IBC (Amendment) Bill, 2025: Creditor-Initiated Insolvency Resolution Process

IBC (Amendment) Bill, 2025: Creditor-Initiated Insolvency Resolution Process

I. INTRODUCTION

One of the innovations proposed in the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (the “Bill”) is a new resolution framework that is intended to serve as an alternative to the conventional corporate insolvency resolution process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (the “Code” or “IBC”). Termed as the creditor-initiated insolvency resolution process (“CIIRP”), this process is designed as a largely out-of-court mechanism, but with the National Company Law Tribunal (“NCLT”) playing a supervisory role at key stages, including in case of a dispute, for grant of a moratorium and approval of a resolution plan. Another distinguishing feature of the CIIRP is that the corporate debtor continues to remain in control of the business (subject to certain checks and balances), in contrast to the CIRP where control is ceded to the resolution professional (“RP”). This note analyzes the CIIRP framework as proposed in the Bill. For our analysis of other provisions of the Bill, please refer to our note here.

II. BACKGROUND

The need for alternative mechanisms for resolution of distress was discussed at the Colloquium on Functioning and Strengthening of the IBC Ecosystem (“Colloquium”) organized by the Insolvency and Bankruptcy Board of India (“IBBI”) in November 2022, where the significant delays and bottlenecks of the CIRP were acknowledged. The Report of the Colloquium (“2022 Report”) also observed that the fast-track CIRP (“FCIRP”) was largely indistinguishable from the regular CIRP, leading to its infrequent use. Consequently, it recommended a simplified and flexible fast-track mechanism, which may be creditor-led and initiated out-of-court but backed by the formal insolvency resolution process. Soon after this, the Ministry of Corporate Affairs Notice dated January 18, 2023, considered amending the provisions dealing with FCIRP, to allow for an informal out-of-court process that would involve the NCLT only for final approval of the resolution plan. Against this backdrop, the IBBI constituted an expert committee that was tasked with evaluating the feasibility of a ‘creditor-led resolution approach’ that could be incorporated into the Code. The Expert Committee’s Report on Creditor Led Resolution Approach, May 2023, (“2023 Report”) recommended implementing a creditor-led, out-of-court resolution process, which it believed would bring in greater efficiency to the resolution process and help the Code fulfill its objectives of “time bound reorganization” and “maximization of value”. Many of the proposals in the Bill introducing the CIIRP appear to draw on the 2023 Report and the recommendations of the expert committee.

III. CIIRP

The Bill proposes to introduce a new Chapter IV-A to the Code that sets out the detailed process and requirements for a CIIRP. Set out below are the key elements of the CIIRP and how these compare with the CIRP under the Code. For an easier understanding of the process involved in CIIRP, the process flow-chart below illustrates the steps involved:

A. Eligibility, initiation, and objections

Eligibility: The CIIRP is to be made available to such class of corporate debtors as may be notified by the Central Government, having regard to (a) their assets and/or income; (b) their class of creditors or amount of debt; or (c) any other category of debtors. In addition, to avoid overlap or ambiguities between the CIIRP and the CIRP or liquidation process, proposed Section 58A of the Code prohibits initiation of CIIRP in situations where a CIRP or liquidation proceeding against the corporate debtor has commenced, or where the corporate debtor has undergone a CIIRP, pre-packaged insolvency resolution process or a CIRP during the three years preceding the CIIRP commencement date. Similarly, there is a reciprocal bar under the proposed amendment to Section 11(ba) of the Code, which prevents a corporate debtor from initiating a CIRP for twelve months after a resolution plan has been approved under CIIRP.

Initiation: The CIIRP may only be initiated by financial creditors belonging to certain categories of financial institutions as may be notified by the Central Government. This appears to suggest a phased approach to introducing the CIIRP, which is consistent with the 2023 Report’s suggestion that the creditor-led resolution process should first be made applicable to scheduled commercial banks, given their exposure and routine engagement in resolving stress.

An eligible financial creditor with respect to which the corporate debtor has defaulted may initiate a CIIRP pursuant to the following framework as set out in proposed Section 58B of the Code.

1. Notice to corporate debtor and approval of financial creditors: Prior to appointing a RP for a CIIRP, the initiating financial creditor must obtain the approval of financial creditors holding at least 51% in value of the debt. The initiating financial creditor must also notify the corporate debtor of its intent to commence CIIRP, allowing at least 30 days for the debtor to submit any representations.

