The Lok Sabha on Monday approved a clutch of amendments to the Insolvency and Bankruptcy code (IBC) that will significantly reduce resolution timelines, and pave the way for structural reforms in the decade-old law.
The IBC (Amendments) Bill proposes new frameworks to handle complex cases, aligning with evolving global practices. A significant addition is the creditor-initiated insolvency process (CIIRP), an out-of-court mechanism that allows creditors to initiate insolvency for genuine business failures with 51% consent. Post-initiation, the process has to be completed within 150 days with a possible extension of 45 days.
New mechanisms for ‘Group Insolvency’
The Bill also introduces new mechanisms for “group insolvency” and “cross-border insolvency” in a moves aimed at promoting investor confidence. Regarding group insolvency, the Bill has proposed a mechanism for coordinating the insolvency proceedings of multiple related companies within a large corporate group.
The cross-border insolvency, which is aligned with UNCITRAL Model Law principles, has the potential to transform the domestic insolvency landscape by enabling faster resolutions in cases where the company holds assets or has creditors abroad.
With an intent to speed up the resolution process, the Bill sets various strict timelines to reduce the existing delays. Importaantly, it seeks to make it mandatory for the National Company Law Tribunal (NCLT) to admit an insolvency application from financial creditors within 14 days, and dispose of liquidation orders within 30 days.
Additionally, if a company cannot be saved and must be liquidated, the Bill has set a tighter deadline of 180 days to complete this process, with a possible single extension of 90 days.
“Creditor-initiated insolvency resolution process cannot be initiated for a corporate debtor after having bought asset which went through the resolution process. Another CIIRP cannot be taken up for the next three years,” said finance minister Nirmala Sitharaman while presenting a revised Bill, after vetting of an earlier version a select committee.
What does the bill aim to do?
“The Bill aims to address long-standing delays in the corporate insolvency resolution process (CIRP), which, despite a statutory limit of 330 days, often extends to 650-850 days in practice, eroding the value of corporate assets, losing interest of stakeholders and forcing liquidation,” said Jatin Kapoor, Partner at S&A Law Offices.
“Unlike the IBC’s current CIRP procedure, which is time-consuming; CIIRP provides a more effective, less disruptive, and cooperative mechanism, especially for successful companies where early creditor consensus can facilitate prompt resolution,” said Srinivasa Rao, senior partner (risk advisory services) at Nangia Global.