoC-approved plan.

Trigger 3: CoC decision

CoC vote ≥ 66% of voting shares, after commencement date but before plan approval under s.54K(4) or (12) → Authority passes order under s.54N(1)

The RP intimates the Authority of the decision. The Authority then passes the termination order.

Contents of termination order

Order = (i) terminate pre-pack + (ii) manner of continuation of avoidance proceedings (Chapter III, s.66, s.67A)

Both parts are mandatory under s.54N(1).

Costs

On termination under s.54N(1): corporate debtor bears pre-pack costs

Section 54N(3).

Liquidation special case

Order under s.54J(2) passed earlier + termination required → liquidation under s.33(1)(b)(i)-(iii); pre-pack costs form part of liquidation costs

Section 54N(4) applies notwithstanding the rest of the section.

Related time limits

Process: 120 days from commencement date; plan to Authority: 90 days (s.54D)

Missing the 90-day plan mark triggers the termination application.

Alternative exit

CoC vote ≥ 66% → CIRP (s.54-O); Authority decides within 30 days of intimation

The debtor must be eligible for CIRP under Chapter II. Pre-pack costs become CIRP costs.

Quick revision

• Pre-pack is available for an MSME corporate debtor under section 54A(1), and for other debtors that meet the section 54A(2) conditions.
• The debtor must have a default as referred to in section 4.
• The debtor must not have undergone pre-pack or completed CIRP in the three years before the initiation date.
• It must not be in CIRP, must have no liquidation order under section 33, and must be eligible under section 29A.
• Financial creditors who are not related parties, holding at least 66% in value, must approve the proposed resolution professional and the filing.
• Majority of directors or partners must declare that the application will be filed within a stated period of not more than 90 days and that the process is not to defraud anyone.
• Members must pass a special resolution, or at least three-fourths of partners must pass a resolution, approving the filing.
• Under section 54E, on the commencement date the Adjudicating Authority declares a moratorium, appoints the resolution professional, and causes the resolution professional to make the public announcement immediately after appointment.
• Under section 54D, the process must be completed within 120 days, and the approved plan must be submitted to the Adjudicating Authority within 90 days.
• If no plan is approved in 90 days, the resolution professional files for termination on the day after expiry.
• Under section 54N(1), the Adjudicating Authority terminates the process within 30 days of the resolution professional's application. This covers applications under section 54D(3) and under the proviso to section 54K(12). Creditors can also decide to terminate by at least 66% of voting shares, and the Adjudicating Authority then passes the same order.
• Under section 54N(4), if an order under section 54J(2) has been passed and the process must be terminated, the Adjudicating Authority orders liquidation, and the pre-pack costs form part of the liquidation costs.
• Under section 54-O, creditors holding at least 66% of voting shares can resolve to move to CIRP, if the debtor is eligible.

Common mistakes

• Saying the pre-pack is available only to MSMEs. Fix: Remember that section 54A(2) also permits other corporate debtors that commit a default under section 4, if the listed conditions are met.
• Counting related-party financial creditors in the 66% approval. Fix: The text says financial creditors 'not being its related parties'. Exclude them from the calculation.
• Counting related-party financial creditors in the 66% vote. Fix: Always exclude related parties first, then compute 66% by value of the remaining financial debt.
• Saying 66% by number of creditors. Fix: The Code says in value of the financial debt, not by head count.
• Saying the RP takes over management on admission, as in CIRP. Fix: Write that management stays with the board and the RP monitors it. Takeover happens only under section 54J.
• Saying the Tribunal vests management on the CoC's vote alone. Fix: State both: a CoC vote of not less than 66% of voting shares and the Tribunal's opinion of fraud or gross mismanagement.
• Saying the pre-pack must be completed in 90 days. Fix: Remember 90 days is for submitting the CoC-approved plan to the AA. The whole process is 120 days.
• Applying the CIRP rule of 180 days plus 90-day extension to a pre-pack. Fix: Section 54D provides 120 days with no extension clause. Use section 12 only as a contrast.
• Saying the CoC can approve a base plan that pays operational creditors only part of their dues. Fix: Remember section 54K(4): the base plan can be approved only if it does not impair operational creditors' claims. Partial payment of confirmed claims means impairment.
• Writing that the resolution professional submits the base plan. Fix: In a pre-pack the corporate debtor submits the base plan to the RP within two days; the RP presents it to the CoC.

Exam tips

• Write the section numbers: 54A for eligibility, 54C for application and admission, 54F for the resolution professional, 54N for termination and 67A for fraud.
• In case questions, test every condition in section 54A(2) in order and name the one that fails.
• Learn the numbers: 66%, three years, 90 days, 14 days, 7 days, 30 days, and the ₹1,00,000 to ₹1,00,00,000 penalty range.
• For differences from CIRP, write points on who files, when creditors approve, the base plan, the role of management and the starting date.
• Write the section number beside each condition: 54A, 54B, 54C. It shows precision.
• In case questions, calculate 66% on unrelated creditors' debt only and show the arithmetic.
• Separate the debtor's eligibility conditions from the approvals and from the filing contents.
• Mention the time limits: 90 days in the declaration, 14 days for the Tribunal, 7 days to rectify.