Supercharging IBC: Four Fixes for the 2025 Bill’s Insolvency Resolution

When India got the Insolvency and Bankruptcy Code, 2016 (“IBC2016”), it was lauded as the panacea for much that ailed the economy. As it was put into practice, many issues arose, most prominent amongst them its inability to reduce the time taken to enforce the creditor’s rights granted under contract.

The Government has now proposed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (“2025 Bill”) to strengthen India’s insolvency framework by making it more efficient and creditor-friendly.

The proposed amendments represent significant improvements. However, there are four areas where clarity and additional safeguards are required: timelines for admission of cases; the position of a debtor’s personal assets; the rights of the tax man; and the modalities of cross-border insolvency.

Mandatory admission and proof of default

The 2025 Bill proposes to make the admission of insolvency applications mandatory once default and procedural compliance are established, leaving no discretion to the Adjudicating Authority/ National Company Law Tribunal (“NCLT”). It also designates records from financial institutions and information utility (“IU”) as conclusive proof of that default.

This mandatory admission process should be tightened by completely removing any latitude for the NCLT and procedurally, the NCLT must not permit more than one adjournment whilst deciding any admission. Furthermore, a strict non-negotiable two-week deadline must be imposed on the NCLAT to resolve any appeals. By removing discretion from the NCLT and enforcing strict timelines for appeals, the insolvency process will become more predictable and efficient.

The NCLT must not be allowed to turn down the application if IU records show a default on the date of filing the petition under Section 7. This would, both eliminate the potential misuse or delays in the process and, bring about an admission mechanism that is more efficient and predictable than ever before.

The Corporate Debtor must not be permitted to dispute the records of the IU under any circumstance, so that it becomes in the interest of the Corporate Debtor to ensure that the records maintained with the IU is always up to date.

Promoter’s assets part of the resolution process

The 2025 Bill provides that the promoter’s assets can form part of the resolution process, subject to the conditions set out in Section 28(2), which is a significant improvement, but the requirements laid down in Section 28 (2) nullify the right granted under Section 28 (1). This leaves room for the promoter to dispose of his personal assets during or before any enforcement action is taken.

To overcome this deficiency, the net worth certificate provided by a promoter as part of his/her personal guarantee should be granted statutory recognition. Additionally, any asset listed in the net worth certificate should be made part of the asset pool in a corporate insolvency process.

This would ensure that the promoters are not escaping their obligations by transferring or diluting assets which was originally pledged as a security for the corporate debt. This would check any potential misadventure by the debtor and improve creditor confidence.

Doctrine of a clean slate

One of the key principles of the IBC 2016 is the doctrine of “clean slate,” that is, extinguishing a debtor’s pre-resolution liabilities after the resolution plan is approved. The 2025 Bill clarifies that tax and revenue dues are not secured debts and secured creditors retain their priority in the resolution process. However, this leaves one question unanswered: can the tax man raise tax demands for the period prior to the effective date of the resolution plan?

To ensure that there is absolute certainty once the resolution plan is effective, the tax man and/or any other Government agency must submit their entire claim on or before the last date of filing the claim as set out in the Information Memorandum (“IM”) issued by the Resolution Professional (“RP”).

If the tax man/Government agency do not respond to the RP’s request to file their claims within the given timeline, they should forfeit their right to claim any past dues. This would give all the successful resolution applicants a company which has truly been wiped clean.

Cross-border insolvency

The introduction of cross-border insolvency is a novel idea which enables the government to frame cross-border insolvency rules aligned with the UNCITRAL Model Law, bringing India closer to global standards. However, the success of this will be dependent upon the fine print in the Regulation.

Therefore, clear safeguards must be brought into the regulations to prevent Indian assets of foreign companies from being involuntarily dragged into foreign bankruptcy proceedings. Moreover, the 2025 Bill should enable the enforcement of corporate guarantees provided by foreign parent companies to secure an Indian subsidiary’s debt within Indian insolvency proceedings.

Conclusion

The 2025 Bill can mark a crucial step-in reshaping the insolvency framework of India. When viewed together, these amendments are not just insignificant changes to the Code; they lay the foundation of a more stable and efficient insolvency regime.

Suggested changes to the 2025 Bill could improve the predictability and efficiency of the resolution process, making it more creditor-friendly and provide clarity and safeguards in several areas to achieve its full impact, besides helping India get closer to global standards.