Will the IBC Amendment Bill 2025 Deliver Real Reform?

In a bid to unclog India's creaking insolvency machinery, Finance Minister Nirmala Sitharaman tabled the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, in the Lok Sabha on August 12.

The move comes at a time when the IBC, once hailed as a game-changer for corporate rescues, is bogged down by delays that stretch resolutions beyond the 330-day cap, eroding asset values and frustrating lenders. With over 1,000 cases still pending at the National Company Law Tribunal (NCLT) as of July, the bill promises to slash bottlenecks and empower creditors.

But as stakeholders pore over its 40-odd clauses, the big question lingers: does it pack enough punch for genuine overhaul, or is it just another patch on a fraying framework?

The IBC, enacted in 2016, has pulled 1,194 corporate debtors back from the brink through approved resolution plans till March 2025, unlocking over Rs. 3 lakh crore in value for creditors. Yet, the system's Achilles heel remains its sluggish pace. Admission of cases under Section 7, where financial creditors kick off proceedings averages 434 days against a mandated 14, thanks to judicial backlogs and procedural nit-picking. Recovery rates hover at a dismal 32%, far below global benchmarks, as assets depreciate amid endless litigation.

Enter the 2025 amendments, a cocktail of procedural tweaks and structural shifts drawn from nine years of courtroom battles and stakeholder feedback. At its core, the bill mandates swift admission of applications once default is proven, forcing adjudicating authorities to reject only on clear non-compliance and explain any slippage beyond 14 days. This alone could turbocharge the front end, curbing the "wait-and-watch" tactics that defaulters exploit.

Withdrawal of applications post-admission gets a tighter leash too. Gone are the days of easy pullbacks; now, they need a fully formed Committee of Creditors (CoC) and 90% approval, and can't happen after the first resolution plan is floated. All such pleas must wrap up in 30 days. It's a direct jab at misuse, closing an exit route that has let serial defaulters game the system.

On the resolution front, the bill splits approval into two stages: first, the nuts-and-bolts implementation plan for reviving the debtor, then a 30-day window for settling distributions. This decouples hold-ups in claim payouts from operational restarts, potentially shaving months off timelines. Dissenting creditors get a safety net—entitled to at least the liquidation value or their waterfall share, whichever is lower—nipping holdout strategies in the bud.

Liquidation sees sharper edges as well. The moratorium extends fully during this phase, shielding assets from piecemeal grabs. Creditors can even yank a case back to resolution within 120 days if 66% of the CoC votes for it, offering a second shot at value maximization. Guarantor assets, if seized by lenders, can fold into the main pool with CoC nod, fattening recovery pots.

But the bill's bolder strokes lie in uncharted territories. It rolls out a Creditor-Initiated Insolvency Resolution Process (CIIRP), letting lenders hash out plans outside court, with NCLT rubber-stamping only the final deal. Tailored for MSMEs via pre-packaged insolvency, it keeps promoters in the driver's seat for quick restructurings. Group insolvencies get a dedicated chapter for coordinated proceedings across affiliates, preserving synergies that solo filings often shred. Cross-border woes? A skeletal framework paves the way for rules on pooling overseas assets, aligning India with UNCITRAL models.

These aren't mere tweaks; they are a nod to IBC's growing pains in a globalized economy. "The amendments address statutory charges and introduce pre-pack, group, and cross-border mechanisms—solutions we've clamored for," says Soumitra Majumdar, partner at JSA Advocates & Solicitors. He flags the need for broader consultations to iron out kinks, but sees them boosting creditor muscle without stripping promoter incentives.

Siddharth Srivastava, partner at Khaitan & Co, echoes the optimism on CIIRP: "It hands reins to creditors while comforting promoters on control, likely outpacing pre-packs in uptake. NCLT's power to flip it to standard CIRP if things sour adds guardrails." For banks nursing Rs. 4 lakh crore in stressed loans, this could mean faster haircuts over endless waits.

Yet, skeptics warn of overhyped fixes. The bill sidesteps thornier issues like employee provident fund dues—still mired in Jet Airways-era disputes—or homebuyer classification as financial creditors. "It enhances processes somewhat, but misses the bull's eye on root causes like judicial capacity," argues CA Devang Sampat. Implementation, they say, will test the pudding: NCLT benches are stretched thin, with vacancies at 40%, and IBBI's oversight on new "service providers" risks bureaucratic bloat.

Then there's the hidden toll. Empowering CoCs in liquidation—now calling shots on liquidator swaps or fraud probes with 66% votes—sounds democratic, but could breed infighting among fragmented lenders. Cross-border rules, while welcome, defer details to future notifications, leaving a vacuum for now. And for MSMEs, pre-packs might shine on paper, but without hand-holding on valuations, they could flop.

Data underscores the stakes. IBC resolutions averaged 612 days last fiscal, up 15% from pre-pandemic norms, per IBBI stats. If the bill trims that by even 20%, it could inject ?50,000 crore more into the economy annually via preserved jobs and investments. Global peers like the UK's scheme of arrangement clock in at half the time; India can't afford to lag in a credit-starved landscape.

So, real reform? The bill nudges the needle—mandatory timelines and creditor tools could deliver 10-15% quicker outcomes, per PwC estimates. But without beefed-up tribunals, digitized filings, and ironclad rules on groups and borders, it'll feel like reform lite. As Parliament debates, the onus shifts to execution. For now, it's a step from stutter to stride, but the marathon to a world-class regime rolls on.