Insolvency and Bankruptcy code (amendment) act, 2026: comprehensive reforms to insolvency resolution, liquidation and personal insolvency frameworks

Key Highlights of the Amendment Act:

1. Stricter and Time-Bound Admission Framework for CIRP: The amendments require the Adjudicating Authority to admit or reject applications under section 7 within fourteen days and record reasons where the timeline is exceeded. The Act also clarifies that once debt, default and completeness of the application are established, no other considerations may be relied upon to reject a section 7 application. Further, records of default maintained with information utilities are expressly recognised as sufficient evidence of default.

2. Narrowing of the Withdrawal Window under Section 12A: The existing section 12A has been substituted to provide that withdrawal of CIRP may only be permitted after constitution of the CoC and before issuance of the first invitation for submission of resolution plans. Withdrawal continues to require approval of ninety per cent voting share of the CoC. This amendment seeks to resolve inconsistencies in judicial precedents concerning withdrawal of insolvency proceedings.

3. Restoration of CIRP before Liquidation: A new mechanism allows restoration of CIRP where no resolution plan is received or where a resolution plan is rejected. Upon approval of sixty-six per cent of the CoC and prior to passing a liquidation order, the Adjudicating Authority may restore CIRP for a period not exceeding one hundred and twenty days. This restoration may be invoked only once and reflects a legislative preference for resolution over liquidation.

4. Significant Reforms to Resolution Plans: The amendments expressly permit sale of individual assets through one or more resolution plans, enabling multiple-plan resolution structures. Resolution plans may now provide separate approval mechanisms for implementation and distribution. The Act also mandates constitution of implementation and supervision committees and requires the CoC to record reasons while approving a resolution plan. Further, anti-trust approvals are now required before submission of the plan to the Adjudicating Authority rather than prior to CoC approval.

5. Statutory Recognition of the Clean Slate Principle: The Act codifies the principle that, unless otherwise provided in the resolution plan, claims existing prior to approval of the resolution plan stand extinguished and no further proceedings may be initiated or continued against the corporate debtor on the basis of such claims. At the same time, claims against promoters, guarantors and other co-obligors remain unaffected. The amendments also extinguish rights of indemnity and subrogation against the corporate debtor arising after approval of the resolution plan.

6. Greater Oversight of Liquidation by the Committee of Creditors: One of the most significant changes introduced by the Act is the continuation of the CoC during liquidation. The CoC will supervise the conduct of liquidation and may replace the liquidator by a vote of not less than sixty-six per cent, and play an important role in decisions concerning dissolution, pending litigation and avoidance transactions. This marks a departure from the earlier stakeholder consultation committee model.

7. Rationalisation of Liquidation Framework: The timeline for completion of liquidation has been reduced from one year to one hundred and eighty days, extendable by ninety days for sufficient reasons. The Act also enables direct dissolution of a corporate debtor without undergoing a full liquidation process where specified conditions are met. Further, liquidation proceedings may continue even after dissolution for the purpose of pursuing avoidance transactions and distributing resulting recoveries.

8. Changes to Security Enforcement and Distribution Waterfall: The amendments clarify that a secured creditor is treated as secured only to the extent of the value of security relinquished to the liquidation estate. Statutory charges in favour of governmental authorities are excluded from the definition of security interest, thereby addressing issues arising after the decision in Rainbow Papers. Creditors seeking to realise security outside liquidation must notify the liquidator within fourteen days, failing which the security interest is deemed to be relinquished.

9. Strengthening of Avoidance Transaction and Wrongful Trading Regime: The Act expands the avoidance framework by introducing express definitions of avoidance transactions and fraudulent or wrongful trading. Creditors, members and partners may now independently pursue avoidance and wrongful trading applications where the resolution professional or liquidator fails to act. Importantly, completion of CIRP, liquidation or dissolution does not affect the continuation of avoidance proceedings.

10. Introduction of Creditor-Initiated Insolvency Resolution Process (CLRP): A completely new Chapter IV-A introduces the CLRP framework. Eligible financial creditors may initiate insolvency proceedings for specified classes of corporate debtors after obtaining approval from fifty-one per cent of similarly situated creditors. Unlike conventional CIRP, management of the corporate debtor remains with the board, although the resolution professional is empowered to supervise the process and reject board resolutions. The process is designed to be completed within one hundred and fifty days and may culminate in either approval of a resolution plan or conversion into CIRP.

11. Introduction of Group Insolvency and Cross-Border Insolvency Frameworks: The Act inserts enabling provisions empowering the Central Government to frame rules governing group insolvency and cross-border insolvency. The proposed framework contemplates common benches, common insolvency professionals, coordinated creditor committees and cooperative mechanisms across multiple related corporate debtors. Similarly, a dedicated framework for recognition and administration of foreign insolvency proceedings has been introduced.

12. Enhanced Powers of the IBBI and Regulation of Service Providers: The amendments introduce the broader concept of “service providers”, encompassing insolvency professionals, insolvency professional agencies, information utilities and registered valuers. The IBBI has been granted expanded powers to investigate, discipline and regulate such service providers. The Board has also been empowered to prescribe standards of conduct for CoCs and their members.

13. Personal Insolvency Reforms: The Act introduces several changes to personal insolvency and bankruptcy proceedings, including removal of interim moratorium protections for personal guarantors, introduction of a framework for transactions defrauding creditors, clarification regarding bankruptcy eligibility where repayment plans fail, and the introduction of penalties for frivolous or vexatious proceedings.

14. Strict Timelines and Decriminalisation Measures: The amendments impose timelines for disposal of several categories of matters, including withdrawal applications, liquidation applications, dissolution applications and appeals before the National Company Law Appellate Tribunal (NCLAT). Several existing criminal offences have been replaced with civil penalty mechanisms, while substantial penalties have been introduced for violations of moratoriums, approved resolution plans and other obligations under the Code.

Conclusion

Amendment Act represents the most extensive overhaul of the insolvency framework since enactment of the Code in 2016. Through the introduction of new resolution mechanisms, enhanced creditor participation, time-bound procedures, and specialised frameworks for group and cross-border insolvencies, the amendments seek to improve resolution outcomes while reinforcing the Code’s objective of value maximisation and efficient insolvency resolution.