Insolvency and Bankruptcy Code (IBC) is a set of laws that provides a clear and structured mechanism for resolving insolvencies and liquidations of companies and individuals. It is designed to ensure timely resolution while safeguarding the interests of creditors. Among the various provisions under the IBC, two major processes are frequently discussed: the Corporate Insolvency Resolution Process (CIRP) and the Pre-Packaged Insolvency Resolution Process (PIRP). But what’s the difference between them?
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In this article, we’ll take a deep dive into CIRP and PIRP, comparing them side-by-side to help you make an informed decision. Whether you’re a creditor looking to understand how to recover dues or an MSME looking to avoid lengthy legal battles, we’ve got you covered. So, let’s break down everything you need to know!
👉 “Before we dive in, watch this video for a complete breakdown:”
00:00:01 – Introduction to the Video & IBC Overview
Before diving deep into the mechanics of CIRP and PIRP, we provide a brief introduction to the Insolvency and Bankruptcy Code (IBC). IBC is India’s primary law for insolvency resolution and liquidation. The code was introduced in 2016 with an aim to streamline the process of resolving the insolvency of both corporate entities and individuals, replacing the earlier fragmented and less effective laws. The success of the IBC system lies in its goal of ensuring faster resolutions and timely recovery of debts for creditors.
This video and article aim to simplify the key components of IBC for MSMEs, creditors, financial professionals, and business owners. It will give you practical insights into the different approaches for resolving insolvency issues under IBC and how businesses can leverage these provisions for recovery. The article focuses on CIRP and PIRP, providing examples, step-by-step breakdowns, and clarifications to ensure a thorough understanding.
00:00:34 – CIRP vs PIRP: What’s the Difference?
The key difference between CIRP (Corporate Insolvency Resolution Process) and PIRP (Pre-Packaged Insolvency Resolution Process) lies in the type of business, the default threshold, and the speed of resolution. The CIRP process is typically applied to large corporations or companies where the default amount is above ₹1 crore. On the other hand, PIRP is a more specialized mechanism intended for smaller businesses and MSMEs, where the default amount is up to ₹1 crore.
Another significant difference is the speed at which the processes are conducted. PIRP was introduced to expedite insolvency resolution, making it a quicker option for MSMEs compared to the standard CIRP process. The timeline under PIRP is set to a maximum of 120 days, while CIRP can extend beyond that, making PIRP a more attractive option for smaller businesses with financial difficulties.
00:01:05 – PIRP: A Faster Solution for MSMEs
PIRP is tailored specifically to meet the needs of MSMEs, which may struggle with the time and financial burden of a prolonged CIRP. MSMEs can be at a disadvantage in traditional insolvency procedures due to their smaller size, limited resources, and lack of access to extensive legal support. PIRP provides a faster and more accessible avenue for MSMEs to resolve their insolvency issues.
The PIRP process allows MSMEs to propose a resolution plan directly to their creditors, avoiding the complexity and delays of traditional CIRP. The debtor retains control over the process, and the resolution plan must be submitted to the National Company Law Tribunal (NCLT) within 90 days for approval. This is a significant advantage for businesses that want to resolve their financial issues without waiting for months.
00:01:37 – Eligibility and Requirements for PIRP
To qualify for PIRP, the business must meet several key requirements:
- The default amount must be less than ₹1 crore.
- The business must be an MSME (Micro, Small, or Medium Enterprise), ensuring that only small businesses benefit from this fast-track process.
- If the business has undergone a CIRP or PIRP before, a mandatory 3-year cooling-off period must elapse before the process can be initiated again.
This approach ensures that PIRP is not overused and that MSMEs only opt for this faster mechanism if they are genuinely eligible, preventing the abuse of the system. By ensuring these criteria, the law helps to strike a balance between offering quicker resolutions for MSMEs and maintaining checks to prevent the same businesses from repeatedly undergoing insolvency proceedings.
00:02:15 – Creditors’ Role in PIRP vs CIRP
The role of creditors in PIRP and CIRP is one of the most significant differences between the two processes. In CIRP, creditors are in control. Financial creditors lead the process and appoint the Interim Resolution Professional (IRP) who takes control of the business. The creditors make the decisions regarding the resolution plan, and the business essentially loses control over its operations.
