Insolvency and Bankruptcy - Law and Practice · Pre-Packaged Insolvency Resolution Process (Elective 7.5)

Conduct of Pre-Packaged Insolvency Process and Debtor in Possession

Updated 11 October 2026 · Fact-checked

In a pre-packaged insolvency resolution process (PIRP), the corporate debtor's board keeps running the business under the resolution professional's monitoring. The Adjudicating Authority declares a moratorium on admission. The RP can take over management only if the committee of creditors votes by 66% and the Authority finds fraud or gross mismanagement.

Understand Conduct of the Process and Management by Debtor

A pre-pack is a quicker, creditor-led alternative to the regular CIRP. The key idea is debtor in possession. In regular CIRP, the board is suspended and the RP runs the company. In PIRP, the existing management carries on, so the business is not disrupted.

To keep this safe, the Code adds checks. The RP does not manage the company. The RP monitors its affairs, confirms the claims list, forms the committee of creditors (CoC) and convenes its meetings. The RP also prepares the information memorandum and files applications for avoidance transactions and fraudulent or wrongful trading, if any.

On the pre-packaged insolvency commencement date, the Adjudicating Authority admits the application under section 54C and in the same order does three things under section 54E: it declares a moratorium, appoints the RP and causes a public announcement to be made by the RP immediately after appointment. The moratorium runs from the date of the order until the PIRP period ends.

The process starts from a base resolution plan. The debtor must give it to financial creditors before they approve the filing, and it must conform to section 54K. The IP proposed as RP reports before filing whether the debtor meets section 54A and whether the base plan conforms.

The debtor's freedom is conditional. If the CoC, by at least 66% of voting shares, resolves to vest management in the RP, the RP applies to the Adjudicating Authority. The Authority passes the order only if it finds fraud or gross mismanagement. Officers who manage affairs with intent to defraud creditors face a penalty under section 67A.

Key rules to remember

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.

How to solve Conduct of the Process and Management by Debtor questions

Use this method for any case question on who controls the debtor, what the RP does or what the moratorium does in a pre-pack.

1Fix the stage. Is the question before filing, at admission, or during the PIRP period? The duties differ at each stage.
2Identify the actor: board, RP, CoC or Adjudicating Authority. Note who holds management now.
3State the default rule: management stays with the board, and the RP monitors under section 54F.
4Apply the specific provision: section 54E for moratorium, appointment and announcement; section 54F for RP duties and powers; section 54J for vesting management.
5Test the facts against the conditions: the 66% voting share, the Authority's opinion on fraud or gross mismanagement, and the disciplinary proceeding position for RP appointment.
6Add the consequences. If management is vested, name the CIRP provisions that then apply mutatis mutandis. If fraud is shown, mention section 67A.
7Conclude in one line and add a practical compliance point, such as the RP's duty to inform the CoC of any board breach.

Quickest way: Who controls the company? Four-question check

When to use it: Short case questions where you must decide who manages the debtor and what the RP can do.

Has the admission order been passed? If yes, the moratorium and RP are in place.
Is there a CoC resolution of at least 66% of voting shares to vest management? If no, the board continues.
If yes, has the Authority formed an opinion of fraud or gross mismanagement? If no, the board continues.
If both are met, management vests in the RP and the listed CIRP provisions apply from the date of that order.

Common mistakes in Conduct of the Process and Management by Debtor

Saying the board is suspended and the RP runs the company from day one, as in CIRP.
Students mix up regular CIRP with PIRP.
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.
The vote threshold is remembered but the second condition is forgotten.
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.
Fixing the moratorium at a number of days.
Students recall the PIRP time limit and confuse it with the moratorium.
Fix: Write that the moratorium runs from the order date until the PIRP period comes to an end, per section 54E(2).
Saying the RP is always the person named in the application.
The disciplinary proceeding condition is overlooked.
Fix: Add the exception: if disciplinary proceedings are pending against the named IP, the Authority appoints on the Board's recommendation.
Treating the base resolution plan as a plan already approved by the CoC.
The words 'plan' and 'approval' are blended.
Fix: Explain that the base plan is given to financial creditors before they approve the filing. It must conform to section 54K. The RP only confirms its conformity in the pre-filing report.
Forgetting who may seek the section 67A penalty and its range.
The penalty provision is read as a general offence provision.
Fix: Write that the RP applies to the Adjudicating Authority. The penalty is not less than ₹1 lakh and may extend to ₹1 crore.

