New Delhi: Banks that will initiate bankruptcy proceedings without replacing existing management in defaulting companies will set a cash threshold above which a distressed firm must obtain creditor approval, according to a set of draft regulations released for public feedback by the Insolvency and Bankruptcy Board of India (IBBI) on Wednesday.
The IBBI said the draft regulations setting out the procedures under the “held debtor” model of bankruptcy resolution will be finalized after the end of the public consultation period on 28 April.
The new model was introduced as part of the Insolvency and Bankruptcy (Amendment) Act of 2026, which received presidential assent on April 6, to speed up business rescues by limiting lawsuits by company founders and providing more procedural freedom to quickly put together a turnaround plan with new investors.
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Accordingly, debt resolution is done without changing existing management, unlike the traditional bankruptcy resolution model in which a resolution professional takes over the reins of the business.
The draft regulation sets out clear timelines for what happens once a financial lender starts the process. Under this largely informal process, known by law as a creditor-initiated insolvency resolution process (CIIRP), creditors have 50 days to request new bids for the company, and potential investors have 15 days from then to present their plans. There will be a moratorium on enforcement during the process.
Only selected financial creditors and certain categories of companies have access to this form of debt settlement. The eligibility criteria will be notified separately by the Ministry of Corporate Affairs. The government usually issues rules within six months of the adoption of a new law or amendment.
IBBI said the monetary threshold for transactions requiring lender approval will be set by a group of lenders. Banks can invoke this form of debt settlement with 51% of the financial support of creditors. Persons classified by the RBI as willful defaulters and those who fall under the definition of ‘pending insolvents’ cannot apply for assets.
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According to Amit Maheshwari, managing partner at tax and advisory firm AKM Global, IBBI’s proposals on the creditor-initiated insolvency resolution process are a timely and significant step towards earlier creditor intervention, faster resolution and reduced value erosion.
Several key procedural and governance provisions are proposed to apply in this scheme with relevant changes from the existing corporate insolvency framework, reflecting a deliberate choice not to reinvent the wheel, but to build on the established architecture, timetables and institutional practices already embedded in the IBC regime, explained Maheshwari.
“If well calibrated, the CIIRP framework can strengthen India’s insolvency ecosystem by improving lenders’ options for early intervention while maintaining the predictability, transparency and borrower guarantees that have evolved under the current regime,” said Maheshwari.
IBBI has separately submitted draft regulations on several aspects of the changes introduced this month, which relate to voluntary liquidation, personal guarantors, pre-arranged scheme, investigation and grievance redressal.
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The amended law has enabled the IBBI Disciplinary Committee to dispose of any illegal profits of service providers such as problem solvers or information utility and return the forfeited amounts to the concerned persons. IBBI said it has proposed to issue a form for affected parties to claim refunds from the dumped amounts.
