Insolvency and Bankruptcy Code Amendment Bill 2025 – Key Reforms and Highlights

[2025] 177 taxmann.com 841 (Article)

Insolvency and Bankruptcy Code, 2016 (Insolvency Code for short) provides for reorganisation and insolvency resolution of corporate persons in a time bound manner for maximisation of value of assets of such corporates, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues. Insolvency and Bankruptcy Board of India (IBBI) has been established under Insolvency Code for supervising and controlling the process.

Insolvency Code also makes provisions for bankruptcy of partnership firms and individuals. These provisions are presently effective only in respect of are individuals and firms who guarantors of corporate debtors.

The Insolvency Code, as an economic legislation, requires periodic updates to align with changing market needs and lessons learnt from practical experience. Over the past three years, extensive stakeholder consultations were undertaken by Government. After extensive discussions and deliberations, Insolvency and Bankruptcy Code (Amendment) Bill 2025 has been introduced in Lok Sabha on 12th August, 2025. The Bill has been sent to select committee. If all goes well, the Bill may be passed in winter 2025 session of Parliament.

Amendments not a minor repair, it is overhaul of Insolvency Code

The amendments are not a minor patchwork. It is complete overhaul of Insolvency Code. Many issues have been addressed and practical solutions found. Some new and novel concepts have been introduced. This would be a vast improvement in present Insolvency Code. It is indeed a game changer.
Major changes proposed

The major changes proposed to Insolvency Code are summarised below.

• • Security Interest’ will not include security interest created merely by operation of law (like charge created by tax laws) [explanation to section 3(31)]
  • Insertion of provisions relating to ‘avoidance transaction’ [section 5(2A)] and ‘fraudulent or wrongful trading’ [section 5(9A)]. RP or liquidator can file application before Adjudicating Authority [Section 25(2)(j)]. These proceedings will be independent of CIRP and liquidation process [Section 26]
  • Expeditious admission of application of financial creditor under section 7
  • Restrictions on withdrawal of application for CIRP [section 12A]
  • Supervision of Liquidation process by CoC [Section 21(11), section 35]
  •  Transfer of assets of guarantor of corporate debtor to CIRP with approval of CoC [section 28A]
  • Committee to supervise resolution plan [Section 30(2)(b)]
  •  Revamping of liquidation process [Section 33] and dissolution of corporate debtor [section 54]
  • Liquidator to be appointed by COC [section 34]. CoC can change liquidator [section 34A]. CoC to supervise conduct of liquidation process [section 35]
  •  Provision that liquidator will collate and settle claims omitted [sections 38, 39, 40, 41 and 42 to be omitted]. Claims received during CIRP will be only maintained and updated during liquidation process [section 35]
  • Creditor or member or partner of corporate debtor can report preferential transaction [section 43], undervalued transaction [section 45], extortionate credit transaction [section 50] or fraudulent trading or wrongful trading [section 66] to Adjudicating Authority [section 47]. – – RP or liquidator can file application in respect of fraudulent or wrongful trading and avoidance transaction and undervalued transaction [Section 25(2)(j) and section 46 and section 66] – – Proceedings in respect of an avoidance transaction and fraudulent or wrongful trading are independent proceedings [Section 26] – – lock-back period for determining these transactions amended to avoid manipulation by corporate debtor.
  •  Abolition of Fast Track Insolvency Resolution Process [section 55 to section 58 omitted]
  •  Introduction of Creditor-Initiated Insolvency Resolution Process [section 58A to section 58K]
  •  Introduction of provision of Group Insolvency [section 59A]
  •  penalty upto Rs two crores for initiating frivolous or vexatious proceedings [section 64A and section 183A)
  •  Electronic portal for facilitating procedures under Insolvency Code [section 240B]
  •  Enabling provision for Cross-border Insolvency [section 240C]

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