AgenciesThe new IBC move comes at a time when supply chain disruptions linked to the West Asia conflict are beginning to strain certain sectors, increasing the risk of fresh defaults.
India’s insolvency framework could soon see a significant shift, with the proposed amendments to the Insolvency and Bankruptcy Code (IBC) introducing a mechanism that allows certain defaulting promoters to retain control of their companies during the resolution process, The Times of India reported on April 7.
The system, according to the report (by Mayur Shetty), will be subject to creditor supervision.
The IBC, in its original design, was aimed at displacing promoters of companies that had defaulted on loans. Section 29A explicitly prevented wilful defaulters and errant promoters from bidding for their own assets. Under the Corporate Insolvency Resolution Process (CIRP), management control was transferred to a resolution professional, reflecting the principle that promoters responsible for defaults should not benefit from lender-imposed haircuts.
However, the Insolvency and Bankruptcy Code Amendment Bill 2026 proposes an alternative pathway through the Creditor Initiated Insolvency Resolution Process (CIIRP). This framework allows the board of the defaulting company to continue managing day-to-day operations even after the resolution process has been triggered by lenders.
Also read | Sovereign guarantees on loans to war-hit businesses may be on cards
The approach represents a significant shift from a creditor-in-control model to a debtor-in-possession structure.
Rather than a complete takeover, the CIIRP framework is designed to function more like a negotiated restructuring. Creditors and promoters can jointly acknowledge external shocks affecting the business and work towards recalibrating loan obligations, culminating in a resolution plan that requires judicial approval.
A key operational aspect of the new mechanism is the need for debt consolidation. In large loan exposures, individual lenders typically do not hold the 51% voting share required to drive resolution decisions. Asset Reconstruction Companies (ARCs), which specialise in aggregating distressed assets, are expected to play a central role in bridging this gap. By pooling debt and coordinating creditor action, ARCs can help achieve the majority threshold needed to initiate and steer the resolution process.
The role of ARCs is expected to expand significantly under the new regime. Hari Hara Mishra, chief executive of the Association of ARCs in India, told ToI that ARCs, with their ability to aggregate debt and experience in restructuring, are well positioned to drive the CIIRP process. He indicated that the framework could enable faster and more effective resolutions by combining commercial decision-making with judicial oversight, thereby improving revival prospects for viable stressed assets.
Also read | Why wealthy Indians are turning to alter ego trusts
The introduction of CIIRP comes at a time when supply chain disruptions linked to the West Asia conflict are beginning to strain certain sectors, increasing the risk of fresh defaults. The new framework provides promoters facing financial stress an opportunity to stabilise operations without immediately losing ownership, while also offering lenders the benefit of shorter resolution timelines.
Under CIIRP, the resolution process is capped at 150 days, with a possible extension of 45 days, compared to the 330-day outer limit under the existing CIRP framework. If a resolution is not achieved within this period, the case reverts to the conventional insolvency process.
The proposed changes also seek to realign incentives. In situations of imminent insolvency, promoters often have limited motivation to preserve enterprise value, sometimes resulting in resource diversion or prolonged legal disputes. By allowing promoters to retain control contingent on successful revival, the new model aims to better align their interests with those of creditors.
At the same time, the success of the CIIRP framework will depend heavily on creditor coordination. The process requires at least 51% of creditors to agree on a resolution strategy and support the existing management in executing it, making consensus-building a critical factor in determining outcomes.
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The system, according to the report (by Mayur Shetty), will be subject to creditor supervision.
The IBC, in its original design, was aimed at displacing promoters of companies that had defaulted on loans. Section 29A explicitly prevented wilful defaulters and errant promoters from bidding for their own assets. Under the Corporate Insolvency Resolution Process (CIRP), management control was transferred to a resolution professional, reflecting the principle that promoters responsible for defaults should not benefit from lender-imposed haircuts.
However, the Insolvency and Bankruptcy Code Amendment Bill 2026 proposes an alternative pathway through the Creditor Initiated Insolvency Resolution Process (CIIRP). This framework allows the board of the defaulting company to continue managing day-to-day operations even after the resolution process has been triggered by lenders.
Also read | Sovereign guarantees on loans to war-hit businesses may be on cards
The approach represents a significant shift from a creditor-in-control model to a debtor-in-possession structure.
Rather than a complete takeover, the CIIRP framework is designed to function more like a negotiated restructuring. Creditors and promoters can jointly acknowledge external shocks affecting the business and work towards recalibrating loan obligations, culminating in a resolution plan that requires judicial approval.
A key operational aspect of the new mechanism is the need for debt consolidation. In large loan exposures, individual lenders typically do not hold the 51% voting share required to drive resolution decisions. Asset Reconstruction Companies (ARCs), which specialise in aggregating distressed assets, are expected to play a central role in bridging this gap. By pooling debt and coordinating creditor action, ARCs can help achieve the majority threshold needed to initiate and steer the resolution process.
The role of ARCs is expected to expand significantly under the new regime. Hari Hara Mishra, chief executive of the Association of ARCs in India, told ToI that ARCs, with their ability to aggregate debt and experience in restructuring, are well positioned to drive the CIIRP process. He indicated that the framework could enable faster and more effective resolutions by combining commercial decision-making with judicial oversight, thereby improving revival prospects for viable stressed assets.
Also read | Why wealthy Indians are turning to alter ego trusts
The introduction of CIIRP comes at a time when supply chain disruptions linked to the West Asia conflict are beginning to strain certain sectors, increasing the risk of fresh defaults. The new framework provides promoters facing financial stress an opportunity to stabilise operations without immediately losing ownership, while also offering lenders the benefit of shorter resolution timelines.
Under CIIRP, the resolution process is capped at 150 days, with a possible extension of 45 days, compared to the 330-day outer limit under the existing CIRP framework. If a resolution is not achieved within this period, the case reverts to the conventional insolvency process.
The proposed changes also seek to realign incentives. In situations of imminent insolvency, promoters often have limited motivation to preserve enterprise value, sometimes resulting in resource diversion or prolonged legal disputes. By allowing promoters to retain control contingent on successful revival, the new model aims to better align their interests with those of creditors.
At the same time, the success of the CIIRP framework will depend heavily on creditor coordination. The process requires at least 51% of creditors to agree on a resolution strategy and support the existing management in executing it, making consensus-building a critical factor in determining outcomes.
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