Proposed 150-Day Creditor-Initiated Insolvency Process Takes Shape
Detailed Analysis
IBBI Proposes New Regulations for Creditor-Initiated Insolvency Resolution Process
The Insolvency and Bankruptcy Board of India (IBBI) has released a discussion paper outlining proposed regulations for the creditor-initiated insolvency resolution process (CIIRP)--debtor-in-possession model. The new framework aims to streamline the resolution process, allowing the corporate debtor to retain management control while providing a structured, time-bound pathway to a commercially viable resolution plan.
The CIIRP framework is an addition to the Insolvency and Bankruptcy Code (IBC), introduced through the new amendment bill passed by the Parliament earlier this month. The IBBI is currently accepting comments on the draft regulations until April 28.
Key Features of CIIRP
The CIIRP framework is based on four core objectives:
- Enabling creditor-led early intervention after default
- Preserving management control of the corporate debtor subject to appropriate oversight
- Providing a structured, time-bound pathway to a commercially viable resolution plan
- Facilitating seamless conversion to the Corporate Insolvency Resolution Process (CIRP) where the CIIRP does not yield resolution within prescribed timelines or in certain other specified circumstances
The CIIRP process allows the company undergoing resolution to remain under the hands of the corporate debtor during the resolution process. In contrast, the Corporate Insolvency Resolution Process (CIRP) transfers management of the company to the resolution professional during this period.
IBBI Draft Regulations
The proposed regulations introduce a creditor-driven initiation process, which requires a notified class of financial creditors to approve commencement by 51% in value. The corporate debtor receives notice and a 30-day representation window. Only after a second 51% approval is a resolution professional appointed.
The resolution professional is mandated to publish brief particulars of the invitation for expression of interest through a circular within the first 50 days of the resolution process commencement date. Interested and eligible prospective resolution applicants must submit resolution plans within the next 15 days.
Additionally, the moratorium on the assets of the corporate debtor is not automatic. The RP must apply to the Adjudicating Authority with CoC approval, and it is deemed effective from the date of filing. Crucially, management remains with the debtor, subject to committee-approved transaction thresholds and RP oversight powers, including the right to reject board resolutions.
For withdrawal of the CIIRP, a 90 percent approval from the committee of creditors is mandatory.
Experts' Take
Insolvency experts believe that the debtor-in-possession model, combined with structured RP oversight, balances early intervention against undue disruption. The dual-approval mechanism (51% before and after debtor representation) introduces a procedural safeguard against premature initiation.
However, experts also point out that the framework leaves eligibility criteria (class of corporate debtors, class of financial institutions, and applicable thresholds) entirely to Central Government notification, creating significant regulatory uncertainty at this stage.
| Process | CIIRP | CIRP | | --- | --- | --- | | Management Control | Remains with the corporate debtor | Transferred to the resolution professional | | Resolution Timeline | 150 days | 330 days | | Moratorium | Not automatic | Automatic | | Withdrawal Approval | 90% from committee of creditors | Not specified |
The proposed regulations aim to streamline the insolvency resolution process, providing a structured and time-bound pathway to a commercially viable resolution plan. However, experts highlight the need for clarity on eligibility criteria and the potential risks associated with the absence of an automatic moratorium.
