IBC Amendment Bill 2025: Key Reforms in Insolvency Law

Introduction: Why Does India Need Another Insolvency Reform?

When the Insolvency and Bankruptcy Code (IBC) came into force in 2016, it promised a single, time‑bound framework that would unify all laws relating to the resolution and liquidation of financially distressed companies. It replaced a patchwork of statutes, introduced the concept of the corporate insolvency resolution process (CIRP) and moved India closer to international norms. Yet nearly a decade later the insolvency ecosystem still suffers from delayed admissions, prolonged litigations and value erosion. According to a PRS Legislative Research summary, the Code allows the National Company Law Tribunal (NCLT) to admit a company into CIRP if default is proven and the application is complete. However, in practice petitions linger far beyond the 14‑day timeline, uncertainty about the scope of the moratorium leads to litigation and fragmentation of group insolvencies dissipates enterprise value.

These inefficiencies prompted the finance ministry to revisit the Code. On 12 August 2025, Finance Minister Nirmala Sitharaman tabled the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 in the Lok Sabha. The Bill aims to streamline procedures, introduce new resolution frameworks, strengthen creditor rights and align India’s insolvency regime with global best practices. This blog examines the key changes, why they were needed and what they mean for creditors, debtors and investors.

The IBC of 2016: A Quick Refresher

To appreciate the significance of the 2025 amendments, it is worth recalling what the original Code sought to achieve. The 2016 IBC consolidated various statutes governing corporate insolvency and bankruptcy into a single framework under the supervision of the Insolvency and Bankruptcy Board of India (IBBI). The Code emphasised time-bound resolution to preserve asset value, balanced the interests of creditors and debtors and introduced a new payment waterfall that treated government dues differently. It created the CIRP, requiring the NCLT to admit a debtor into resolution if a default is established and to decide on the application within 14 days. A committee of creditors (CoC)—composed mainly of financial creditors—would then decide on resolution plans with support from an interim resolution professional (IRP). In special cases, fast‑track and pre‑packaged processes were available for small companies and MSMEs.

Despite these provisions, the Code’s implementation exposed several gaps:

• Admission delays and litigation – NCLTs often admitted cases late or rejected applications for extraneous reasons, causing long backlogs and uncertainty.

• Ambiguous moratorium scope – Differences arose over whether sureties and guarantors could enforce subrogation rights during the moratorium, leading to parallel proceedings.

• Fragmented group insolvency – Indian law lacked a mechanism to deal with insolvency across group companies, leading to value destruction when one entity’s resolution affected others.

• Limited cross‑border recognition – The Code did not address cross‑border insolvency even though many Indian companies have assets and creditors abroad.

• Fast‑track processes underused – The fast‑track CIRP, intended for small firms, seldom delivered faster outcomes because it largely replicated the regular CIRP.

These structural issues, coupled with stakeholder feedback and recommendations from the Insolvency Law Committee, laid the groundwork for the 2025 amendments.

Why the 2025 Amendment?

The government explained that the amendment bill seeks to resolve practical challenges and keep pace with evolving market needs. The SCC Times reported that the Bill’s purpose is to reduce delays, maximise value for stakeholders and improve governance across insolvency processes. It aims to achieve this by modifying existing provisions, introducing new mechanisms inspired by global best practices and removing outdated provisions. Three major policy considerations drive these reforms:

1. Tightening procedural discipline – Mandatory admission within 14 days, clear proof requirements and limited grounds for rejection ensure that cases are not stuck at the starting gate.

2. Empowering creditors – Creditors receive greater control through a new creditor‑initiated insolvency mechanism, streamlined voting rights and clarity on secured creditor obligations.

3. Modernising the framework – The introduction of group insolvency and cross‑border insolvency frameworks brings India closer to international standards and acknowledges the realities of complex corporate structures and global supply chains.

