Beyond the big numbers: How IBC is encouraging early settlement and better recoveries

Whenever people talk about the Insolvency and Bankruptcy Code, 2016 (IBC), they usually focus on the headline grabbing stories. That a struggling company being taken over, sold or successfully revived through a resolution plan. These headlines are important, but they tell us only one part of the story. The IBC has quietly changed the behaviour of borrowers and lenders, long before any case reaches a formal conclusion. More and more, both sides are opting for early settlement, resulting in faster resolutions and improved recoveries.

The numbers tell an important part of the story. By March 2026, nearly 9,000 corporate insolvency cases had been admitted under the IBC, with about 1,419 companies were rescued through approved resolution plans. But running parallel to these headline figures is a silent success story. Thousands of cases have ended not in a formal resolution, but through settlements and withdrawals. Over 1292 cases had been withdrawn after the parties reached a settlement, while more than 1,270 had been resolved through settlement, appeal, or review.

Many more disputes never reached the admission stage, as defaulting companies realised that the creditor were serious about invoking the IBC. And that is the heart of the story. The mere threat of invoking insolvency has become a powerful catalyst for exploring settlement. The moment a company is admitted into insolvency, its management is suspended, a moratorium freezes its affairs and control shifts to the creditors. A familiar pattern emerged. A borrower who had remained unresponsive for months, suddenly becomes eager to negotiate and settle. For thousands of small suppliers and operational creditors, merely invoking the IBC has often become sufficient to recover long overdue payments.

Settling early matters a lot. Because allowing a company to pass through the entire insolvency process or liquidation, destroys value of the company for everyone involved. On average, approved resolution plans recover around 32 to 33 percent of their admitted claims. Liquidation fares far worse, yielding recoveries of merely 4 to 6 percent. A timely settlement reached before the business of a company deteriorates and its assets loose value, can preserve far more value, protect jobs, and spare both sides years of litigation. In many cases, both parties walk away better off.

The impact of IBC on the financial system of the country has been profound.

By March 2026, creditors had recovered roughly Rs. 4.32 lakh crore through resolution plans, well above what those companies would have fetched in liquidation. More importantly, the IBC has outperformed traditional recovery mechanism. The IBC alone accounted for more than half of the total and exceeding the combined recoveries achieved under SARFAESI, Debt Recovery Tribunals, and Lok Adalats combined.

The ability to settle and exit has made the IBC very effective. Some promoters wait until insolvency proceedings had been admitted and offer a settlement very late in an attempt to regain the control of the company. The Parliament has responded to these concerns. The Insolvency and Bankruptcy Code (Amendment) Act, 2026, which received presidential assent and was published in the Gazette on 07.04.2026, seeks to curb opportunistic withdrawals and enhance transparency in settlement. Among other amendments, it raises the threshold for withdrawals in certain situations to prevent promoters from using last minute settlements as an escape. The CoC is now required to be satisfied itself that any proposed settlement is fair and in the interests of all the stakeholders. Further, all the arrangements and deferred payment obligations must be fully disclosed and timeframe within which withdrawal applications may be filed, has been tightened.

The real reason for these amendments is to keep the door open for genuine early settlements that maximise value for all stakeholders while shutting it on opportunistic exists that undermines the integrity of the process 

The real lesson from a decade of the IBC, therefore, is not merely the number of companies resolved, or the quantum of recoveries achieved. Its achievement lies in the behavioural change it has brought about. A credible threat of losing control of the company has altered incentives. Borrowers are more likely to negotiate early, settle dues promptly and view default as a serious commercial risk rather than a problem that can be postponed or litigated.

This shift in the mindset towards greater financial discipline, faster settlements and improved recoveries may prove to be the most enduring contribution to the Indian economy.

About the author: Vijay K. Singh is a Senior Partner at S&A Law Offices.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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