IBC 2.0 reforms still on govt’s agenda, not off its radar

The government remains committed to the Insolvency and Bankruptcy Code (IBC) 2.0 reforms, and the absence of any mention in the Budget does not indicate a policy shift, highly-placed sources said. While the legislative business list for the Budget Session did not include an insolvency reform Bill, sources confirmed that the IBC revamp could still be introduced separately at a later stage. 

The first part of the Budget session will continue until February 13, after which both Houses of Parliament will reconvene on March 10 following a recess. The session is expected to conclude on April 4.

At the recently convened all-party meeting last Thursday, the government had identified 16 legislative Bills for the Budget session. 

For IBC 2.0 reforms, the government is keen on addressing long-standing issues such as delayed resolutions, low recovery rates, and NCLT congestion, and discussions on the proposed amendments are ongoing.

The move signals that insolvency reforms remain a priority, and the government is considering the right timing and approach for introducing the changes. The government is considering a significant overhaul of the IBC to improve efficiency, enhance value realization, and ensure faster resolutions. 

Dubbed IBC 2.0, these reforms aim to address persistent bottlenecks, streamline processes, and make India’s insolvency framework more aligned with global best practices.

With the IBC completing nearly eight years since its enactment in 2016, stakeholders — including regulators, policymakers, and industry players—have highlighted key challenges such as delays in resolution, low recovery rates and the overburdening of the National Company Law Tribunal (NCLT). The proposed reforms are expected to improve creditor confidence, boost ease of doing business and encourage distressed asset investments.

Key Reforms Under Consideration

Pre-pack insolvency for large corporates

The government is likely to extend the pre-packaged insolvency resolution process (PPIRP) — currently available only for MSMEs —to large corporates. This would allow financially stressed companies to negotiate a resolution plan with creditors before approaching the NCLT, leading to faster debt restructuring and minimising value erosion.

Fast-Track Resolutions for Mid-Sized Cases

To ensure speedier resolutions, a new fast-track process is being considered for mid-sized companies. This would set tighter timelines for resolution, reducing delays caused by prolonged litigation and procedural inefficiencies.

Strengthening NCLT and reducing case load

One of the biggest concerns with IBC is the slow disposal of cases at NCLT, which often extends beyond the prescribed 330-day deadline. To tackle this:

   •   More specialized benches of NCLT could be created to handle IBC cases exclusively.

   •   Tribunal jurisdiction rationalisation is being explored to prevent multiple benches from adjudicating the same case.

   •   Alternative dispute resolution mechanisms, such as mediation and arbitration, may be encouraged for certain insolvency cases.

Cross-Border Insolvency Framework

The lack of a formal cross-border insolvency mechanism has made it difficult to handle cases involving multinational companies. A comprehensive framework, possibly aligned with the UNCITRAL Model Law, is expected to be introduced to facilitate coordinated resolutions across jurisdictions.

Meanwhile, sources said that draft Cabinet Note before consideration of the government includes provisions on cross-border insolvency.

More Flexibility in Liquidation Process

Current liquidation proceedings under IBC often lead to fire sales of assets, resulting in low recoveries. The proposed changes may allow for:

   •   Partial asset sales to maximise value.

   •   Greater involvement of promoters under strict conditions to revive viable businesses.

   •   More incentives for resolution applicants to encourage serious bidders.

Why These Reforms Matter

IBC has been a game-changer in India’s insolvency ecosystem, but its success is hindered by delays and inefficiencies. According to data from the Insolvency and Bankruptcy Board of India (IBBI), the average resolution time for cases is often far beyond the mandated 330 days, and recoveries remain below expectations.

By implementing IBC 2.0 reforms, the government aims to:

   •   Enhance investor confidence in distressed assets.

   •   Improve recovery rates for financial institutions.

   •   Reduce litigation-driven delays and ensure a time-bound resolution framework.

With these changes, IBC could evolve into a more robust, efficient and globally competitive insolvency mechanism, making India an attractive destination for both domestic and foreign investors in distressed assets.