The IBC (Amendment) Bill 2025: Major Implications

 

Key Changes and Implications

1. Creditor-Initiated Insolvency Resolution Process (CIIRP)

A major innovation is the creditor-initiated insolvency resolution process (CIIRP). Certain financial creditors can now start resolution outside NCLT for specified companies if 51% agree. Debtors get 30 days to respond and can object before NCLT. Management stays with the debtor, but an independent resolution professional supervises. If no resolution plan is submitted within 150 days, the case may shift into regular CIRP.

2. Mandatory Admission of Cases

If the default is proven and documents are complete, NCLT must admit insolvency applications within 14 days. Financial records are treated as conclusive proof. NCLT cannot reject on other grounds, and reasons must be recorded for the delay. Once admitted, withdrawal requires 90% creditor consent and must be disposed of within 30 days.

3. Group Insolvency

The Bill adds Chapter V-A on group insolvency. It allows the government to frame rules so that two or more group companies can go through insolvency together. This may include:

· A common NCLT bench for hearings,

· A shared resolution professional, and

· A joint committee of creditors.

4. Cross-Border Insolvency

The Bill introduces a framework for cross-border insolvency, expected to follow the UNCITRAL Model Law.

5. Removal of Fast-Track CIRP

Under the existing Code, Section 56 allowed a fast-track insolvency process for small firms, which has been scrapped. Instead, small businesses can rely on CIIRP or pre-pack frameworks.

6. Clarifications and Creditor Safeguards

· Guarantor Assets: If creditors take guarantor assets, these can be moved into the CIRP with CoC consent (and guarantor’s CoC/creditor consent, if applicable).

· Minimum Payout: Dissenting financial creditors must get at least the lower of the liquidation value or their Section 53 entitlement.

· Two-Stage Plan Approval: Adjudicating authorities can first approve the plan’s implementation and decide on distribution within 30 days, ensuring pre-plan claims are extinguished unless preserved.

· Liquidation Reforms: Moratorium continues during liquidation; CIRP may be restored from liquidation in rare cases (within 120 days); liquidation must finish in 180 days, extendable by 90 days.

· Look-Back Period: Suspect transactions (preferential, undervalued, extortionate) are now checked from the date of filing the application, not admission, stopping delay tactics.

· Secured Creditors’ Duties: Secured creditors must decide within 14 days if they want to realise collateral outside liquidation. This requires 66% consent from co-secured creditors, and they must share costs and workers’ dues. Government dues cannot override secured creditors beyond a capped two-year period.

7. Penalties and Safeguards Against Misuse

The Bill introduces stronger penalties to prevent misuse of the insolvency process:

· Creditor-Initiated Insolvency: Penalties for fraudulent or malicious filings now also apply to CIIRP. Company officers can also be penalised.

· Fraudulent/Wrongful Trading: Liquidators can file cases against directors for wrongful or fraudulent trading during liquidation, not just during CIRP.

· Personal Guarantors & Individuals: Some protections will not apply when a creditor or debtor starts insolvency proceedings against a personal guarantor. The resolution professional’s review period is extended to 21 days. If no repayment plan is proposed in 21 days, the process ends automatically, and creditors can apply for bankruptcy. A new Section 164A penalises individuals or partnerships for transactions meant to defraud creditors.

· Frivolous Filings: Penalties are added for filing false or vexatious applications under Part III of the Code in personal insolvency cases.

Conclusion

The Bill introduces Chapter V-A to provide a framework for group insolvency. It empowers the government to make rules so that group companies can be dealt with in a joint insolvency process before a common NCLT bench, with a shared resolution professional and a joint committee of creditors. This brings statutory recognition to coordinated proceedings for corporate groups.

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