New IBC Rules To Force Quick Settlements, Block Tactical Delays By Promoters

(MENAFN- Live Mint) New Delhi: Promoters seeking to halt bankruptcy proceedings by repaying creditors will need to settle dues at an early stage, instead of waiting for rival bids from potential investors, under amendments to India's Insolvency and Bankruptcy Code (IBC) now before Parliament, experts said.

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 seeks to overhaul the rules for withdrawing bankruptcy proceedings by limiting settlements to an early window and requiring approval from 90% of lenders, a move aimed at curbing tactical delays and safeguarding the integrity of the bidding process.

The bill disallows promoters to offer settlement once lenders that placed the distressed business under administration of a professional invite bids from new investors.

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This prevents the possibility of promoters dragging their feet till they get an idea of what the company may fetch in the market and then making an incremental settlement offer to withdraw the bankruptcy proceedings, explained experts.

The new regime is proposed by way of replacing section 12A of the IBC with a revamped version. Section 12A of IBC deals with withdrawal of bankruptcy applications admitted by the National Company Law Tribunal (NCLT).

The proposed changes stipulate that only the administrator of the distressed company appointed by creditors can move a tribunal for withdrawal of bankruptcy proceedings, that too with the consent of 90% of the creditors by value. At present, promoter can directly move withdrawal applications.

Limited opportunity to settle

The opportunity for promoters to settle with creditors is thus limited between the time a panel of creditors is set up and bids are invited for the company. Also, tribunals have to decide on such applications within a month or record reasons for delay.

Experts pointed out that this effectively prevents both the 'tactical delay' promoters used to resort to in settling with creditors and attempts to derail the bidding process with last-minute settlement offers.

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Revamping the withdrawal of bankruptcy proceedings is a key reform, given that so far promoters of 1,192 companies have settled with creditors under section 12A of IBC after tribunals admitted bankruptcy petitions by creditors. This accounts for about 14% of the 8,492 cases admitted in tribunals since the IBC came into force in 2016 till June-end.

Withdrawal of proceedings under section 12A has been the root cause of litigation under IBC, said Prateek Kumar, partner, Khaitan & Co., a law firm.

In several cases, 12A offers were made at a late stage and weighed against a resolution plan, leading to delays and litigations, said Kumar.

“Prescribing a specific time window within which a 12A proposal must be made will promote transparency. The additional obligation on the National Company Law Tribunal to decide the withdrawal application within 30 days would surely expedite settlements,” said Kumar.

Promoters seeking to retain a distressed asset would now need to take proactive steps to arrive at a settlement prior to insolvency admission, he said.

The amendment limits the scope for promoters to settle with select creditors before the formation of the committee of creditors (CoC) or delay action while assessing the value offered by bona fide resolution applicants, added Kumar.

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“We've often seen promoters wait until resolution plans are on the table before floating their own settlement offers. Courts, including the Supreme Court, have cautioned against such late interventions as they disrupt the process. The proposed change directly addresses this mischief by bringing clarity and discipline,” explained Anisha Jhunjhunwala, senior consultant - IBC at NPV Insolvency Professionals Pvt. Ltd.

Historically, promoters have used withdrawal applications to delay corporate insolvency resolution, said Subodh Dandawate, associate director-regulatory services at Nexdigm, a business and professional services company.

Striking a balance

Jhunjhunwala of NPV Insolvency Professionals said the revamped section 12A will strike a balance and give creditors a chance to consider a settlement, but prevent last-minute exits that derail bidding, waste applicants' efforts, and undermine confidence in the process.

By limiting the withdrawal option to an early stage, promoters who wish to settle will have to mobilize funds quickly and engage with creditors upfront, added Jhunjhunwala.

This discourages slow-pedalling and compels promoters to act with urgency if they are serious about repayment, she said.

The strict timeline brings clarity and certainty to the process and helps to prevent delaying tactics and ensures that only serious promoters pursue redemption, thereby improving the efficiency of the insolvency process, said Dandawate of Nexdigm.

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