Effectiveness of the pre-packaged insolvency resolution process (PPIRP) under the Insolvency and Bankruptcy Code, 2016: challenges, successes and the way forward

What the paper says

Purpose The purpose of this study is to investigate the efficacy of the pre-packaged insolvency resolution process (PPIRP) introduced specifically for micro, small and medium enterprises (MSMEs) in India under the Insolvency and Bankruptcy Code (IBC), 2016. The study aims to address the gap in literature with respect to the real-world impact of the PPIRP by evaluating whether it achieves its intended goals of being a timely, cost-effective and stakeholder-friendly process for resolution of insolvency of MSMEs. The research has been motivated by the need to understand the practical challenges of PPIRP and compare it with the corporate insolvency resolution process (CIRP) to propose reforms for boosting its effectiveness. Design/methodology/approach This study adopts a qualitative, doctrinal methodology to assess the efficacy of the PPIRP under the IBC. The study involves a systematic interpretation of the statutory provisions and case laws as primary sources. The study is complemented by secondary sources such as articles, commentaries from leading firms and reports from IBBI. Because the PPIRP is a relatively new mechanism that was introduced in 2021, the research has emphasized on examining the legal and practical implications of the same in India. Apart from the regulatory analysis, the research also incorporates a comparative approach by evaluating the PPIRP process against the CIRP process to highlight the strengths, limitations and the scope of improvements in both. The study also incorporates case analysis method to provide insights into the ground reality of the successful or unsuccessful implementation of the PPIRP. The study also incorporates comparisons with similar processes adopted by jurisdictions such as the USA, the UK and Singapore to understand the distinctiveness of the Indian process. This multifaceted methodology ensures that there is a balanced and comprehensive assessment of the role of PPIRP in the insolvency resolution landscape in India. Findings The findings of this study reveal that though the PPIRP was anticipated to be a cost-effective, time-bound and debtor-in-control alternative for the MSMEs as against the traditional insolvency resolution mechanism, it has had limited practical impact. The rate of adoption of the PPIRP mechanism remains low with several structural and procedural challenges, which hinder the applicability of the PPIRP. These include a high default threshold, stringent eligibility criteria and a requirement for substantial approvals from creditors before the initiation of the process. Though the PPIRP process has been designed to expedite resolution and minimize the judicial intervention, the same is not achieved, and there are delays because of procedural complexities and hesitancy of stakeholders. The case studies present mixed outcomes, where, in some cases, the PPIRP enabled timely resolution of insolvency, while in the others, the process was either converted to CIRP or withdrawn as the creditors failed to achieve a consensus. While the PPIRP offers advantages in terms of a hybrid process that allows debtor control with creditor oversight and reduced costs, in comparison with the international pre-packaged systems, it lacks methods for stakeholder buy-in and flexibility. The research highlights the need for reforms to enhance stakeholder engagement, lower the entry barriers and align the PPIRP to global best practices to meet its full potential. Originality/value The study is, to the best of the authors’ knowledge, among the first few comprehensive doctrinal analyses into the effectiveness of the PPIRP in India. It offers a balanced view on the PPIRP process, highlighting both its strengths and weaknesses. The research provides a basis for suggesting changes for improving the PPIRP process and its implementation. The findings are valuable for insolvency professionals, policymakers and MSME stakeholders and lay the groundwork for any future empirical research to be conducted on PPIRP.