IBC Amendment Bill: Govt proposes group, cross-border insolvency

The government has proposed an overhaul of its insolvency regime by introducing concepts of group insolvency, cross-border insolvency, and pre-packaged insolvency for large corporations, in a move designed to accelerate admission, resolution and liquidation processes. 

Finance Minister Nirmala Sitharaman on Tuesday tabled the long-awaited Insolvency and Bankruptcy Code (IBC) Amendment Bill in the Lok Sabha, proposing wide-ranging reforms, including a new clause allowing the transfer of a personal guarantor’s assets to lenders as part of the insolvency resolution process. 

The Bill, under discussion since 2023, has been referred to a select committee for further deliberations. 

Among significant clarifications made in the Bill, it states that claims by state or central authorities will only be treated as secured if there is a contractual agreement to that effect, thereby preventing such claims from automatically receiving priority under the IBC. 

 

 “It is hereby clarified that the security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an agreement or arrangement, by the act of two or more parties, and shall not include a security interest created merely by operation of any law for the time being in force,” the Bill notes. 

Introducing the Bill, Sitharaman said: “The proposed amendments aim to reduce delays, maximise value for all stakeholders, and improve governance of all processes under the Code.” 

The group insolvency framework seeks to address the complexities of multi-entity corporate structures, minimising value erosion from fragmented proceedings and enabling creditors to benefit from coordinated decision-making. The Bill proposes that the central government may prescribe the manner and conditions for handling insolvency proceedings against two or more corporate debtors within a group. 

These provisions would enable the establishment of a common Bench, appointment or replacement of a shared insolvency professional, coordination of insolvency proceedings, and formation of a joint committee comprising the creditors’ committees (CoCs) of the group’s corporate debtors. This mechanism is expected to be useful in cases such as Gensol and BluSmart, which belong to the same corporate group, by saving both costs and time. 

The IBC is being amended for the seventh time since inception. The Bill has proposed an out-of-court initiation mechanism for genuine business failures to facilitate faster and more cost-effective insolvency resolution, with minimal business disruption as part of a creditor-initiated insolvency resolution process (CIIRP) or the pre-packaged resolution process for large companies. 

The proposed amendments require a financial creditor to secure the consent of creditors representing 55 per cent of the debtor’s outstanding debt before initiating the process. The aim is to ease pressure on the judiciary, improve the ease of doing business and expand access to credit. The process must be concluded within 150 days of commencement, with a possible 45-day extension by the adjudicating authority. 

“The expansion of the pre-packaged insolvency framework to larger corporates, coupled with enhanced decision-making powers vested in the CoC, is intended to expedite resolutions and reduce undue dependence on adjudicatory forums for operational approvals,” said Sonam Chandwani, managing partner, KS Legal and Associates. 

The cross-border insolvency provisions, for which the government will notify rules, aim to protect stakeholder interests in both domestic and foreign proceedings, boost investor confidence, and align India’s framework with international best practices.  Experts say the framework could help recognition and recovery of overseas assets, an area that has long presented enforcement challenges.

 

Tackling delays 

To address delays at the admission stage, the Bill proposes amending Section 7 of the Code, which governs insolvency initiation by financial creditors. Once a default is established, no disciplinary proceedings are pending against the proposed resolution professional, and procedural requirements are met, the adjudicating authority will be required to admit the application without considering other grounds for rejection. 

It further clarifies that if a financial institution submits a record of default under Section 7, the adjudicating authority must accept it as sufficient evidence and not question it. 

The Bill also proposes that the Competition Commission of India’s (CCI’s) approval be obtained before an insolvency resolution plan is submitted to the adjudicating authority -- a shift from the current process in which CCI clearance is sought after CoC approval. 

Anshul Jain, partner and regulatory leader at PwC India, said that obtaining CCI clearance earlier would save time and costs for prospective resolution applicants. “Amendments related to transfer of assets of a guarantor and the clarification on security interest by way of contractual arrangement and not by way of operation of law also provides for much-needed relief to acquirers under the insolvency processes,” he added.