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Mint
3 days ago
- Business
- Mint
Mint Explainer: Understanding the proposals under the new Insolvency and Bankruptcy Code amendment bill
Finance and corporate affairs minister Nirmala Sitharaman tabled the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, in the Lok Sabha on Tuesday. The proposed amendments aim to reduce resolution delays, maximise value for all stakeholders, and improve governance of all processes under the IBC. They propose to focus on the creditor-initiated insolvency resolution process which involves creditors settling insolvency matters out of court, thereby reducing the burden of cases on insolvency tribunals. The National Company Law Tribunal (NCLT) will only have to approve the resolution plans, thus reducing the timelines under the IBC. Mint takes a closer look at the amendments. Why was the Insolvency and Bankruptcy Code (IBC) introduced in 2016? The Insolvency and Bankruptcy Code, one of India's new legal laws, was introduced in 2016 to deal with insolvent companies and individuals that could not repay their debt, which sometimes ran into hundreds of crores. A year later, the Reserve Bank of India (RBI) was entrusted with legal powers to initiate proceedings to recover loans that had become non-performing assets (NPA). It was then that the central bank made public a list of 12 companies which defaulted on huge loans. Interestingly, those companies were called the 'dirty dozen'. This list included big companies such as Bhushan Steel, Essar Steel, Jaypee Infratech, Jyoti Structures, Bhushan Power, and Amtek Auto. The aim was to resolve stressed assets in a time-bound manner while also improving the economy's financial position. What are the key changes proposed in the IBC (Amendment) Act, 2025? Under the amendments, the government has proposed creditor-initiated insolvency resolution process (CIIRP), group insolvency, cross-border insolvency and pre-packaged insolvency for companies, among others. These amendments will help in smooth admission, resolution and liquidation. 'The proposed amendments do promise to cure the current maladies, including treatment of statutory charges, and provide for newer solutions like pre-packaged insolvencies, group insolvencies, cross-border insolvencies," said Soumitra Majumdar, partner, JSA Advocates & Solicitors. 'The current sub-committee should undertake wider public consultations for ironing out the remaining creases through the benefit of experience." Why is there a need for a voluntary group insolvency? A new chapter has been included in the Bill to empower the central government to create rules for coordinated or consolidated insolvency proceedings for group companies. Group insolvency is a process in which a cluster of related companies—typically part of the same corporate structure—jointly enter insolvency proceedings, often when the group as a whole is unable to meet its financial obligations. The primary goal is to preserve the overall value of the group's assets while reducing the total cost of the corporate insolvency resolution. A notable example is the Videocon Group case, the first instance of group insolvency under the Insolvency and Bankruptcy Code (IBC). In 2021, the State Bank of India (SBI) approached the Mumbai bench of the National Company Law Tribunal (NCLT) seeking substantive consolidation of 15 Videocon entities into a single resolution process. This case became a reference point for similar matters. In the Axis Bank Ltd vs Lavasa Corp Ltd case in 2021, the NCLT combined the insolvency proceedings of the Lavasa group to avoid losses that could result from fragmented resolutions. The tribunal also recognised that the financial health of the subsidiaries was closely tied to the outcome of the parent company's insolvency. What does the Bill state regarding cross-border insolvency? Essentially, when an insolvent company has credit and/or debtors in more than one jurisdiction i.e. in many different countries, that situation can be referred to as 'cross border insolvency' or 'international insolvency'. The Bill proposed a basic structure, for which the rules will be detailed later. The purpose of such insolvency is to enable lenders to manage the assets of financially distressed companies beyond specific geographies. This would ensure that India, with the help of other countries, gets access to bring overseas assets of the debtor within the ambit of insolvency. What is the creditor-initiated insolvency process and why is it important? The creditor-initiated insolvency resolution process allows lenders to settle insolvency proceedings out of court, wherein they only have to obtain regulator approval for the resolution plan from the NCLT. The concept of CIIRP gains importance as it puts the creditors on an important pedestal in the resolution process. 