Key Provisions of the IBC (Amendment) Bill, 2025

1. Creditor‑Initiated Insolvency Resolution Process (CIIRP)

Perhaps the most transformative feature is the creation of a creditor‑initiated insolvency resolution process (CIIRP). Under the existing Code, only debtors or their creditors could file for CIRP directly with the NCLT. The new mechanism allows certain specified financial creditors to start resolution outside the tribunal for genuine business failures. According to the PRS summary, the government will specify categories of corporate debtors eligible for CIIRP and at least 51 % of qualifying creditors (by value) must agree before the process begins. Once creditors serve notice, the debtor has 30 days to respond and may object before the NCLT. Management remains with the debtor during CIIRP, but an independent resolution professional oversees the process and ensures fairness. If no plan is submitted within 150 days, or if the NCLT rejects the plan, the case can be converted to a formal CIRP.

This hybrid mechanism offers several benefits:

• Speed and cost efficiency – Out-of-court initiation reduces court backlog and can produce quicker outcomes, preserving asset value.

• Early engagement – Creditors must coordinate among themselves before initiating CIIRP, promoting collective action and reducing frivolous filings.

• Flexibility – Debtors have an opportunity to respond or object, and NCLT oversight is retained to safeguard rights.

  
  

2. Mandatory Admission and Streamlined Admission Procedure

The amendment underscores the principle that if a default is proven, the application is complete and no disciplinary proceedings exist against the proposed resolution professional, the adjudicating authority must admit the application—no additional grounds may justify rejection. In other words, the NCLT’s role is primarily administrative at the admission stage. The Bill also treats records from financial institutions and information utilities as conclusive evidence of default. Importantly, the 14‑day timeline for admission is reinforced; any delay must be recorded in writing. This addresses previous criticisms that tribunals arbitrarily refused or delayed admission.

Operational and corporate applicants also face new requirements. The Board will be empowered to ask for additional information from operational creditors and corporate applicants, and corporate debtors will no longer have the right to nominate an interim resolution professional. Moreover, once a case is admitted, withdrawal is only possible if 90 % of the CoC agrees, and must be disposed of within 30 days. These provisions prevent premature withdrawal and ensure that resolution plans are not derailed after admission.

3. Group Insolvency Framework

Indian conglomerates often operate through a web of subsidiaries and joint ventures. When one company becomes insolvent, its affiliates are affected—but the law has historically treated each entity separately. The Bill introduces Chapter V‑A on group insolvency to tackle this challenge. It allows the government to prescribe rules for a joint process where two or more group companies can have a common NCLT bench, share a common resolution professional and form a joint committee of creditors. The SCC Times summary explains that group insolvency aims to minimise value destruction caused by fragmented proceedings and maximise value through coordinated decision‑making. For example, a resolution plan for a holding company may depend on the viability of its subsidiary; a unified process prevents conflicting orders and enables holistic restructuring.

4. Cross‑Border Insolvency Framework

Until now, the IBC provided no mechanism for recognising foreign insolvency proceedings or cooperating with foreign courts. The amendment empowers the central government to prescribe rules for cross‑border insolvency. Though the Bill does not detail the entire framework, it is expected to be based on the UNCITRAL Model Law on Cross‑Border Insolvency, which more than 50 jurisdictions have adopted. A cross‑border framework will allow Indian courts to recognise foreign proceedings and coordinate with foreign courts, protect domestic and foreign creditors and support the rescue of multinational companies. The SCC Times article notes that the goal is to safeguard stakeholder interests and promote investor confidence by aligning domestic practice with international standards.

5. Removal of the Fast‑Track CIRP

Under the existing Code, Section 56 allowed fast‑track insolvency for small companies and start‑ups. However, this process largely mirrored the standard CIRP and was seldom used. The PRS summary points out that the Bill removes the fast‑track insolvency resolution process altogether. Instead, the government intends to address the issue of small company insolvencies through other reforms, including the CIIRP and pre‑pack frameworks.

6. Foundational and Definitional Changes

Several definitional amendments strengthen the Code’s conceptual clarity:

1. Security Interest Clarification – Only rights created by mutual agreement between parties constitute a security interest; statutory liens such as tax dues no longer enjoy this status. This stops revenue authorities from automatically claiming priority over secured creditors.