2. Consideration of representation: The financial creditors are required to consider any representations made by the corporate debtor during this 30-day period.

3. Final approval: Should the initiating creditor decide to proceed after reviewing the debtor’s representation, a fresh approval from financial creditors representing at least 51% in value is mandated within 30 days of the debtor’s representation.

4. Appointment of RP: Once the necessary approvals for initiation are secured, the initiating financial creditor shall appoint the RP.

5. Public announcement: The RP is then responsible for making a public announcement regarding the initiation of CIIRP. This announcement must be accompanied by a report that is to be submitted to the NCLT and IBBI confirming that the financial creditor meets the requirements for initiating a CIIRP. The date of this public announcement will be considered the commencement date of the CIIRP.

Crucially, the proposed initiation of CIIRP explicitly excludes any involvement of the NCLT at the stage of initiation. This aligns with the recommendations in the 2023 Report regarding an “out-of-court” initiated creditor-led resolution process. At the same time, the requirements for a public announcement and for the NCLT to be notified would mean that the initiation of CIIRP is not confidential, in contrast to other out-of-court restructuring mechanisms. Notably, once a CIIRP has commenced, no application for either a CIRP or a pre-packaged insolvency resolution process can be filed or admitted during the CIIRP period as per proposed Section 58B(5) of the Code, to ensure that the process is streamlined and multiple proceedings under the Code are not commenced simultaneously.

Proposed Section 58C allows the corporate debtor to object to the commencement of the CIIRP by an application to the NCLT within 30 days of commencement. The proposed amendments allow the NCLT to pass an adverse order if: (i) no default has occurred; or (ii) a default has occurred but the initiation of CIIRP does not meet the criteria specified in proposed Sections 58A and 58B. Pertinently, in the latter case falling under (ii), the NCLT is required to convert the CIIRP to a CIRP under Chapter II of the Code.

B. Role of the resolution professional & debtor-in-possession model

Proposed Section 58E of the Code outlines the duties and powers of the RP in a CIIRP, which largely mirror those found in Sections 18 and 25(2) of the Code for CIRP. These responsibilities include:

• Calling for claims from creditors.
• Collating the received claims.
• Preparing an information memorandum.
• Preparing a compliance report for submission to the NCLT and the Board.
• Collecting information from the corporate debtor.
• Constituting the Committee of Creditors (“CoC”).
• Other general regulatory duties.

Furthermore, proposed Section 58E of the Code mandates the corporate debtor’s management to cooperate with the RP, a requirement similar to Section 19 of the Code. The RP is also granted the authority to access the corporate debtor’s books, records, and information from information utilities and government authorities.

In contrast to the CIRP where the RP manages the corporate debtor’s affairs, proposed Section 58F of the Code places the management of the corporate debtor’s affairs with its existing board or partners. This aligns with the ‘debtor-in-possession’ model advocated by the 2023 Report, which suggests this approach will expedite the creditor-led resolution process. By limiting the RP’s role to managing the CIIRP, the aim is to avoid the time-consuming friction, value erosion, or cash flow disruptions that often accompany a change of control.

To protect the interests of creditors, proposed Section 58F(3) of the Code stipulates that if the promoter or personnel of the corporate debtor provide misleading information or omit material information in the information memorandum, they will be held liable for any loss or damage sustained. Additionally, the proposed amendments empower the RP to attend board or partner meetings and to reject any resolution deemed detrimental to the CIIRP. These specific powers are subject to further conditions and rules to be specified by the Central Government.

C. Moratorium

Proposed Section 58G of the Code extends the concept of the moratorium to the CIIRP as well. However, a critical difference from the moratorium for the CIRP is that the moratorium in the case of a CIIRP is not automatic on commencement and will specifically need to be applied for by the RP. The application for moratorium can only be made after obtaining approval from the CoC, or, if the CoC has not yet been constituted, with the approval of financial creditors representing at least 51% in value of the debt. Once the RP files the application, the moratorium will automatically apply, subject to the final decision on the application by the NCLT.

Furthermore, the proposed Section 58G(3) of the Code mandates the RP to make a public announcement when any application for moratorium is filed and, subsequently, if the NCLT rejects the application. Another key distinction from the CIRP is that the moratorium under CIIRP is proposed to commence from the date of the application, rather than from the date of NCLT approval for the moratorium.

