IBC Amendment Act 2026: Architecture of a new insolvency order - What changes and how to structure around it [Part II]

Part I of this article examined the Act's reforms to admission mechanics, the new Creditor-Initiated Insolvency Resolution Process (CIIRP) resolution track, the legislative correction of the Rainbow Papers anomaly on government dues and the codification of the clean slate principle. Part II turns to the treatment of guarantor assets, reforms to the liquidation process, the group and cross-border insolvency framework, the restricted withdrawal window and what these changes mean in practice for different categories of clients.

Section 28A: Consolidating the asset pool

One of the most commercially consequential amendments is the insertion of Section 28A, which permits a creditor who holds a security interest over a guarantor's asset and has taken possession under SARFAESI or any other law to transfer that asset as part of the corporate debtor's CIRP, with Committee of Creditors approval. Where the guarantor is itself in insolvency or bankruptcy, the guarantor's own creditors must also approve. The rationale is straightforward: creditors who had exercised security over guarantor assets previously managed these in parallel proceedings disconnected from the main CIRP. Section 28A allows consolidation of the asset pool, potentially improving resolution plan economics. The proceeds waterfall prevents double recovery: proceeds first settle the guarantor's liability after costs, with any surplus returned to the guarantor's estate. For lenders with guarantee packages from promoters of significant borrowers, SARFAESI enforcement and subsequent Section 28A deployment should now be considered as a coordinated strategy, not parallel proceedings.

Closing the personal guarantor moratorium loophole

A related amendment addresses a structural abuse that had become well documented: promoters who were personal guarantors initiating personal insolvency proceedings primarily to obtain the benefit of the interim moratorium under Sections 96 and 124, thereby stalling creditor recovery actions against their personal assets while the corporate CIRP continued. The Act removes the availability of an interim moratorium where insolvency or bankruptcy proceedings for a personal guarantor to a corporate debtor are initiated by either the creditor or the debtor, targeting directly the strategic use of personal insolvency as a delay mechanism by financially sophisticated promoters. Combined with the new mandatory creditors' meeting requirement for repayment plans in personal guarantor cases, the window for using personal insolvency as a creditor-delay mechanism is now closed.

Related-party transactions: Safe harbour removed

The Act removes the safe-harbour protection previously available to related-party asset transfers in avoidance applications and gives creditors direct standing to file such applications if the RP or liquidator fails to act. Asset transfers between related entities, even at apparent market value, now face greater scrutiny in a subsequent insolvency. Robust contemporaneous documentation of valuation rationale and commercial necessity is no longer optional for intra-group transactions.

CoC control and timeline discipline

The Act extends the Committee of Creditors' supervisory role into the liquidation stage. The CoC now appoints and can remove the liquidator (by a 66% majority) and key liquidation decisions are subject to CoC oversight. The liquidator's quasi-judicial powers to admit or reject claims and determine their value are removed; claims determination now rests with the CoC. The practical effect is to make liquidation a creditor-controlled asset monetization process rather than an independent judicial administration.

Binding timelines accompany this structural change: liquidation proceedings must be completed within 180 days, extendable by 90 days, with voluntary liquidation capped at one year. Given that CIRPs ending in liquidation had taken an average of over 500 days for the CIRP phase alone as of mid-2025, this represents a dramatic compression. Liquidators will face pressure to sell assets quickly. Secured creditors with well-defined security over specific assets are better positioned to control their recovery timeline. Unsecured and operational creditors will likely bear the cost of compressed timelines through lower recovery values.

The CIRP restoration option

A novel provision allows a supermajority of 66% of financial creditors to vote, even after a liquidation order has been passed, to restore the CIRP for up to 120 days. This creates a second opportunity for resolution in situations that previously would have proceeded directly to liquidation and is most relevant for distressed asset investors who identify a viable plan after a CIRP has ended without one being approved.

The Act empowers the Central government to frame rules for group insolvency, potentially including a common NCLT bench, joint CoC, shared resolution professional and coordinated resolution. It similarly empowers the government to prescribe cross-border insolvency rules broadly aligned with the UNCITRAL Model Law framework, covering recognition of foreign proceedings, access to domestic courts, and judicial cooperation. Both are enabling provisions only; no operational rules have been framed, and the commercial landscape remains uncertain for stressed situations involving interconnected group entities or cross-jurisdictional assets.

