Modi government might give lifeline to promoters of defaulting companies
What's the story
India's insolvency framework is likely to undergo a major transformation with the introduction of the Insolvency and Bankruptcy Code (IBC) Amendment Bill 2026. The proposed changes would permit certain defaulting promoters to retain control over their firms during the resolution process, The Times of India reported. However, this new system will be under creditor supervision.
Original intent
Original IBC framework
The IBC was originally designed to remove promoters of companies that defaulted on loans. Section 29A specifically barred willful defaulters and errant promoters from bidding for their own assets. Under the Corporate Insolvency Resolution Process (CIRP), management control was handed over to a resolution professional, as it was believed that defaulting promoters shouldn't benefit from lender-imposed haircuts.
Alternative approach
CIIRP: A new approach
The IBC Amendment Bill 2026 offers an alternative route through the Creditor Initiated Insolvency Resolution Process (CIIRP). This framework lets the board of a defaulting company continue its day-to-day operations even after lenders trigger resolution. The approach is a major departure from a creditor-in-control model to a debtor-in-possession structure, where creditors and promoters can jointly acknowledge external shocks affecting business and work toward recalibrating loan obligations.
Key players
Role of ARCs
A key operational aspect of the new mechanism is debt consolidation. In large loan exposures, individual lenders rarely hold the 51% voting share required to drive resolution decisions. Asset Reconstruction Companies (ARCs), which specialize in aggregating the distressed assets, are expected to play a major role in bridging this gap. By pooling debt and coordinating creditor action, ARCs can achieve the majority threshold needed to initiate and steer the resolution process.
Efficiency boost
Shorter resolution timelines
The introduction of CIIRP comes as supply chain disruptions linked to the West Asia conflict are beginning to stress certain sectors, raising the risk of fresh defaults. The new framework gives financially stressed promoters a chance to stabilize operations without losing ownership while offering lenders shorter resolution timelines. Under CIIRP, the resolution process is capped at 150 days with a possible extension of 45 days, compared to the existing CIRP framework's outer limit of 330 days.
Strategy
Aligning interests
The proposed changes also aim to realign incentives. In cases of imminent insolvency, promoters often have less motivation to preserve enterprise value, sometimes leading to resource diversion/prolonged legal disputes. By allowing the promoters to retain control contingent on a successful revival, the new model aims to better align their interests with those of creditors. However, the success of this framework will depend heavily on creditor coordination.