IBC Amendment Bill brings in essential reform to speed up insolvency resolution

The proposed changes should lead to more predictable timelines for stakeholders

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 was introduced in the Lok Sabha on 12 August 2025 and has been sent to a select committee of Parliament, with the report expected before the winter session commencing in late November 2025. The Bill proposes significant amendments to the Insolvency and Bankruptcy Code, 2016 (IBC) introducing new concepts and tweaking certain existing concepts on account of difficulties faced in operation of the IBC.

The majority of these proposed amendments are designed to uphold the objectives of a time-bound process and value maximisation by improving operational effectiveness. Additionally, there are some amendments that aim to ensure that the original intent of the Code is kept intact to avoid any misuse or misinterpretation while few other amendments are directed towards achieving certainty for the process and reducing the procedural burden.

Compressing the timeline at an insolvency’s initiation stage

For time-bound commencement and closure of the corporate insolvency resolution process (CIRP), the adjudicating authority (AA) has now been mandated to admit or reject insolvency applications within 14 days, and pass orders for various other applications (such as approval/rejection of resolution plan) within 30 days, with mandatory recording of reasons for any delays.

This should lead to more predictable timelines for stakeholders. Further, the Committee of Creditors (CoC) constituted during the CIRP will continue to supervise the liquidation process without the liquidator having to run a claim invitation and verification process afresh. This ensures continuity and reduces procedural burden.

Aims to offset unwarranted fallout of judicial verdicts

To remove the unwarranted impact of certain judgments, the Bill clarifies that (i) the term security interest will not include any security created by operation of law (and such creditors will not be treated as secured creditors), (ii) the AA is not required to look beyond the factum of default to admit an insolvency application and (iii) extinguishment of all claims (with no right to initiate proceedings on this basis) is a consequence of an approved resolution plan. Additionally, to avoid any misuse, withdrawal of insolvency processes under Section 12A will only be permitted after CoC has been constituted (with 90% approval), however, no withdrawal can be permitted after the first invitation of resolution plans. Penalty limits will also get revised upwards for filing of frivolous proceedings and for contravention of the IBC.

Further, to protect value of the corporate debtor and ensure successful implementation of an approved plan, termination of licences/approval granted by governmental/statutory authorities will not be allowed till such time the terms/obligations thereof are being complied with. The Bill also allows one-time restoration of CIRP with CoC approval (66%) for a maximum of 120 days if no resolution plan is received or if a plan is rejected.

Empowering creditors

These proposed amendments are expected to significantly enhance the effectiveness of the IBC. Particular attention will be given to the forthcoming amendments relating to the ‘creditor-initiated insolvency resolution process’, ‘group insolvency’, and ‘cross border insolvency’. These measures are intended to unlock better value for all stakeholders and bolster investor confidence.

With introduction of the ‘creditor-initiated insolvency resolution process’, the creditors will have the power to initiate an out-of-court insolvency process within a debtor in possession model, with an ability to convert the same into a CIRP. While the creditors will be empowered to control the insolvency process, the existing management will be in control of the affairs of the company, thereby ensuring business continuity. On the other hand, the framework for group insolvency and cross border insolvency will provide access to a wider asset pool and ensure value maximisation for all stakeholders. These frameworks will have to be implemented judiciously for achieving the desired objective.

Some areas still in need of reform

While the impact of IBC has been substantial, however, on account of delays and few loopholes, its effectiveness has taken a hit in terms of timely commencement/closure and stakeholder confidence. Hence, these proposed amendments are timely and welcome.

To further improve its effectiveness and boost investor confidence, the Government may also look at bringing in few other amendments and measures such as (i) increase the number of tribunals/benches with adequate infrastructure, (ii) making admission of Section 7 applications automatic through usage of IU (information utility) authenticated data, and (iii) making the prepack regime available to all companies (now available only for MSMEs) with certain tweaks such as reduced procedural formalities for initiation of the process as well as incentivising the debtors to use this tool by reducing the approval thresholds.

A faster insolvency resolution, with focus on value maximisation, improves liquidity and resource availability in the market by enabling quick business turnaround or closure. The Bill demonstrates the Government’s intent to achieve this objective and increase investor confidence.

Abhishek Mukherjee is Partner, Cyril Amarchand Mangaldas. Views are personal and do not represent the stand of this publication