However, the direction of travel matters. The Videocon Industries resolution demonstrated both the value of consolidated group proceedings and the complexity they generate. Once operationalized, the group insolvency framework will require practitioners to think about insolvency as a group-level phenomenon, with creditor committees cutting across entities and resolution plans addressing inter-company claims. Transactions involving the acquisition of stressed assets from multi-entity groups should already be structured with future group insolvency mechanics in mind, ensuring that inter-company claims and cross-guarantees do not inadvertently create group-level IBC exposure for the acquirer.

The Act restricts withdrawal of insolvency applications to a narrow window: after the CoC is constituted but before the first invitation for resolution plans, requiring 90% CoC approval. Withdrawal is no longer available before the CoC is constituted, where a creditor might previously have reached a private settlement with the debtor, or after resolution plans have been invited.

On its face, this is a creditor-protection measure that prevents debtors from pressuring individual creditors into pre-CoC withdrawals through side-deals that do not reflect full value. However, the restriction carries a significant unintended consequence: it actively discourages pre-insolvency settlement. Under the previous framework, a company that had reached settlement terms with its largest creditor could withdraw the petition promptly, preserving goodwill and avoiding the reputational cost of formal insolvency. This option is now foreclosed for debtors who default before settlement is complete, because any subsequent CIRP cannot be withdrawn until a CoC is constituted. The practical consequence may be perverse: sophisticated debtors will front-load restructuring engagement, delaying formal default registration while negotiating, in order to preserve the option of pre-CIRP settlement. The amendment reduces the deterrent value of the IBC as a prompt for early restructuring engagement, precisely the opposite of what the Act's architects intended.

For secured lenders

The Act collectively represents a materially more favourable enforcement environment for secured lenders. Mandatory admission removes pre-admission delay. The Rainbow Papers correction restores the primacy of contractual security over statutory charges. The personal guarantor moratorium loophole is closed. And CoC control over liquidation gives major creditors greater influence over asset monetisation. Lending documentation, including covenant packages, security interest registration procedures, and guarantee enforcement mechanics, should be reviewed in light of these changes. Guarantee packages should be drafted to anticipate Section 28A mechanics where guarantor assets are likely to be material.

For distressed asset investors and resolution applicants

The clean slate codification and two-stage approval mechanism improve execution certainty for approved resolution plans. The CIRP restoration option creates a second-chance mechanism in situations that previously would have proceeded directly to liquidation. However, the compression of liquidation timelines will put pressure on asset valuations in liquidation scenarios, potentially creating attractive entry points for investors willing to move quickly. The removal of the related-party transaction safe harbour means due diligence on target companies must now include a careful review of historical intra-group transactions that may face avoidance applications post-acquisition.

For corporate borrowers and sponsors

For corporate borrowers, the news is almost uniformly adverse compared to the pre-amendment framework. Mandatory admission removes the defensive use of Vidarbha. Restricted withdrawal windows reduce the ability to reset negotiations through post-filing settlements. The personal guarantor moratorium is closed. And CIIRP, while a management-preserving process in theory, is available only at the initiation of notified creditors; debtors cannot themselves trigger it. The strategic imperative for corporate borrowers in financial distress is now overwhelmingly to engage early, before default registration, before IU records are authenticated and before any creditor can trigger the mandatory admission machinery. Restructuring conversations that could previously be deferred to the pre-admission stage must now begin at the first signs of liquidity stress.

The IBC Amendment Act, 2026 is the product of nearly three years of consultation, and it shows. The overruling of Vidarbha, the correction of Rainbow Papers, the codification of the clean slate principle, the introduction of CIIRP and the extension of CoC control into liquidation are all targeted responses to identifiable commercial pain points that have cost creditors, resolution applicants and the wider credit market real value over the past ten years.

The areas of continuing uncertainty are real: the operationalisation of CIIRP notification, the framing of group and cross-border rules, litigation risk around two-stage approval, and the potential for mandatory admission to generate collateral writ challenges will all require monitoring as subordinate legislation and early case law develops. The withdrawal restriction, intended to protect creditors, may in practice discourage the early restructuring engagement the Code was always designed to incentivise.

But the central message of the Act is clear. India's insolvency regime is now genuinely creditor-oriented, commercially predictable, and structurally aligned with global best practices in ways that the original Code, despite its ambition, was not. For practitioners and clients operating in this space, the question is no longer whether these changes are coming. They are law. The question is how to structure transactions, enforce rights, and manage risk in a regime that has shifted, fundamentally and deliberately, in favour of those who hold the paper.

About the author: Mallika Kamal is a Senior Associate at Bahuguna Law Associates.

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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