Defaulting company promoters to be given new lease of life? All eyes on a big new IBC proposal
According to the report (by Mayur Shetty) the system will be subject to creditors’ audit.
The IBC, in its original design, was intended to displace promoters of companies that had defaulted on loans. Section 29A expressly prevented willful defaulters and errant promoters from bidding for their assets. Under the Corporate Insolvency Resolution Process (CIRP), management control was transferred to a resolution professional; This reflected the principle that promoters responsible for defaults should not benefit from lender-imposed deductions.
However, the Insolvency and Bankruptcy Amendment Bill, 2026 proposes an alternative route through the Creditor Initiated Insolvency Resolution Process (CIIRP). This framework allows the defaulting company’s board of directors to continue managing day-to-day operations even after the resolution process is triggered by lenders.
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The approach represents a significant shift from the creditor-in-control model to the debtor-in-possession structure.
The CIIRP framework is designed to function more like a negotiated restructuring rather than a full takeover. Creditors and promoters may jointly acknowledge external shocks affecting the business and work to readjust credit obligations, resulting in a resolution plan that requires judicial approval. An important operational aspect of the new mechanism is the need for debt consolidation. In large credit exposures, individual lenders often do not have the 51% voting share required to drive resolution decisions. Asset Reconstruction Companies (ARCs), which specialize in pooling distressed assets, are expected to play a central role in closing this gap. By pooling debt and coordinating creditor actions, ARCs can help achieve the majority threshold needed to initiate and guide the resolution process.
The role of ARCs is expected to increase significantly under the new regime. Hari Hara Mishra, managing director of the Association of ARCs in India, told ToI that ARCs are well placed to drive the CIIRP process with their debt collection capabilities and experience in restructuring. He noted that the framework could enable faster and more effective solutions by combining business decision-making with judicial review, thus improving the recovery prospects of current stressed assets.
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The introduction of the CIIRP comes at a time when supply chain disruptions linked to the West Asian conflict are straining certain sectors and the risk of new defaults is increasing. The new framework gives promoters facing financial stress the opportunity to stabilize their operations without immediately losing ownership, while also offering lenders the advantage of shorter resolution times.
Under the CIIRP, the resolution process is limited to 150 days with a possible extension of 45 days, compared to the outer limit of 330 days under the current CIRP framework. If a solution is not reached within this period, the case returns to the conventional bankruptcy process.
The proposed changes also aim to reorganize incentives. When bankruptcy is imminent, promoters often have limited motivation to preserve corporate value, sometimes resulting in resource diversion or protracted legal disputes. The new model aims to better align promoters’ interests with those of creditors by allowing them to retain control contingent on a successful revival.
At the same time, the success of the CIIRP framework will largely depend on the coordination of creditors. The process requires at least 51% of creditors to agree on a resolution strategy and support current management in implementing that strategy; This makes consensus building a critical factor in determining outcomes.