In PIRP, however, the debtor (the business) retains control over the resolution process. The debtor, under the guidance of financial creditors, proposes a resolution plan that is submitted for approval. The fact that the business owner or management retains control makes PIRP more favorable for MSMEs that wish to resolve insolvency without losing total control over their operations.
00:02:48 – The Speed of PIRP
PIRP is specifically designed for speed. The resolution plan must be submitted within 90 days, and the adjudicating authority (NCLT) must approve or reject the plan within 120 days of the start of the process. This fast timeline ensures that MSMEs can resolve their insolvency issues quickly and return to normal business operations.
In contrast, CIRP can take much longer, with timelines extending up to 330 days. This delay often causes further harm to MSMEs, leading to liquidation in some cases. The quicker timeline in PIRP is a game-changer for small businesses that need to recover rapidly and avoid the financial strain of extended insolvency proceedings.
00:03:55 – Differences in Approval & Control Between PIRP and CIRP
The approval requirements for starting PIRP and CIRP are also different. In PIRP, a minimum of 66% approval from financial creditors is required to begin the process. In contrast, CIRP is more flexible and allows the debtor, suppliers, banks, or other creditors to initiate the process if they meet the eligibility criteria.
This difference in the approval process makes PIRP more streamlined and controlled by the debtor’s interests, whereas CIRP is more creditor-driven and may sometimes lead to disputes between stakeholders. The decision-making process in PIRP is quicker, allowing MSMEs to resolve their financial challenges faster.
00:04:59 – PIRP Timelines & Process Breakdown
Under PIRP, the overall process is extremely time-sensitive. A resolution plan must be submitted within 90 days of initiating the process. If the plan is not implemented within the next 120 days, the business faces either the initiation of CIRP or liquidation.
This strict deadline helps prevent delays and ensures that creditors and debtors have a clear timeline to work with. This clear structure is beneficial for MSMEs that need predictability and control over the insolvency resolution process.
00:06:33 – What Happens if PIRP Fails?
If the PIRP process fails — either due to the resolution plan being rejected or the inability to implement it — the business faces two main options:
- The company may be liquidated, with assets sold off to repay creditors.
- Alternatively, CIRP may be initiated, which would take control away from the debtor and place it in the hands of creditors.
Failure in PIRP is an unfortunate outcome, but the process provides businesses with a second chance to either reattempt the resolution plan or face the ultimate consequence of liquidation.
00:08:42 – Key Differences: PIRP vs CIRP Summary
Here’s a quick comparison between PIRP and CIRP:
- Who can file: PIRP is available for MSMEs, while CIRP is for larger companies with defaults over ₹1 crore.
- Control: In PIRP, the debtor retains control, but in CIRP, creditors take over.
- Timelines: PIRP resolution is faster, with a 90-day plan submission deadline and 120 days for completion, compared to CIRP’s longer timelines.
- Outcome of Failure: PIRP failure leads to either liquidation or CIRP, while CIRP failure results in liquidation.
Conclusion
In conclusion, understanding the nuances of PIRP and CIRP is essential for MSMEs, creditors, and professionals in the insolvency and bankruptcy ecosystem. While PIRP offers a faster, more streamlined solution for small businesses, CIRP is designed for larger entities with more significant debts. By understanding these differences, MSMEs can better navigate their financial challenges and select the most appropriate process for their business.
As a business owner or creditor, keeping these processes in mind will help you make informed decisions during tough financial times. Implement the knowledge from this video and article to avoid unnecessary delays in the resolution of insolvency issues.
💬 Leave your thoughts or questions in the comments below! We’d love to hear from you and help clarify any doubts you may have about the insolvency resolution process. Don’t forget to subscribe for more detailed breakdowns and stay updated on future content!
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Download PDF
If you prefer offline reading, you can download the complete PDF of this video’s breakdown and analysis. It includes key points, timelines, and the differences between PIRP and CIRP for your reference.
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