The Fourth Amendment to CIRP Regulations – IndiaCorpLaw
[Bhoomi Goenka and Saksham Gupta are 3rd year B.B.A., LL.B. (Hons.) students at National Law University Odisha]
In May 2025, the Insolvency and Bankruptcy Board of India (IBBI) introduced the fourth amendment to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), with the objective of enhancing flexibility, transparency, and efficiency in corporate insolvency resolutions. Notably, the amended regulations grant resolution professionals (RPs), with the approval of the Committee of Creditors (CoC), the authority to invite bids either for the corporate debtor (CD) as a whole, for individual assets or business units, or for both concurrently. Concurrently, the CoC is empowered to include interim finance providers (IFPs) as non-voting observers in creditor meetings. These amendments are intended to align India’s framework with global best practices and to optimize value recovery for stakeholders.
Background: Pre-Amendment Framework
Prior to the 2025 amendment, the CIRP framework was characterized by several structural rigidities and regulatory ambiguities, which impeded the timely and effective resolution of corporate insolvencies. For instance, under the previous regulation 36B(6A)RPs were permitted to invite asset-specific resolution plans only after an unsuccessful attempt to resolve the CD as a whole. This sequential approach led to unnecessary delays and often resulted in erosion of value in viable business units, which remained stranded during prolonged bidding processes. The inability to explore whole-company and asset-level bids concurrently discouraged investor participation and limited recovery potential. Similarly, interim financing, which is crucial for maintaining the debtor’s operations during CIRP, existed in a regulatory grey area. There was no structured mechanism to engage or empower providers of rescue capital, nor were there safeguards or formal roles for them within the CIRP. Despite global trends toward protecting such lenders (e.g., via super-priority rights), Indian regulations neither acknowledged their contribution nor permitted their access to CoC proceedings. This lack of visibility discouraged funding and left lenders exposed to commercial risks without adequate oversight.
In addition, key issues also arose in creditor treatment and plan evaluation. Regulation 38(1)(b) was ambiguous on how dissenting financial creditors should be treated under staggered or phased payment plans, raising concerns of inequity. Likewise, regulation 39 restricted RPs from presenting non-compliant plans to the CoC, leading to opacity and the possible exclusion of salvageable proposals despite the Insolvency and Bankruptcy Code’s (IBC) intent of full disclosure under section 25. These limitations collectively necessitated reform, paving the way for the 2025 amendments to bring in flexibility, transparency, and creditor fairness.
Asset-Wise Bidding Under the New Regime
The insertion of regulation 36A(1A) into the CIRP rules introduces a dual-track bidding framework, which represents a significant shift in the process of inviting resolution plans. With CoC approval, the RP is now authorized to simultaneously invite expressions of interest (EOIs) for both the CD as a whole and for individual assets or business divisions. To facilitate this shift, regulation 36B(6A)which previously mandated a sequential approach, has been deleted. This amendment removes a significant procedural bottleneck, allowing RPs and CoCs the flexibility to explore both strategies from the outset.
This increased flexibility is expected to enhance the efficiency of the resolution process. Instead of waiting for an unsuccessful whole-company bid before proceeding to asset-wise sales, RPs can now run both processes in parallel. This approach reduces delays, preserves value, and improves time-bound resolution – which are the key objectives of the IBC framework. The amendment also protects viable business units from being undermined by less profitable segments. Allowing segment-wise marketing from the outset enables the RP to unlock value from viable divisions, which might otherwise deteriorate during a prolonged CIRP. Specialized investors are often more interested in focused assets and may offer better terms when they are not encumbered by the liabilities of an entire business. Additionally, this approach widens the investor base. Investors with limited capacity or a lower risk appetite can now consider targeted bids, thus increasing participation and driving competition. This competitive bidding for parts, rather than an all-or-nothing approach, often leads to better overall recoveries and enhances resolution outcomes for creditors.
However, this amendment introduces a degree of complexity. Inviting multiple resolution plans, whether for the whole company or individual assets, raises practical concerns around cross-liabilities and fair division of the debtor’s obligations. The amended regulations do not clarify how debts, guarantees, or encumbrances should be apportioned when business units are sold separately. These decisions are left to the CoC’s commercial judgment. In practice, RPs and CoCs must carefully structure the assets, often through special purpose vehicles (SPVs) or demerged units, and determine how to manage any residual corporate entity. Legal experts caution that this process should not result in fragmented sales that leave behind a non-viable shell company. However, as the new provision requires explicit CoC approval, the collective oversight of creditors helps mitigate the risk of misuse and ensures alignment with the IBC’s objective of effective resolution.
