IBC 7Th Amendment Aims To Cut Insolvency Delays, Says Crisil Ratings

(MENAFN- KNN India) New Delhi, May 4 (KNN) The 7th amendment to the Insolvency and Bankruptcy Code (IBC), passed in April 2026, seeks to address prolonged delays in insolvency proceedings that have led to erosion of asset value, Crisil Ratings said in a press release.

The amendment introduces mandatory timelines of 14–30 days for National Company Law Tribunal (NCLT) benches to admit cases, approve resolution plans, and pass liquidation orders. If implemented effectively, these measures could significantly reduce overall resolution timelines.

Out-of-Court Framework to Ease Backlog

To help NCLT manage a backlog of around 7,000 pending admission cases, a new Creditor-Initiated Insolvency Resolution Process (CIIRP) framework has been introduced. This allows financial creditors to pursue out-of-court resolutions within a defined timeline of 195 days.

Unlike the Reserve Bank of India's June 2019 prudential framework, the CIIRP requires NCLT approval of final resolution plans, making outcomes legally enforceable.

Shounak Chakravarty, Director, Crisil Ratings, said, "CIIRP could prove to be a more streamlined and less adversarial resolution process for both lenders and borrowers while being legally binding. Retaining existing management would minimise the possibility of friction or delaying tactics between parties, and granting resolution professionals veto power over resolutions passed in Board meetings would safeguard creditors' rights.”

“However, adherence to a 195-day resolution timeline remains to be seen. Even, RBI's prudential framework which allowed out-of-court resolutions, witnessed sizeable delays,” Chakravarty added.

Shorter Timelines Could Improve Recovery

Mohit Makhija, Senior Director, Crisil Ratings, noted, "Currently, the IBC resolution process takes 3.5-4.0 years on average, inclusive of over a year spent just in admitting the case into the Corporate Insolvency Resolution Process (CIRP). Mandating admission within 14 days for proven default cases can significantly reduce the overall resolution timeline by 1.0-1.5 years.”

“Additionally, stipulations requiring approval of resolution plans and liquidation orders within 30 days of finalisation will likely shorten post-admission resolution timelines, which swelled to ~900 days, far exceeding the 330-day regulatory target,” Makhija added.

Focus on Value Preservation and Transparency

Crisil highlighted that the amendment introduces a two-stage resolution approval process-first for asset transfer to the successful bidder, and second for distribution of proceeds among creditors. This aims to prevent delays caused by disputes over distribution and reduce value erosion.

Additionally, the Insolvency and Bankruptcy Board of India (IBBI) has been empowered to set conduct standards for the Committee of Creditors (CoC), improving accountability and transparency in decision-making.

Creditor Oversight and Flexibility

The ratings agency emphasised that the changes also strengthen creditor rights by granting them a supervisory role in liquidation proceedings, along with reaffirming their priority over statutory dues.

To avoid premature liquidation of viable businesses, the amendment permits restoration of the resolution process even after initial failure, provided a liquidation order has not yet been passed.

Implementation Remains Key

While the reforms are expected to improve efficiency, maximise asset value, and streamline the insolvency framework, their effectiveness will depend on timely implementation and adherence to prescribed timelines, Crisil noted.

(KNN Bureau)

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