IBC amendments seek to boost assets available for distressed company revival

Mint

4 days ago

Creditors to bankrupt firms could get their hands on a wider pool of valuable assets and claw back money from more shady promoter transactions, once latest changes to India's insolvency rules take effect.
While the Insolvency and Bankruptcy Code (IBC) remains the primary mode for bankruptcy resolution, lenders often seize assets of defaulting companies under various other laws; however, such assets stay with the individual banks themselves. The amended law will aid in bringing such assets—also seized from the defaulter's personal or corporate guarantors, essentially, its promoters, corporate parent, or an associate company—within the pool of assets for resolution.
Experts said this increases flexibility in rescuing businesses and fetches better value for the business, rather than selling assets by individual lenders in a fragmented way. However, the process is not automatic, and must be blessed by the committee of creditors supervising the resolution.
On Tuesday, the Lok Sabha referred the Insolvency and Bankruptcy Code (Amendment) Bill 2025 to a select committee of the Parliament.
Before the debut of IBC in 2016, lenders used the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) of 2002 to seize assets from defaulters. In some cases, lenders still resort to Sarfaesi Act that allows secured creditors to seize assets of borrowers who fail to repay dues within 60 days of demanding repayment.
Separately, the new bill extends the timeline to tag dubious pre-bankruptcy transactions of sick companies as avoidance transactions that can be reversed by tribunals.
While the stipulated time for admitting a case to bankruptcy court is 14 days, the average time is 434 days. The lengthy window enables unethical promoters to siphon off money via wrongful transactions once the bankruptcy petition is filed. Avoidance transactions may be undervalued, preferential, fraudulent or extortionate.
Currently, transactions done up to two years prior to admission can be cancelled in the case of related party transactions, and up to one year in the case of other transactions.
The bill seeks to expand this 'look back' period to two-year preceding initiation of bankruptcy proceedings all the way up to the date of its admission in NCLT in the cases of related party transactions. In the case of an unrelated parties, this period starts from one year prior to bankruptcy petition filing to its admission date.
'We have seen in many insolvency cases that considerable time—on an average one to two years—is taken in admission of the insolvency after the initiation of the insolvency process by the creditors and most of the defaulting entities would have engaged in avoidance transactions either during this period or even much earlier than this," said Surendra Raj, partner, Grant Thornton Bharat.
'Amending the look-back period for reporting such transactions undertaken during the two years (for related parties) and one year (for unrelated parties) from the initiation date (that is, the date when first application is filed for initiation of insolvency) would bring in many more such avoidance transactions in the purview of being classified as avoidance transaction. While this is certainly a welcome step to bring back public money to victims, one needs to be very careful that genuine business transactions don't get reported in this category resulting in over work for already burdened NCLTs," said Raj. 'Hence, very careful analysis would be required to be done by the resolution professional or the liquidator and professional advisors before reporting these transactions," said Raj.
Soumitra Majumdar, partner, JSA Advocates & Solicitors said the proposed amendments provide the much-needed clarity on treatment of avoidance transactions and the resultant assets.
'The statutory aim appears to be to build in certainty of recovery, and flexibility in disposal methods of assets—both at the corporate debtor level and at those of the guarantors, subject to certain conditions. Ability to efficiently monetise assets will enhance creditor and stakeholder recoveries," said Majumdar.
'On the demand side, buyers will naturally be encouraged to offer price commensurate with the economic value of assets, without having to account for legal and regulatory risks associated with such acquisitions," said Majumdar.
The government should also introduce dedicated NCLT benches to adjudicate on these transactions because many applications to annul these transactions, having approximately exposure of ₹3.89 trillion already in the last eight years are pending for adjudication at different stages, said Raj of Grant Thornton Bharat.
The bill also clarifies that recovery proceedings from avoidance transactions or fraudulent trading will not affect the debt resolution process and these will continue independently even after completion of debt resolution or even liquidation of the company.