This approach aligns with the suggestions in the 2023 Report, where the expert committee had pointed out that the option to apply for a moratorium would be helpful in ensuring a speedy CIIRP.

D. Timeline for CIIRP

The CIIRP must be completed within a period of 150 days from the commencement date, as mandated by proposed Section 58D(1) of the Code. However, a one-time extension of up to 45 days may be granted by the NCLT on an application by the RP, which in turn must have been approved by the CoC with a vote of not less than 66% of the voting share, as per proposed Section 58D(2) of the Code. If no resolution plan is approved within the stipulated period (including any extension), the NCLT is mandated to convert the CIIRP into a CIRP under proposed Section 58D(3) of the Code as stated below.

E. Completion of CIIRP: Approval of resolution plan, withdrawal and conversion to CIRP

Similar to the CIRP, a resolution plan needs the approval of at least 66% in value of the voting share of the CoC, after which the RP is required to make an application to the NCLT for approval of the plan. The process for approval of the resolution plan is identical to that under the CIRP and the NCLT is required to ensure that the resolution plan complies with all the requirements in Section 31 of the Code. In other words, while the process for arriving at a resolution plan might be fast tracked and different from the traditional CIRP, the resolution plan ultimately arrived at through a CIIRP is required to conform to all the requirements of the Code, including compliance with Section 29A of the Code.

It is also possible to withdraw the public announcement of initiation and close the CIIRP before it is concluded. Pursuant to proposed Section 58I of the Code, such withdrawal can only occur after constitution of the CoC and before the first call for resolution plans, with approval of 90% voting share of the CoC.

Finally, proposed Section 58H of the Code allows the CoC, based on the approval of at least 66% of voting share, to request the NCLT to convert the CIIRP into a CIRP at any time during the process as described below.

F. Conversion of CIIRP to CIRP

Proposed Section 58H of the Code mandates the NCLT to convert a CIIRP to a CIRP on any of the following triggers:

1. No resolution plan being approved within the CIIRP timeline or if the CoC decides to convert the CIIRP into a CIRP;

2. Management/personnel of the corporate debtor fail to assist/cooperate with the RP; or

3. NCLT rejects the submitted resolution plan.

On any of these triggers it is proposed that the NCLT shall convert the CIIRP into a CIRP and decide the stage from which the CIRP is to resume. The proposed amendments provide that the RP will get appointed as the interim resolution professional for the CIRP, and the NCLT will declare a moratorium under Section 14 of the Code. Further, all the CIIRP costs already incurred are proposed to be included as CIRP costs.

G. Applicability of other provisions and penalties

Proposed Section 58K makes several other provisions of the Code applicable to the CIIRP (however with minor modifications) as set out below:

1. The framework for formation of the CoC, the role of RP and the proceedings before a CoC under Sections 21, 24, 25A, 26, 27, 28, 28A, 29, 32, and 32A of the Code;

2. The entire framework for avoidance transactions (PUFE) under Sections 43 to 51; and

3. Chapter VI (Adjudicating Authority for Corporate Persons) and Chapter VII (Offences and Penalties).

IV. CONCLUSION

Resolution of corporate stress can take a number of forms ranging from entirely out-of-court settlements to a full-fledged court-driven insolvency process. Frameworks such as the proposed CIIRP lie in the middle of this spectrum and are intended to combine the flexibility and efficiency of an out-of-court process with the statutory backing of a court-approved resolution plan that is binding on all stakeholders. A bold feature of the CIIRP is that it provides for a debtor-in-possession regime. However, there appear to be significant checks and balances in the CIIRP framework to protect creditors, including a degree of oversight by the RP and the option to convert the CIIRP into a CIRP. The proposed framework for CIIRP also seeks to minimize intervention of the NCLT, which it is hoped would lead to more time bound resolution.

At the same time, the CIIRP will, in practice, be a feasible option only in situations where there is significant consensus and cooperation between debtor and creditors. Further, it is worth noting that existing alternatives in the Code to the CIRP, including the FCIRP and the pre-packaged insolvency resolution process for MSMEs, have not had much uptake to date. It remains to be seen if financial institutions would consider the proposed CIIRP to be a viable alternative to both the CIRP and entirely out of court mechanisms.