Pre-Packaged Insolvency Resolution Process (Elective 7.5): formula sheet

Key formulas

Who may apply (section 54A(1))

Corporate debtor classified as micro, small or medium enterprise under section 7(1) of the MSMED Act, 2006

Section 54A(2) separately allows other defaulting corporate debtors that satisfy its conditions.

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

No PIRP or completed CIRP in the 3 years before the initiation date

Also: not in CIRP now, no section 33 liquidation order, eligible under section 29A.

Creditor approvals (54A(2)(e) and 54A(3))

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

Needed twice: to approve the proposed resolution professional and to approve filing the application.

Debtor-side approvals (54A(2)(f), (g))

Declaration by majority of directors or partners + special resolution of members (or ≥ 3/4 of partners by resolution)

The declaration must state that the debtor will file the application for initiating PIRP within a definite period not exceeding 90 days (90 days is the maximum period the debtor declares, not an NCLT deadline), that the process is not to defraud anyone, and the name of the approved insolvency professional (54A(2)(f)(iii)).

NCLT decision on application (54C(4))

Admit or reject within 14 days; 7 days to cure defects after notice

Process commences on admission (54C(5)).

Termination order (54N(1), (2))

NCLT passes a termination order within 30 days of the resolution professional's application under the proviso to section 54K(12) or under section 54D(3)

If the committee of creditors decides to terminate by a vote of not less than 66% of voting shares and the resolution professional intimates the NCLT (54N(2)), the NCLT passes an order under 54N(1).

Eligible debtors (Section 54A(1) and (2))

MSME debtor; or any debtor in default under Section 4 meeting the conditions of Section 54A(2)

Section 54A(2) is without prejudice to Section 54A(1).

Negative conditions (Section 54A(2)(a)-(d))

No PIRP or completed CIRP in the 3 years before the initiation date; not in CIRP; no Section 33 liquidation order; eligible under Section 29A

All must be met. Learn them as four checks.

Creditor approval of the IP (Section 54A(2)(e))

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

Related parties are excluded. Number and manner of creditors proposing the IP are as specified.

Approval for filing (Section 54A(3))

Unrelated financial creditors ≥ 66% in value approve filing of the application

If there are no unrelated financial creditors, persons specified in regulations give the approval.

Directors' declaration (Section 54A(2)(f))

Majority of directors or partners declare: file within a definite period not exceeding 90 days; not to defraud any person; name of the IP

All three points must appear.

Owners' approval (Section 54A(2)(g))

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

Pass this before filing.

Disclosure before seeking approval (Section 54A(4))

Declaration + special resolution or resolution + base resolution plan conforming to Section 54K + other specified information

Creditors must receive these before voting on filing.

Admission (Section 54C(4)-(5))

Admit or reject within 14 days; 7 days to rectify defects before rejection; process commences on admission

Rejection is only for an incomplete application, after notice.

Section 54E(1): admission order

Order of admission under s.54C + moratorium + RP appointment + public announcement by RP

All happen on the pre-packaged insolvency commencement date. The moratorium applies as per section 14(1) read with 14(3), mutatis mutandis.

Section 54E(2): duration of moratorium

Moratorium: date of order → end of PIRP period

It ends when the PIRP period ends, not on a fixed number of days stated in this section.

Section 54E(1)(b): who is appointed RP

IP named in application if no disciplinary proceeding is pending; otherwise IP recommended by the Board

The Board here means the Insolvency and Bankruptcy Board of India.

Section 54J(1): vesting management in RP

CoC vote ≥ 66% of voting shares → RP applies to Adjudicating Authority

The vote can be taken at any time during the PIRP period.

Section 54J(2): test for vesting order

Fraudulent conduct of affairs OR gross mismanagement → Authority shall vest management in RP

The CoC vote alone is not enough. The Authority must form this opinion.

Section 54A(2)(e) and (3): creditor approvals before filing

Financial creditors (not related parties) holding ≥ 66% in value of financial debt

They approve the proposed RP and the filing of the application. The base plan is given to them before they approve the filing.

Section 67A: penalty for fraudulent management

Penalty ≥ ₹1,00,000 and up to ₹1,00,00,000 on the officer

Applies on and after the commencement date, on the RP's application.

Outer limit of the process

PIRP to be completed within 120 days from the pre-packaged insolvency commencement date

Section 54D(1). The date of admission of the application starts the clock (section 54C(5)).

Plan submission limit

RP submits CoC-approved plan to the Adjudicating Authority within 90 days from the commencement date

Section 54D(2). The plan goes under section 54K(4) or 54K(12), as the case may be.

Failure to get plan approved

No plan approved by CoC within 90 days → RP files termination application on the day after the 90 days expire

Section 54D(3). Filing is a duty ("shall"), not an option.

Decision on termination application

Adjudicating Authority passes termination order within 30 days of the application

Section 54N(1), for applications under section 54D(3) and the proviso to section 54K(12).

Comparison with other processes

CIRP: 180 days, one extension up to 90 days, absolute cap 330 days | Fast track CIRP: 90 days, one extension up to 45 days | PIRP: 120 days

Sections 12 and 56 as supplied. Section 54D in the text supplied has no extension provision.