Interim Finance Providers as CoC Observers
The second significant amendment to the CIRP Regulations introduces regulation 18(5)which empowers the CoC to invite providers of interim finance to attend its meetings as non-voting observers. This change is particularly significant in the context of rescue financing, as it enables interim financiers, typically banks or new investors willing to provide debtor-in-possession funding, to closely monitor the resolution process. While these observers cannot vote or influence decisions directly, they gain critical visibility into the debtor’s financial position, business operations, and the direction of the resolution strategy. Previously, interim financiers operated with limited information, often making funding decisions under considerable uncertainty. By granting them access to CoC deliberations, the amendment addresses this asymmetry, enhancing transparency and encouraging more informed and confident lending. This is especially crucial during the CIRP, where timely interim finance serves as a financial lifeline for distressed companies and help preserve their going-concern value.
Importantly, the amendment safeguards creditor autonomy by explicitly excluding voting rights for observers. RPs are required to issue meeting notices to interim financiers at least 24 hours in advance, explicitly marking their role as non-voting observers. Observers may raise questions or offer views but cannot participate in decision-making, ensuring that the CoC’s fiduciary role remains intact. By striking a balance between transparency and control, this provision fosters a more robust and responsive rescue financing environment, essential for effective and timely corporate resolution.
Fixing the Staggered Payment Loophole
The amendment to regulation 38(1)(b) introduces a crucial fairness safeguard in cases where resolution plans provide for staggered or stage-wise payments. It mandates that financial creditors who did not vote in favour of the resolution plan must still be paid at least on a pro rata basis and with priority over those who supported the plan at every payment stage. This ensures that dissenting creditors are not prejudiced or subordinated merely because they opposed the plan. The amendment reinforces the principle of equitable treatment of creditors, a cornerstone of insolvency law, while also discouraging coercive or unfair treatment in voting dynamics. By codifying a minimum entitlement for dissenting financial creditors, the regulation balances the interests of plan supporters and dissenters, and ensures that staged payouts do not become a tool for strategic exclusion or delay.
Transparency in Evaluation
The amendment to regulation 39 introduces enhanced clarity and procedural discipline in regarding the evaluation and presentation of resolution plans before the CoC. Sub-regulation (2) is amended in two key aspects: first, by removing the blanket requirement that only plans “which comply with the requirements of the Code and regulations” be presented; and second, by inserting the phrase “non-compliant plans” to ensure that even such plans are explicitly disclosed. This change recognizes the practical reality that resolution professionals often receive plans that may not be fully compliant, yet still merit CoC attention, either for potential modification or comparison. However, to avoid any dilution of regulatory standards, sub-regulation (3)(a) is amended to clarify that only those plans which comply with the Code and regulations can be placed for CoC consideration and approval. The effect is a two-tiered framework: all plans, including non-compliant ones, must be transparently listed with the CoC (ensuring full disclosure), but only compliant plans can move forward in the resolution process. This strikes a balance between procedural transparency and legal compliance, helping RPs maintain accountability while ensuring CoC decisions are based on valid and lawful proposals.
Conclusion
The Fourth Amendment to the CIRP Regulations represents a pivotal step in evolving India’s insolvency ecosystem. By formally permitting dual-track EOIs and recognizing the role of rescue financers, the IBBI has sought to expedite resolutions, increase transparent, and enhance economic rationality. These changes are intended to bring the CIRP closer to its original design which is a swift process that maximizes asset value by eliminating procedural roadblocks. Legal professionals and RPs will need to adapt their practice accordingly – but the direction is clear. In the coming years, case studies and data will show whether these amendments indeed boost recoveries and reduce litigations. For now, India has signaled a clear priority, flexibility and collaboration in restructuring, in line with global best practices. If implemented diligently, the new rules should enhance stakeholder engagement and value preservation in India’s CIRPs.
– Bhoomi Goenka & Saksham Gupta