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

Eligibility and Initiation of Pre-Packaged Insolvency Resolution Process

Updated 11 October 2026 · Fact-checked

A pre-packaged insolvency resolution process (PIRP) can be started for an MSME corporate debtor, or for another debtor in default that meets the conditions of Section 54A. You need 66% approval of unrelated financial creditors, a special resolution of members, a directors' declaration and a base plan. Then you file under Section 54C.

Understand Eligibility and Initiation of Pre-Packaged Process

A pre-pack is a quicker, lower-cost route than a normal corporate insolvency resolution process. The debtor and its financial creditors agree on a base resolution plan before going to the Adjudicating Authority. The tribunal then admits the case and the formal process runs.

Because the debtor's own side starts it, the Code fixes strict entry conditions in Section 54A. Section 54A(1) allows an application for a corporate debtor classified as a micro, small or medium enterprise under Section 7(1) of the MSMED Act, 2006. Section 54A(2) is stated to be without prejudice to this. It allows an application for a corporate debtor that commits a default under Section 4, if the listed conditions are met.

The conditions cover the debtor's history, its status, its creditors' consent and its owners' consent. The debtor must not have undergone a PIRP or completed a CIRP in the three years before the initiation date. It must not be in a CIRP now. No liquidation order under Section 33 may exist. It must be eligible under Section 29A to submit a resolution plan.

Then come the approvals. Unrelated financial creditors holding at least 66% in value of the financial debt due to such creditors must approve the proposed insolvency professional. A majority of directors or partners must give a declaration. Members must pass a special resolution, or at least three-fourths of the partners must pass a resolution. The debtor then needs the same 66% approval from unrelated financial creditors for filing the application, after giving them a base resolution plan.

Finally, Section 54C lets the corporate applicant file with the Adjudicating Authority. The Authority decides within 14 days. The process starts on the date of admission.

Key rules to remember

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.

How to solve Eligibility and Initiation of Pre-Packaged Process questions

Use one fixed sequence for any case question. It keeps your answer in the provision, analysis, conclusion format.

  1. 1State the issue: can this debtor start a PIRP, and is the initiation valid?
  2. 2Check the entry route: is the debtor an MSME under Section 7(1) of the MSMED Act, 2006, or a debtor in default under Section 4 that must meet the Section 54A(2) conditions?
  3. 3Test each negative condition on the facts: three-year gap, not in CIRP, no Section 33 liquidation order, Section 29A eligibility.
  4. 4Test the approvals: 66% in value of unrelated financial creditors for the IP and for filing, the directors' declaration, and the special resolution or partners' resolution.
  5. 5Check that the creditors got the Section 54A(4) documents, including the base plan, before voting.
  6. 6Check the filing: Section 54C documents, the IP's Section 54B report, and the timeline (declaration period up to 90 days; 14 days for admission).
  7. 7Conclude clearly: eligible or not, and what must be fixed.

Quickest way: Checklist method: debtor, creditors, owners, filing

When to use it: Use it for short-note or fact-based questions with limited time.

  1. Debtor: MSME, or in default and clear of the four Section 54A(2)(a)-(d) conditions.
  2. Creditors: 66% in value of unrelated financial creditors, twice (IP and filing).
  3. Owners: declaration by a majority of directors or partners, plus a special resolution or 3/4 partners.
  4. Filing: Section 54C application with the IP's report; admitted or rejected in 14 days.

Common mistakes in Eligibility and Initiation of Pre-Packaged Process

  • Counting related-party financial creditors in the 66% vote.

    Students remember '66% of financial creditors' and drop the qualifier.

    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.

    Section 54A(1) is read alone.

    Fix: Section 54A(2) also permits other debtors in default, if the conditions are met.

  • Treating the 66% approval as one vote.

    The IP approval and the filing approval look alike.

    Fix: Note both: Section 54A(2)(e) for the IP and Section 54A(3) for filing.

  • Confusing the 90-day limit with the 14-day admission period.

    Both are short periods in the same scheme.

    Fix: The 90 days is the maximum filing period in the directors' declaration. The 14 days is the Authority's time to admit or reject.

  • Saying the Authority rejects any defective application at once.

    Students skip the proviso to Section 54C(4).

    Fix: Before rejecting, the Authority gives notice to rectify the defect within seven days.

Worked examples

Example 1

Sunrise Components Pvt Ltd, not an MSME, defaulted on bank loans. It completed a CIRP two years ago. Its directors and members approve a PIRP. Can it apply?

Show the solution
  1. Issue: eligibility under Section 54A.
  2. Route: it is not an MSME, so it must satisfy Section 54A(2), as a debtor that committed a default under Section 4.
  3. Check Section 54A(2)(a): it must not have undergone a PIRP or completed a CIRP during the three years before the initiation date.
  4. Facts: a CIRP was completed two years ago, which is within three years.
  5. Approvals by directors and members do not cure this, since all conditions must be met.

Answer: No. Sunrise fails Section 54A(2)(a) and cannot start a PIRP until three years have passed since the completed CIRP.

Example 2

Veda Tools Ltd is an eligible debtor. Its financial creditors are Bank A (₹60 lakh, unrelated), Bank B (₹20 lakh, unrelated) and its promoter's family company (₹70 lakh, related). Bank A alone approves the filing. Is the 66% approval met?

Show the solution
  1. Rule: Section 54A(3) needs approval from unrelated financial creditors holding at least 66% in value of the debt due to them.
  2. Exclude the related party's ₹70 lakh.
  3. Total debt due to unrelated creditors = ₹60 lakh + ₹20 lakh = ₹80 lakh.
  4. Bank A's share = 60 ÷ 80 = 75%.
  5. 75% is not less than 66%.

Answer: Yes. Bank A holds 75% of the unrelated financial debt, so the approval is met. The related party's debt is ignored.

Exam tips

  • 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.

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

Eligibility and Initiation of Pre-Packaged Process: frequently asked questions

Who can apply for a PIRP under Section 54A?

An MSME corporate debtor under Section 54A(1), or any corporate debtor that commits a default under Section 4 and meets the Section 54A(2) conditions. The applicant is the corporate applicant under Section 54C.

What is the creditor approval needed to initiate a PIRP?

Financial creditors who are not related parties and hold at least 66% in value of the financial debt due to such creditors must approve the filing under Section 54A(3). The same threshold applies to the IP's name under Section 54A(2)(e).

What if the debtor has no unrelated financial creditors?

The provisos to Section 54A(2)(e) and 54A(3) say the proposal and approval are then provided by persons specified in regulations.

How long does the Adjudicating Authority take to admit a PIRP application?

Under Section 54C(4), it must admit or reject within 14 days of receipt. It admits a complete application and rejects an incomplete one, after giving seven days to rectify defects. The process begins on admission.