The Insolvency and Bankruptcy Code, originally designed to unseat promoters of companies defaulting on loans, is now opening a window for some of them to stay on and attempt a revival under creditor oversight.The original framework was unambiguous. Section 29A of the Insolvency and Bankruptcy Code barred wilful defaulters and delinquent promoters from bidding for their own assets, and the Corporate Insolvency Resolution Process (CIRP) moved control away from management to a resolution professional.
The rationale was that promoters of defaulting companies could not avail the benefit of any write down by the lenders.The proposed Insolvency and Bankruptcy Code Amendment Bill 2026 introduces a different route. The Creditor Initiated Insolvency Resolution Process (CIIRP) allows the board of the defaulting company to remain in charge of day-to-day operations even after lenders trigger resolution. This debtorin-possession model marks a departure from the earlier creditor-in-control structure.
Instead of a takeover, the process resembles a negotiated settlement, where creditors and promoters, recognise that extraneous events call for reworking the loan obligations and work towards a resolution plan that can secure judicial approval.The mechanics depend on consolidation. In large exposures, individual lenders rarely hold 51% of the debt needed to drive decisions. Asset Reconstruction Companies, which aggregate distressed loans, are expected to play that role.
By pooling debt and coordinating action, they can create the majority required to initiate and steer the process. “The utility of ARC as a resolution platform will significantly get enhanced with CIIRP.
With aggregated debt and experience in handling restructuring, they are placed at strategic advantage to drive CIIRP for better resolution outcomes at shorter time. CIIRP blends commercial wisdom with judicial approval, in improving revival prospects for genuine stressed assets,” said Hari Hara Mishra, CEO, Association of ARCs in India.
Process Resembles Negotiated Settlement For Creditors, Promoters Under Revised IBC
The timing is not incidental. Supply chain disruptions from the West Asia conflict are beginning to stress sections of industry, raising the prospect of fresh defaults. Under CIIRP, promoters facing distress get an opportunity to stabilise operations without losing ownership, while lenders gain from faster resolution timelines. The process is capped at 150 days, extendable by 45 days, compared with the 330-day outer limit under CIRP.
If the effort fails, the case reverts to the conventional insolvency route.Incentives, too, shift. Under imminent insolvency, promoters often have little reason to preserve value, leading to diversion of resources or prolonged litigation. By allowing the possibility of retaining control if the business is revived, the new framework seeks to align promoter behaviour with creditor interests.However, the model rests on coordination. The entire process hinges on at least 51% of creditors agreeing on a resolution path and backing the existing management to execute it.