AA's time to pass termination order (54N(1))

Order within 30 days of the RP's application

Applies to an application under the proviso to section 54K(12) or under section 54D(3).

CoC vote to terminate (54N(2))

Vote ≥ 66% of voting shares

Decision can be taken after the commencement date but before approval of the plan. The RP intimates the AA, and the AA shall then pass an order under 54N(1). Section 54N(2) does not state a separate 30-day period from the intimation.

Mandatory termination application (54D(3))

No plan approved within 90 days → RP applies on the day after expiry

The overall PIRP limit is 120 days from the commencement date.

Costs on termination (54N(3))

Corporate debtor bears PIRP costs, if any

This is the general rule when an order is passed under 54N(1).

Liquidation consequence (54N(4))

Order under 54J(2) earlier passed + termination → liquidation order under 33(1)(b)(i)-(iii)

PIRP costs are then included in liquidation costs.

Conversion to CIRP (54-O)

CoC vote ≥ 66% of voting shares; AA order within 30 days of intimation

Debtor must be eligible under Chapter II. The RP becomes IRP if he gives written consent.

Effect of 54-O order

Deemed section 7 admission; CIRP starts from date of order

PIRP costs become part of CIRP costs. Avoidance and section 66 and 67A proceedings continue.

Quick revision

• PPIRP is under Chapter III-A of the IBC, inserted by Act 26 of 2021 with effect from 4 April 2021.
• Section 54A(1): an MSME corporate debtor can apply; section 54A(2) also covers other debtors that commit a default and meet its conditions.
• The debtor must not have gone through PPIRP or a completed CIRP in the three years before the initiation date.
• The debtor must not be in CIRP, must not be under a section 33 liquidation order, and must be eligible under section 29A.
• Unrelated financial creditors holding at least 66% in value must approve the proposed resolution professional and the filing of the application.
• A majority of directors or partners must declare that the application will be filed within a set period not exceeding 90 days, and that the process is not meant to defraud anyone.
• Members must pass a special resolution, or at least three-fourth of partners must pass a resolution, to approve the filing.
• Section 54D(1): the process must be completed within 120 days of the pre-packaged insolvency commencement date.
• Section 54D(2): the resolution professional must submit the creditors' approved plan to the Adjudicating Authority within 90 days.
• If no plan is approved in 90 days, the resolution professional applies for termination on the next day (section 54D(3)).
• Section 54N: the Adjudicating Authority must order termination within 30 days of the application; a creditors' vote of at least 66% can also trigger it.
• Section 54-O: creditors can vote at 66% to convert to CIRP; section 67A: fraudulent management attracts a penalty of ₹1,00,000 to ₹1,00,00,000.

Common mistakes

• Saying PIRP is available only to MSMEs. Fix: Say MSME debtors are eligible under 54A(1), and other defaulting corporate debtors can apply if they meet 54A(2).
• Counting related-party financial creditors in the 66% approval. Fix: Always say unrelated financial creditors, by value of the debt due to them.
• Counting related-party financial creditors in the 66% vote. Fix: Write 'financial creditors, not being related parties, representing not less than 66% in value of the financial debt due to such creditors'.
• Saying only an MSME can file a PIRP. Fix: Section 54A(2) also permits other debtors in default, if the conditions are met.
• Saying the board is suspended and the RP runs the company from day one, as in CIRP. Fix: Write that PIRP is debtor in possession. The RP only monitors unless a section 54J order is passed.
• Saying a 66% CoC vote automatically transfers management to the RP. Fix: State both steps: CoC vote of at least 66%, then the Authority's opinion of fraud or gross mismanagement before it passes the order.
• Counting the 120 days from the date of filing the application. Fix: Count from the pre-packaged insolvency commencement date, which is the date of admission under section 54C(4)(a) and (5).
• Treating 90 days as the time for the CoC to approve the plan only, and forgetting it is the time to submit the approved plan to the Adjudicating Authority. Fix: Remember that the plan must be approved by the CoC and submitted to the Adjudicating Authority within 90 days.
• Saying the AA has discretion to refuse termination when the CoC votes by 66%. Fix: Section 54N(2) says that on the RP's intimation of such a decision, the AA shall pass an order under 54N(1).
• Quoting a 51% or 75% vote for termination. Fix: For termination under 54N(2) and for CIRP initiation under 54-O(1), the threshold is not less than 66% of voting shares.

Exam tips

• Begin with eligibility; examiners often hide a disqualifier in the facts, such as a recent CIRP or related-party creditors.
• Quote section numbers (54A, 54C, 54F, 54N) and the numbers 66%, 3 years, 14 days, 7 days.
• For PIRP versus CIRP questions, compare who initiates, who files, creditor pre-agreement and the role of the resolution professional.
• Conclude every case answer in one clear line: provision, application to facts, conclusion.
• Write section numbers with each condition: 54A(2)(a)-(g), 54A(3), 54A(4), 54C.
• In case questions, tick each Section 54A(2) condition against the facts, then conclude.
• Always exclude related parties when computing the 66%.
• Show a one-line calculation for the 66% test and state the result.