2. Service Provider Definition – A new definition of “service provider” expands regulatory reach to all entities supporting insolvency processes, including insolvency professionals, insolvency professional agencies and information utilities.

3. New Terms – The Bill introduces terms such as “avoidance transaction” and “fraudulent/wrongful trading” for consistent usage across the Code.

4. Voting Share Recalibration – Related‑party debt is excluded from vote‑weight calculations to prevent undue influence.

   
   

7. Strengthening Creditor Rights and Governance

To ensure that creditors receive equitable treatment and that resolution professionals act responsibly, the Bill introduces several safeguards:

• Asset Transfers from Guarantors – If creditors take possession of a guarantor’s assets via enforcement, those assets can be transferred into the CIRP with consent from the committee of creditors (and, when applicable, the guarantor’s CoC or creditor).

• Minimum Payout for Dissenting Creditors – Dissenting financial creditors must receive at least the lower of the liquidation value or their share under Section 53 of the Code’s payment waterfall. This prevents dissenters from holding up viable plans while ensuring they receive a minimum payout.

• Two‑Stage Resolution Plan Approval – Adjudicating authorities can approve implementation first and determine distribution later (within 30 days), formalising the clean‑slate principle where all pre‑plan claims are extinguished unless specifically preserved.

• Reforms in Liquidation Process – The moratorium is extended into liquidation to prevent piecemeal litigation; CIRP may be restored from liquidation in exceptional cases (limited to 120 days); and liquidation must be completed within 180 days plus one 90‑day extension. These changes give the CoC more control and discourage delays.

• Look‑Back Period Modifications – The look‑back period for suspect transactions such as preferential, undervalued and extortionate deals starts from the date of application filing rather than admission. This blocks debtors from strategically delaying filings to avoid scrutiny.

• Clarified Obligations for Secured Creditors – Secured creditors must decide within 14 days whether to realise collateral outside the liquidation; they need 66 % consent of co‑secured creditors and must contribute to resolution/liquidation costs and workmen’s dues if they realise assets outside the process. Government dues cannot claim priority over secured creditors except for a capped two‑year period.

  
  

8. Penalties and Safeguards Against Misuse

To deter frivolous proceedings and malicious behaviour, the Bill introduces or expands various penalties:

• Creditor‑Initiated Insolvency Safeguards – Penalties for fraudulent or malicious initiation now apply to CIIRP cases, and officers of the corporate debtor may also be penalised.

• Fraudulent/Wrongful Trading During Liquidation – Liquidators can now file applications against directors for fraudulent or wrongful trading during liquidation, not just during CIRP.

• Personal Guarantor and Individual Insolvency Reforms – Certain protective moratorium provisions will not apply when insolvency of a personal guarantor is initiated by a creditor or debtor; the resolution professional’s review period is extended to 21 days; a failure to propose a repayment plan within 21 days results in automatic termination; and after termination, creditors may file a bankruptcy application. A new Section 164A introduces penalties for transactions defrauding creditors by individuals and partnerships.

• Deterrence of Frivolous Filings – A penalty for vexatious or frivolous filings under Part III of the Code (personal insolvency) is added.

  
  

9. Expanded Powers and Standards for the IBBI

Recognising that a robust insolvency regime requires competent oversight, the Bill significantly enhances the powers of the Insolvency and Bankruptcy Board of India (IBBI):

• “Service Provider” Regime – The term “service provider” replaces multiple references to specific intermediaries and covers insolvency professionals (IPs), insolvency professional agencies (IPAs), information utilities and other notified persons. This broadens the IBBI’s regulatory jurisdiction.

• Standards of Conduct and Fees – The Board may levy fees across all processes and set standards of conduct for the CoC and its members. This ensures accountability and discourages misconduct by creditors.