Worked examples

Example 1

Sunrise Components Pvt Ltd, an MSME, is admitted to PIRP. The CoC suspects its directors are diverting stock. Advise the CoC on how management can be passed to the resolution professional, and the effect of such an order.

Show the solution

Provision: section 54J applies. Management stays with the board during PIRP, so a special route is needed.
Step 1: the CoC must resolve, by a vote of not less than 66% of voting shares, to vest management in the RP.
Step 2: the RP then applies to the Adjudicating Authority in the specified form and manner.
Step 3: the Authority must form the opinion that affairs were conducted fraudulently or there was gross mismanagement. Suspected diversion of stock, if shown, supports fraud.
Effect: the Authority shall pass an order vesting management in the RP. From that order until the PIRP period ends, the listed provisions apply mutatis mutandis: section 14(2) and (2A), section 17, section 18(e) to (g), sections 19 and 20, section 25(1), section 25(2)(a) to (c) and (k), and section 28.
Further step: the RP may apply under section 67A for a penalty on the officers, from ₹1 lakh up to ₹1 crore, if they managed affairs with intent to defraud creditors.

Answer: The CoC passes a resolution with at least 66% of voting shares. The RP applies, and the Authority vests management in the RP if it finds fraud or gross mismanagement. Section 17 and other listed CIRP provisions then apply until the PIRP period ends. A section 67A penalty of ₹1 lakh to ₹1 crore may be sought against the officers.

Example 2

On the pre-packaged insolvency commencement date, the Adjudicating Authority admits the application of Navkar Engineering Ltd. The IP named in the application has a pending disciplinary proceeding. State what the Authority must do in the admission order and when the moratorium ends.

Show the solution

Provision: section 54E(1) lists what the Authority does along with the order of admission under section 54C.
Moratorium: it declares a moratorium for the purposes in section 14(1) read with 14(3), which apply mutatis mutandis.
RP: since a disciplinary proceeding is pending against the named IP, section 54E(1)(b)(ii) applies. The Authority appoints an RP based on the Board's recommendation, not the named IP.
Public announcement: the RP must cause a public announcement of the initiation of PIRP, in the specified form and manner, immediately after appointment.
Duration: under section 54E(2), the moratorium has effect from the date of the order until the date on which the PIRP period comes to an end.

Answer: The Authority declares the moratorium, appoints an RP on the Board's recommendation because of the pending disciplinary proceeding, and the RP makes the public announcement immediately after appointment. The moratorium lasts from the order date until the PIRP period ends.

Exam tips

Open every answer on this topic with the debtor-in-possession rule, then give the exceptions. Examiners reward the contrast with CIRP.
Quote the numbers exactly: 66% for the CoC vote under section 54J, and ₹1 lakh to ₹1 crore under section 67A.
In case questions, state the provision, apply the facts, then conclude. Add a practical point, such as the RP informing the CoC of a board breach.
Keep the section map ready: 54E for moratorium and appointment, 54F for RP duties, 54J for vesting management, 67A for fraud penalty.

Practice questions from Pre-Packaged Insolvency Resolution Process (Elective 7.5)

Conduct of the Process and Management by Debtor: frequently asked questions

Does the board of directors stay in control during a pre-pack?

Yes. PIRP is a debtor-in-possession process, so the board continues to manage the company. The RP monitors its affairs and informs the CoC if the board breaches its obligations under the Chapter.

When does the moratorium start and end in PIRP?

The Adjudicating Authority declares it on the pre-packaged insolvency commencement date, along with the admission order. It has effect from that order until the PIRP period comes to an end, as section 54E(2) provides.

What does the resolution professional do in a pre-pack?

The RP conducts the process under section 54F. The RP confirms the list of claims, constitutes the CoC and convenes its meetings, prepares the information memorandum and files avoidance and wrongful trading applications. The RP also has powers to access books and records.

Can creditors replace the board with the RP?

Yes, but only through section 54J. The CoC must vote by at least 66% of voting shares, and the Adjudicating Authority must find fraud or gross mismanagement before it vests management in the RP.