'Creditors can initiate the process without the court's intervention. CIIRP gives additional comfort to the promoters to make genuine efforts to revive the company without losing control since the promoters continue to run the company," said Siddharth Srivasata, Partner Khaitan & Co. He added that NCLT has the power to convert the CIIRP to a regular insolvency proceedings in certain situations, for example if the corporate debtor has failed to assist the resolution professional or no resolution plan is approved by the lenders. "In my view, CIIRP is likely to find more traction as compared to pre-packaged insolvency and therefore is a major step in rebuilding the confidence of stakeholders in the IBC." The pre-packaged insolvency resolution process (PPIRP) under the Insolvency and Bankruptcy Code (IBC), 2016, provides a streamlined framework for resolving insolvency, particularly for micro, small, and medium enterprises (MSMEs). These entities frequently struggle with financial pressures stemming from market volatility, limited capital, and operational hurdles. PPIRP provides a quicker and more affordable route for insolvent MSMEs. Designed as a promoter in a control framework, it enables MSMEs to restructure their debts while continuing to manage their operations, delivering faster outcomes than conventional insolvency proceedings. Why is the withdrawal of insolvency applications under Section 12A of the IBC expected to become challenging under the new amendment? Section 12A of IBC allows the withdrawal of an insolvency application against a debt-laden company only with the approval of 90% of the voting share of the committee of creditors. This threshold is often hard to achieve since inter-creditor conflicts arise, making the withdrawal process difficult. When the new amendments are implemented, the withdrawal may become even more complex because it will not be allowed after the formation of the committee of creditors
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Business Standard
3 days ago
- Business
- Business Standard
IBC Bill proposed wider look-back period for preferential transactions
In order to capture a broad range of transactions, particularly those undertaken to exclude assets from the insolvency process, the Insolvency and Bankruptcy Code (IBC) Amendment Bill has amended the look-back period, which will be counted from the initiation of insolvency instead of its commencement. The Centre on Tuesday introduced the IBC Bill in the Lok Sabha, proposing a wide range of reforms from group and cross-border insolvency to creditor-initiated insolvency resolution process. The Bill has been referred by the government to a select committee. In cases where the admission of an application takes longer than 14 days, as required under the Code, the look-back period for preferential transactions may not be able to capture a significant portion of transactions that occurred before the filing of an application. The government was concerned that this could give corporate debtors a perverse incentive to delay admission of the application for commencement of the insolvency resolution process to reduce the scope of an avoidable transaction. 'The threshold for the look-back period for preferential transactions, therefore, has been adjusted to more effectively capture a broader range of pre-filing transactions, particularly those undertaken in anticipation of the commencement of the insolvency resolution process to exclude assets from the process,' the Bill stated. 'The resolution professional and liquidators should do a careful analysis so that genuine business transactions do not get counted as preferential transactions. And, everything is not pushed as avoidance or fraudulent. There are a huge number of such cases already pending in the National Company Law Tribunals (NCLTs),' said Surendra Raj, Partner, Grant Thornton Partner. Aligning with the recent regulations introduced by the Insolvency and Bankruptcy Board of India (IBBI) — allowing part resolution of assets — the Bill has also inserted a similar provision to Section 5 of the Act. It is to allow 'merger, amalgamation, demerger and sale of one or more assets of the corporate debtor.' An important clarification brought in the Bill relates to the assurance that government concessions such as licence, permit, registration and quota, by the Centre, state, local authority or sectoral regulator would continue as part of a resolution process. 'Several similar assets are languishing before the courts, suffering value erosion and being prejudicial to all stakeholders. Apart from enhancing the efficacy of IBC, this should also make these projects bankable by project financiers. This is indeed a significant step, and in absolute consonance with the stated objectives of the IBC,' Soumitra Majumdar, partner, JSA Advocates & Solicitors, said. The amendments have provided for a continued supervisory role of the committee of creditors (CoC) even during liquidation. In order to address delays on account of inter-creditor disputes, the Bill has said that the adjudicating authority may, before rejecting the resolution plan, give notice of an additional 30 days to the CoC to rectify any defects in the resolution plan. The proposed amendments enable the adjudicating authority to first approve implementation of the resolution plan. Then, by a separate order, it can approve the manner of distribution, thereby segregating the two issues.
