Pre-Packaged Insolvency Resolution is Now Open to Mid-Market and Large Companies, Not Just MSMEs

India's insolvency framework marked its tenth year in 2026 against the backdrop of what most practitioners now consider the most consequential legislative overhaul of the Insolvency and Bankruptcy Code, 2016 ("the Code") since its original enactment. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 touches admission timelines, liquidation supervision, avoidance transactions, group and cross-border insolvency, and the pre-packaged insolvency framework that has, since 2021, sat at the margins of the Code's practical use.

Headlines following the Amendment Act's passage have framed one change in particular as significant: that pre-packaged insolvency is "now open to mid-market and larger companies, not just Micro, Small and Medium Enterprises ("MSMEs")." That framing captures a real and important direction in the reforms of 2026. But a close reading of the available clause-by-clause material, the regulator's own follow-through, and the bare text of the pre-amendment Section 54A suggests the position is more nuanced than the headline suggests, and, critically, that none of it is operative law yet.

The Existing Architecture

Pre-Packaged Insolvency Resolution Process ("PPIRP") originated with the 2021 Amendment (Sections 54A–54P), following a Ministry of Corporate Affairs Sub-Committee Report of 2020. Initially restricted to MSMEs under the Micro, Small and Medium Enterprises Development Act, 2006 ("MSMED Act, 2006"), Section 54A requires no prior insolvency process within three years, a ₹10 lakh minimum default, financial creditor approval for the professional, and a base resolution plan.

Procedurally, PPIRP utilises a "debtor-in-possession" model, allowing existing management to remain under a resolution professional's oversight. Admission triggers a Section 54E moratorium, requiring completion within 120 days. If the base plan is rejected or harms operational creditors, a "Swiss challenge" invites competing offers, permitting the original applicant to improve their bid.

MSME classification under the MSMED Act relies on a composite test of investment and turnover. Following a Ministry of MSME notification effective 01.04.2025, ceilings for medium enterprises rose to ₹125 crore for investment and ₹500 crore for turnover, up from previous limits of ₹50 crore and ₹250 crore. Consequently, executive action had already expanded the pre-pack eligibility gate before the 2026 Amendment Act, highlighting that significant "larger companies" were already within reach.

The Amendment

The legislative journey is itself worth recording precisely. The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 was introduced in the Lok Sabha on 12 August 2025 and referred the same day to a Select Committee chaired by Shri Baijayant Panda, which reported on 17 December 2025 after incorporating eleven recommendations and one further amendment concerning the recording of reasons by the committee of creditors. The Bill, as reported by the Select Committee, was passed by the Lok Sabha on 30 March 2026 and by the Rajya Sabha on 1 April 2026, receiving Presidential assent on 6 April 2026 as Act No. 6 of 2026.

Section 1(2) stipulates that the Amendment Act's provisions will commence upon government notification. Currently, pre-pack clauses remain inactive.

Sections 34–38 lower the financial-creditor approval threshold for initiating a PPIRP from 66.6% to 51% by debt value. This procedural shift for Sections 54A, 54C, 54F, 54L, and 54N aligns with IBBI proposals targeting 51% approval from unrelated creditors.

Other major reforms include removal of Fast Track CIRP in Clause 39 and introduction of the Creditor-Initiated Insolvency Resolution Process (CIIRP) in Clause 40. CIIRP enables financial creditors holding 51% debt to start out-of-court proceedings under a 150-day timeline, extensible by 45 days with 66% approval.

Effective 25.02.2026, the IBBI (Pre-Packaged Insolvency Resolution Process) (Amendment) Regulations, 2026 introduced "fair value" assessments by two valuers and updated Swiss-challenge mechanics. An April 15, 2026 IBBI discussion paper proposed replacing Regulation 18's fixed checklist with a flexible one and removing the deterrent requirement for debtors to declare avoidance transactions at initiation.¹ Public consultation ended on April 28, 2026.

The "Beyond MSME" Aspect

Three critical points qualify the current status of the pre-pack expansion. First, the specific substituted text of Section 54A(1), the provision governing MSME eligibility, remains unverified against primary sources. Second, recent IBBI regulatory actions — including the February 2026 regulations and the April 2026 discussion paper — have focused on valuation and procedural mechanics rather than debtor eligibility. Third, none of these changes are currently in force; they await formal notification by the Central Government and subsequent operational regulations from the IBBI.

While a coherent policy logic supports this shift, evidenced by the removal of fast-track CIRP and lower creditor thresholds for pre-negotiated processes, the actual statutory scope is unconfirmed until the Central Government issues its notification and the text of Section 54A is published. Consequently, firms advising on distressed mid-market targets should regard the eligibility question as unresolved until the substituted provision is available for direct review.

CIIRP: The More Concrete New Route

While the expanded PPIRP scope awaits confirmation, the new CIIRP offers a more defined addition to the pre-negotiated toolkit, seemingly independent of MSME status.

CIIRP eligibility depends on subordinate legislation. Chapter IV-A targets notified debtor categories and financial creditor classes, with the IBBI's April 15, 2026 discussion paper set to define these scopes. Consequently, the 2026 reforms' primary impact hinges on future regulations rather than the Amendment Act itself.

These hybrid restructuring tools mirror global practices, such as UK pre-packs and US Chapter 11 filings. By reducing initiation thresholds and adding a creditor-initiated route, India's 2026 recalibration aligns with international standards while maintaining distinct domestic features like MSME eligibility and judicial supervision.

Why the Threshold Change Matters

Reducing the financial-creditor approval threshold from 66.6% to 51% significantly impacts governance by interacting with the Supreme Court's "commercial wisdom" doctrine. In Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17, the Court validated the Code's creditor-in-control model. Essar Steel² further established that committee decisions on payout structures are exempt from judicial substitution by the NCLT or NCLAT, provided they meet statutory requirements.

Consequently, a simple majority of unrelated financial creditors can now initiate a pre-pack and exercise control that receives high judicial deference. This shift transforms a procedural adjustment into a critical governance issue for syndicated or club lenders.

Conclusion

Four developments will resolve the open questions this article has flagged:

1. Gazette notification of commencement dates under Clause 1(2) of the Amendment Act, which will confirm when, and whether all at once, the pre-pack-related clauses take effect.
2. Finalisation of the IBBI's 15 April 2026 discussion paper amending the PPIRP Regulations, 2021, following the comment period that closed 28 April 2026.
3. Finalisation of the parallel CIIRP Regulations, 2026, also the subject of an IBBI discussion paper dated 15 April 2026, which will define the notified financial-creditor classes and notified corporate-debtor categories eligible for CIIRP.
4. Publication of the substituted bare text of Sections 54A, 54C, 54F, 54L and 54N, which alone will confirm definitively whether the MSME classification gate in Section 54A(1) has been removed, widened, or left substantively intact alongside the threshold changes.