India has proposed important reforms to the insolvency and bankruptcy code with the objective of making insolvency resolutions faster and more creditor friendly. The proposed changes are considered one of the most significant features of the insolvency framework. This reform focuses on reducing and strengthening financial creditor rights.
One of the key proposals allows the financial creditor to initiate solvency proceedings without requiring immediate tribunal interventions at the preliminary stage. Financial institutions have generally welcomed the proposal because delays in admission often reduce the asset value and recovery potential. The proposed amendment also seeks to encourage pre-planned insolvency arrangements and out of court settlement between creditors and debtors. This mechanism is expected to reduce the cost of litigation.
Recent judicial developments have also influenced the insolvency landscape; the Hon’ble Supreme court examined whether decree holder can initiate insolvency proceedings based on decrees obtained through civil litigation. The insolvency reforms are also linked with competition law and merger regulations. Regulatory authorities have emphasized the need for coordination between insolvency approvals, particularly in large acquisition transactions involving stressed assets. This is important because delay in competition clearance can impact implementation of an approved resolution plan.
The Experts believe that the reforms could improve India’s global ranking in insolvency resolutions and strengthen investor confidence in distressed asset markets. However, some professionals have cautioned that stronger creditor power must be balanced with adequate safeguards for operational creditors, employees, and minority shareholders.