• Information Utilities Strengthening – Operational creditors must submit information to an information utility before filing Section 9 applications; debtors must authenticate or dispute the information; silence is deemed authentication. This encourages accurate and timely data entry, which is critical for verifying defaults.

• Disciplinary Process Overhaul – Multiple disciplinary committees may be constituted; their powers—such as penalties, suspension, disgorgement and restitution—are clarified; the penalty cap is doubled from ₹1 crore to ₹2 crore; and appeals lie to the NCLAT. These provisions ensure fair and efficient enforcement.

  
  

10. Creation of an Insolvency and Bankruptcy Fund

The amendment broadens the scope of the Insolvency and Bankruptcy Fund, allowing contributions from more sources and empowering the central government to determine its use. This fund can finance insolvency training, public awareness programmes and infrastructure development, strengthening the overall ecosystem.

Practical Impact and Implications

Faster Resolutions and Reduced Litigation

The combination of mandatory admission and CIIRP is expected to speed up the onset of insolvency proceedings. By setting strict timelines and making records from financial institutions and information utilities conclusive proof of default, the Bill minimises preliminary disputes. Out‑of‑court initiation under CIIRP encourages debtors and creditors to settle or restructure quickly, reducing the burden on NCLTs. These measures should shorten resolution timelines, preserve asset value and free up judicial resources.

Greater Creditor Confidence and Participation

Redefined voting shares (excluding related‑party debt) and minimum payouts for dissenting creditors ensure that decisions reflect genuine creditor consensus and that minority creditors are protected. The clear timeline for secured creditors to decide on realisation and their obligation to contribute to resolution costs promote fairness. The CoC’s greater oversight in liquidation, combined with extended moratorium and look‑back periods, reduces the risk of asset stripping and enhances recovery prospects for creditors.

Balanced Debtor Protections

While the Bill strengthens creditors’ hands, it maintains safeguards for debtors. CIIRP allows companies to manage their affairs during out‑of‑court negotiations, preserving going-concern value. Debtors may also object to CIIRP initiation and file their own plans. The removal of the fast‑track CIRP suggests that small companies may use CIIRP or pre‑packaged processes, which are tailored to their needs and encourage quicker resolutions.

Alignment with International Norms

The adoption of group insolvency and cross‑border insolvency reflects India’s commitment to global best practices. Group insolvency frameworks exist in jurisdictions such as Singapore and the European Union, enabling coordinated restructuring across corporate families. Cross‑border frameworks based on the UNCITRAL Model Law facilitate recognition and cooperation between courts, reduce uncertainty for foreign investors and make India more attractive to global capital. By introducing similar mechanisms, India positions itself as a more predictable and investor‑friendly jurisdiction.

Enhanced Governance and Professionalism

With the expanded definition of service providers and increased disciplinary powers, the IBBI can better regulate insolvency professionals, agencies and information utilities. The ability to impose higher penalties and require standards of conduct for the CoC and its members promotes professionalism and curtails conflicts of interest. Strengthening information utilities ensures reliable data, which underpins timely admissions and reduces disputes over default.

Conclusion: A Step Towards a Resilient Insolvency Ecosystem

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 represents the most comprehensive overhaul of India’s insolvency regime since the Code’s inception. By introducing the creditor‑initiated insolvency resolution process, mandating swift admission, creating frameworks for group and cross‑border insolvency, clarifying definitions and strengthening regulatory oversight, the Bill addresses many pain points that have hampered effective resolution over the past nine years. It promises to speed up cases, reduce litigation, protect creditor value and enhance investor confidence. With proper implementation, these reforms could elevate India’s standing as a business‑friendly jurisdiction and unlock growth by ensuring that distressed businesses are either quickly rescued or efficiently liquidated.

At Victorem Legalis LLP, we continue to monitor developments closely. Our team of insolvency professionals, corporate lawyers and restructuring specialists is ready to guide clients through the evolving landscape—whether that involves evaluating options under the new CIIRP, coordinating group resolutions, or navigating cross‑border complexities. If your organisation needs tailored advice or would like to learn more about how these reforms affect you, please reach out.