IBBI proposes financial creditor nod for big deals in distressed firms

New Delhi: Banks initiating bankruptcy proceedings without replacing existing management in defaulting companies will set a monetary threshold above which the distressed firm must obtain financial-creditor approval, according to a set of draft regulations released by rule maker Insolvency and Bankruptcy Board of India (IBBI) on Wednesday for public feedback.

IBBI said the draft regulations setting the procedures under the ‘debtor-in-possession’ model of bankruptcy resolution will be finalized after the public consultation period ends on 28 April.

The new model was introduced under the Insolvency and Bankruptcy Code (Amendment) Act of 2026, which got presidential assent on 6 April, to speed up rescue of businesses by reducing litigation from promoters of the company and to give more procedural freedom in stitching together a turnaround plan quickly with new investors.

Under this, debt resolution is conducted without changing the existing management, unlike the traditional bankruptcy resolution model in which a resolution professional takes over the reins of the business.

The draft regulations set clear timelines for what happens once the financial creditor triggers the process. Under this largely informal process termed as creditor‑initiated insolvency resolution process (CIIRP) in law, lenders have 50 days to call for new bids for the company and potential investors have 15 days from then to submit their plans. There will be a moratorium on recoveries during the process.

Only select financial creditors and certain categories of companies can access this form of debt resolution. The eligibility criteria will be separately notified by the ministry of corporate affairs. The government usually brings out rules within about six months once a new law or amendment is legislated.

IBBI has said that the monetary threshold for transactions requiring creditor approval will be set by the panel of creditors. Banks can invoke this form of debt resolution with 51% of financial creditor support. Those classified as wilful defaulters by the RBI and those coming under the definition ‘undischarged insolvents’ can’t bid for the assets.

IBBI’s proposals on creditor‑initiated insolvency resolution process is a timely and significant step toward earlier creditor intervention, quicker resolution, and reduced value erosion, according to Amit Maheshwari, managing partner at AKM Global, a tax and consulting firm.

Several key procedural and governance provisions are proposed to apply in this scheme with appropriate changes from the existing corporate insolvency framework, reflecting a deliberate choice not to reinvent the wheel but to build on the established architecture, timelines, and institutional practices already embedded in the IBC regime, explained Maheshwari.

“If calibrated well, the CIIRP framework can strengthen India’s insolvency ecosystem by enhancing creditors’ options for early intervention, while preserving the predictability, transparency, and debtor safeguards that have evolved under the current regime,” said Maheshwari.

Separately, IBBI brought out draft regulations on several aspects of the amendments introduced this month, covering voluntary liquidation, personal guarantors, pre-packaged scheme, investigation and complaint handling.

The amended law allowed the disciplinary committee of IBBI to disgorge any unlawful gains made by service providers like resolution professional or an information utility and to restitute the disgorged amounts to the affected persons. IBBI said it proposed to issue a form for affected parties to claim restitution from the disgorged amounts.