IBBI's Draft Reforms

18 February 2026 09:13 PM

Strengthening Transparency and Credibility in India’s Insolvency Framework

Background

India’s insolvency framework, anchored in the Insolvency and Bankruptcy Code (IBC), has significantly reshaped credit discipline and recovery processes since its introduction. However, practical challenges have persisted, particularly around cost transparency, documentation standards, delayed claims, and potential conflicts within the Committee of Creditors (CoC).

In response, the Insolvency and Bankruptcy Board of India (IBBI) has proposed draft regulatory amendments aimed at plugging structural gaps in the resolution process. While commercial wisdom of the CoC remains paramount, the regulator seeks to introduce greater procedural clarity, accountability, and evidentiary rigor in how resolution plans are evaluated and approved.

The proposed measures come at a time when resolution outcomes are increasingly scrutinized for fairness, value maximization, and procedural robustness. For investors, lenders, and resolution applicants, predictability and transparency are essential for confidence in the insolvency ecosystem.

Reasons for Bringing the Changes

The draft reforms are driven by three core concerns.

1. Lack of Structured Documentation

In several cases, the absence of consistent documentation standards and structured disclosures has led to disputes, litigation, and delays. When the basis of CoC decisions is not clearly recorded—such as recovery expectations, liquidation comparisons, or evaluation of bidder credibility—resolution outcomes become vulnerable to judicial scrutiny and stakeholder challenge.

2. Delayed Claims and Procedural Ambiguity

There have been instances where delayed claims, even if otherwise admissible, were not promptly placed before the adjudicating authority (NCLT), leading to uncertainty and potential value erosion. This has exposed gaps in clarity regarding the role and authority of resolution professionals (RPs) versus the adjudicating body.

3. Conflict of Interest Risks

Concerns have also emerged around related-party operational creditors participating in CoC deliberations, especially where financial creditors are absent or limited. Such participation could create perception or risk of promoter influence, undermining creditor independence and neutrality.

Additionally, interim resolution professionals (IRPs) face operational challenges in the early stages of insolvency, particularly in maintaining the company as a going concern while incurring essential costs. The absence of structured cost disclosures can affect transparency and creditor confidence.

Proposed reforms and the Way Forward

The proposed reforms aim to institutionalize transparency and strengthen process integrity without diluting the CoC’s commercial authority.

1. Mandatory Recording of Key Evaluation Factors

The CoC will be required to formally document specific considerations while approving resolution plans, including:

Expected recovery versus liquidation value
Fair market value
Credibility and track record of resolution applicants

This enhances defensibility in case of judicial review and improves transparency for stakeholders.

2. Enhanced Documentation Standards

Improved documentation will provide evidentiary support if resolution plans face judicial scrutiny. Structured records are expected to reduce avoidable disputes and delays.

3. Clear Framework for Delayed Claims

All delayed claims categorized as acceptable by resolution professionals must be placed before the adjudicating authority within one week of receipt—for condonation and adjudication. This removes ambiguity and ensures uniform treatment.

4. Exclusion of Related-Party Operational Creditors

To mitigate conflicts of interest, related-party operational creditors may be excluded from participating in CoC decision-making in cases where the CoC comprises only operational creditors. This safeguards independence and creditor primacy under the IBC.

5. Going Concern Assessment and Cost Transparency

IRPs will be required to submit a structured “Going Concern Assessment Report” at the first CoC meeting. Essential costs incurred to maintain operations must be fully disclosed, strengthening oversight.

Conclusion

The IBBI’s draft amendments represent a shift toward procedural maturity in India’s insolvency regime. By embedding structured documentation, clarifying claim adjudication, and reducing conflict risks, the reforms aim to reinforce credibility, reduce litigation, and preserve value.

For investors and lenders, these changes signal a move toward greater predictability and institutional robustness—critical ingredients for a resilient credit market.