Effectiveness Of Pre-Packaged Insolvency For MSMEs
- IJLLR Journal
- 6 minutes ago
- 2 min read
Kushagra Prasad, Student, Gujarat National Law University, Gandhinagar
Keshav Bajaj, Student, Gujarat National Law University, Gandhinagar
ABSTRACT
In this paper we studied and examined the efficacy of the Pre-Packaged Insolvency Resolution Process (PPIRP), brought into effect by the 2021 amendment to India's Insolvency and Bankruptcy Code (IBC), as fast, low- cost rescue option for Micro, Small, and Medium Enterprises (MSMEs). Against the background of COVID-19 pandemic and driven by global best practice in the UK and US, PPIRP was structured with innovations of note: debtor in possession stewardship, a disciplined 120-days timeline for resolution, and pre negotiated resolution strategies filed ahead of formal launch.
Using a mixed method technique, doctrinal analysis, primary empirical data, stakeholder interviews, and judicial remarks, this paper evaluates the legal infrastructure, institutional protections, and operational results of PPIRP. Preliminary findings highlight significant advantages: business continuity with current management, decreased advisory expenses, and faster turnaround on plan approvals. As of early 2025, however, only 13 MSME cases have commenced under PPIRP, with only five approvals and small recoveries, dissuading creditors and promoters alike.
The study names a number of structural barriers. The pre-registration requirement under the MSME Development Act disqualifies a huge majority of enterprises, more than 90% of them are not registered. Other hurdles are high default thresholds, the jammed-down time schedules which introduce valuation and credibility issues, the threat of promoter capture arising from the Swiss challenge framework, and limited involvement of operational creditors. Moreover, creditor hesitation, especially among bankers uncomfortable with extending control to the promoters and extensive due diligence, is also the cause of underutilization.
Referring to comparative regimes in the US and UK, this paper provides customized reforms that enhance PPIRP's usefulness: increasing eligibility to cover Udyam registered MSMEs; requiring mandatory disclosures, increased stakeholder participation, and valuation protection; encouraging creditor participation; and strengthening supervision by NCLT and the IBBI. The proposal also considers a creditor led restructuring variant (CLRP) to supplement PPIRP.
With skilfully tuned legal innovations and proactive application, PPIRP can be a potent tool for MSME rejuvenation, lessening financial stress, and serving to consolidate fiscal stability. Its import derives from adding a new insolvency design specifically suited to the unique circumstances of MSMEs, encouraging speed, cost-effectiveness, transparency, and business continuity, and plugging a loophole in current insolvency theory and practice.
