Revamping the Insolvency Landscape: IBC 2.0 Signals a Paradigm Shift

As cracks in India’s six-year-old insolvency framework deepen, the government is preparing to usher in a new era with a transformative set of amendments to the Insolvency and Bankruptcy Code (IBC), 2016. Informally dubbed IBC 2.0, the reforms aim to streamline the corporate resolution process, address systemic inefficiencies, and pivot from a recovery-centric model to one focused on reviving distressed businesses.

At the heart of the upcoming overhaul lies a structural shift in authority from Resolution Professionals (RPs) to creditors. The proposed changes, expected to be tabled in the Monsoon Session of Parliament, include significant reductions in the decision-making powers of RPs, who currently oversee every aspect of a company’s resolution from claim verification to managing operations.

The government plans to introduce a Creditor-Led Resolution Process (CLRP), empowering financial creditors to take the lead. Unlike the current Corporate Insolvency Resolution Process (CIRP), which is heavily reliant on RPs and National Company Law Tribunal (NCLT) oversight, CLRP will reduce judicial intervention, enabling quicker, more commercially informed decisions.

One of the key proposals is a compressed resolution window i.e. 165 days down from the existing 330-day framework. This move reflects the government’s intent to improve asset recovery rates and reduce the average timeline for resolution, which often stretches beyond the mandated period.

The amendments also envision reducing RP responsibilities by leveraging automation and digital tools. Information Utilities will play a greater role in claim collation and asset tracking, improving both speed and transparency.

Further, pre-packaged insolvency frameworks, initially limited to Micro, Small, and Medium Enterprises (MSMEs), will now be extended to larger corporates. This pre-CIRP approach allows for resolution plans to be negotiated with creditors before formal insolvency proceedings begin, dramatically cutting time and costs.

The Promise of Mediation:

In a pathbreaking departure from the adversarial model, IBC 2.0 introduces mediation as a pre-CIRP mechanism. Spearheaded by the IBBI, the proposal allows distressed companies and their creditors to explore revival plans through neutral mediators, outside the formal tribunal process. If mediation efforts fail, a “non-settlement report” will be filed, and CIRP will begin. This safeguards creditor rights while giving businesses a genuine chance of revival without prolonged litigation.

Key Cases That Could Have Benefited:

The need for reform has become glaring through several high-profile insolvency cases:

1. Essar Steel: Promoter bids higher than the final resolution value were dismissed due to litigation and delays. Mediation could have expedited consensus and boosted recoveries.
2. IL&FS: With over ₹94,000 crore in debt spread across 348 entities, a unified group resolution was impossible under current law. A group insolvency framework combined with mediation might have salvaged viable subsidiaries faster.
3. Jet Airways: Once India’s second-largest airline, Jet’s liquidation in 2023 wiped out nearly all value. Early mediation with lessors and creditors might have revived the airline and saved over 22,000 jobs.
4. Srei Infrastructure: A fully-funded ₹32,000 crore revival plan by promoters was rejected without CoC consideration. Instead, NARCL’s ₹5,555 crore offer, with a 55% haircut, was accepted, triggering questions over fairness. A mediation process might have enabled transparent evaluation of all options.
5. Amrapali and other real estate cases: With over 42,000 homebuyers stranded, judicial intervention had to fill the void left by failed insolvency procedures. Mediation could have aligned stakeholders earlier for a phased, consumer-friendly resolution.

Notably, group insolvency provisions, another critical addition proposed to be introduced, will allow multiple companies within a corporate group to undergo a collective resolution, rather than piecemeal, thereby optimizing asset value and procedural efficiency.

The Road Ahead: Opportunities and Caveats

IBC 2.0 is more than a legislative overhaul It signals a shift from liquidation to revival, from top-down control to stakeholder-driven solutions. If implemented with robust oversight by the IBBI, clear guidelines for CLRP and mediation, and consistent judicial support, these reforms could enhance recovery rates, boost investor confidence, and align India’s insolvency framework with global standards. As the Cabinet note nears finalization and the amendment bill heads for the Monsoon Session, the path forward emphasizes empowerment, collaboration, and procedural efficiency.