IBC Bill 2025: Major Overhaul Empowers Creditors, Eases Group Guarantees And Cuts Admission Delays

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 proposes several sweeping changes to streamline the insolvency resolution process, improve clarity for stakeholders, and enhance asset value recovery.

One of the most significant changes proposed in the Bill is empowering the Committee of Creditors (CoC) to more effectively enforce guarantees given by group companies, especially in cases involving personal and corporate guarantors.

At present, when a holding company undergoes insolvency, much of its real value may lie in assets — such as land — held by a wholly-owned subsidiary, which has issued a guarantee for the parent company’s debt.

However, because the two entities are legally separate, the CoC of the holding company cannot currently enforce the guarantee through the Corporate Insolvency Resolution Process (CIRP) if the land-holding subsidiary is itself in a separate insolvency proceeding with its own CoC.

The Bill proposed the amendment addresses this by allowing the CoC of the holding company to establish a security interest over the guarantor subsidiary’s asset,  take possession of the asset by enforcing that security, and seek approval from the CoC of the guarantor (subsidiary) company to proceed.

This change significantly streamlines the enforcement process, enables asset value consolidation, and improves bidder interest and resolution outcomes in complex group insolvency scenarios.

The another significant amendment is shifting the Competition Commission of India (CCI) approval timeline — allowing the CoC to approve a plan without waiting for prior CCI approval. This means only the successful resolution applicant will need to secure CCI clearance post-CoC approval.

Under the current framework, all prospective resolution applicants are required to obtain CCI approval, before the CoC to approve the resolution plan.

In cases like Jaiprakash Associates, where multiple bidders were involved, each had to seek CCI approval, leading to unnecessary delays and increased costs. The new framework is expected to streamline the process and significantly reduce compliance costs for applicants.

Thirdly, the Bill clarified the ambiguity over rights of secured creditors. 

Currently, only financial creditors are treated as secured creditors under the IBC. However, in the Rainbow Papers judgment, the Supreme Court held that operational creditors could also be considered secured creditors, creating ambiguity.

The proposed amendment in the legislation seeks to clarify that only those with a “contractually agreed” security interest with the corporate debtor will be treated as secured creditors.

Security interests arising solely by operation of law — such as those held by statutory authorities — will not qualify unless backed by a contractual arrangement.

This move restores clarity in line with the original intent of the Code and is seen as a positive development for lenders, as it protects the rights of contractually secured creditors and prevents dilution of their claims.

Besides, the Bill also proposed changes in Section 7 mandate that the NCLT must compulsorily admit an application filed by a financial creditor once default is established and procedural requirements are met.

This significantly reduces the discretionary powers of the NCLT, which currently rejects many applications on various grounds beyond default.

Under the new regime, NCLT’s role will be limited to determining the existence of default and appointing the resolution professional (RP) — streamlining the process and reducing delays at the admission stage.

“Delays at the admission stage have significantly impacted resolution outcomes. Restricting NCLT’s discretion and admitting applications solely on the basis of default will help ensure timely initiation. Separating implementation and distribution phases of resolution plans is a welcome move that prioritises resolution over inter-creditor disputes,” said Siddharth Srivastava, Partner, Restructuring & Insolvency, Khaitan & Co.

“The proposed out-of-court, creditor-initiated insolvency process with a 51% threshold is a progressive step, enhancing creditor rights and aligning with global pre-pack models in the UK and US," he added.