What is pre-packaged insolvency resolution for MSMEs under the IBC?

Question

My small manufacturing company is an MSME facing default and I want a faster, less disruptive insolvency process. Does the pre-packaged scheme apply to me? Before I spend money on it, I want to know whether Insolvency and Bankruptcy Code 2016, Section 54A gives me a remedy here and what proof I would need. Any Section numbers I can quote when I write to them would be useful.

MyVakeel Legal Desk · Accepted Answer

Insolvency and Bankruptcy Code 2016, Section 54A, Insolvency and Bankruptcy Code 2016, Section 54C and Micro, Small and Medium Enterprises Development Act 2006, Section 7 is what decides this question in India. Read it alongside the provisions named, because the relief available to you turns on the facts you can prove on paper.

Section 54A introduces the pre-packaged insolvency resolution process available to corporate debtors classified as micro, small or medium enterprises under Section 7 of the MSME Development Act 2006, upon default of a specified minimum amount.

Unlike the ordinary CIRP, the pre-packaged process requires the corporate debtor to obtain approval of not less than sixty-six percent of financial creditors unrelated to the promoters before filing the application, allowing a base resolution plan to be prepared in advance.

The existing management generally continues to run the company during the process, unlike ordinary CIRP where control shifts to the resolution professional, though the process is still overseen by a resolution professional and the committee of creditors.

Section 54C prescribes strict timelines, requiring the process to be completed within one hundred and twenty days, with the resolution plan to be submitted to the NCLT within ninety days of commencement.

This mechanism is designed to reduce the cost, time and business disruption typically associated with ordinary insolvency proceedings for smaller enterprises.

In practice, in this order: 1) Confirm MSME classification under the MSME Development Act before applying; 2) Obtain the requisite majority approval of unrelated financial creditors for the base resolution plan; 3) File the pre-packaged insolvency application before the NCLT with the prescribed declarations; 4) Engage an insolvency professional experienced with the pre-packaged framework to manage timelines.

Timing matters here: Insolvency and Bankruptcy Code 2016, Section 54A works on limitation periods, so a pre-packaged insolvency msme claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.