From CIRP To CIIRP: Evolution Of Creditor-Led Insolvency Resolution In India
Introduction
The Insolvency and Bankruptcy Code (Amendment) Bill 2025 (the Bill) introduces a new concept to the insolvency framework of India with the introduction of a creditor-initiated insolvency resolution process (CIIRP). The CIIRP is intended to be an alternative to the traditional corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC or Code) and will provide an out-of-court method for the resolution of corporate insolvencies while preserving the jurisdiction of the National Company Law Tribunal (NCLT) over certain key aspects of the process such as: adjudicating any disputes that may arise, granting moratoriums and approving the resolution plans.
Unlike the CIRP, where the RP takes over the management of the company during the process, during the CIIRP the corporate debtor will retain control of its business with a defined set of checks and balances. To facilitate this process, the Bill proposes that Chapter IV-A be added to the Code which would deal with the CIIRP in detail.
Table of Contents
Reasoning and Background
The initiation of the Corporate Insolvency and Resolution Process (CIIRP) must be considered in light of existing delays and bottlenecks within the Corporate Insolvency Resolution Process (CIRP). At the Colloquium on the Functional and Strengthening of the IBC Ecosystem that the IBBA organized in November 2022, these issues have been acknowledged. The report of the colloquium concluded that while there was an opportunity for a fast track corporate insolvency resolution process that differentiates itself from the CIRP’s normal process, this did not happen, which leads to limited usage of this process. The report also suggested a simple, flexible creditor led out of court mechanism, with the statutory provisions of the Code as the legal base for this mechanism.
The Ministry of Corporate Affairs (MCA) issued a notice on 18 January 20231 announcing it was examining whether to amend the FCIRP2 provisions to provide for an informal, out-of-court process that has minimal involvement from the NCLT and only requires NCLT approval of the final Resolution Plan. To support this initiative, the IBBI (Insolvency and Bankruptcy Board of India) established an Expert Committee to assess whether a creditor’s approach to resolution was a viable option. The Expert Committee Report on Creditor Led Resolution3 Approach, issued in May 2023, recommended creating a creditor led, out-of-court resolution approach that would provide greater efficiency and better support the objectives of the code for completing time-bound reorganisations and maximising the value of the business. The CIIRP Framework proposed by the Bill uses much of the same basis for its recommendations.
Structure and Scope of the CIIRP
The Bill proposes to add Chapter IV- A, which will set forth the eligibility conditions, procedural framework, timelines, and outcomes related to the CIIRP. The CIIRP is structured to function with low judicial involvement while providing sufficient protection and safeguards for creditors and others involved in the process.
Eligibility and Initiating CIIRP
CIIRP will only be available to those specified by the Central Government to include certain types of corporate debtors which take into consideration some factors like what kind of assets and income a company has, what class they fall under from a creditor standpoint, how much total debt, or anything else that may be relevant. Proposed Section 58A will prevent duplication of the same CIIRP where a company is already in CIRP or liquidation proceedings or has already been in a CIIRP, pre-packaged insolvency resolution process, or CIRP within the last three years. Section 11(ba) introduces a reciprocal prohibition against a company initiating a CIRP for 12 months after receiving a resolution plan through CIIRP.
The only people allowed to initiate CIIRP will be financial creditors (with regard to which types of financial institutions will be specified by the Central Government and will occur in stages). This matches the recommendations of the Expert Committee that initially CIIRP would apply only to commercial Banks.
According to proposed Section 58B, a initiating financial creditor to initiate a corporate insolvency resolution process (CIIRP) to do so they will be required to obtain an approval of creditors with a minimum of 51% of the value of their debt, and they will be required to notify the corporate debtor of their intent and provide them with at least 30 days to respond with any comments or representations. All representations received from a corporate debtor regarding a CIIRP initiation will be reviewed by the financial creditors prior to a final decision by them to proceed with initiating a CIIRP. If a financial creditor decides to proceed with the CIIRP initiation, they will be required to obtain a new approval of creditors with a minimum of 51% of the value of their debt within 30 days of the time that the creditor receives a representation.
After the financial creditor has obtained all necessary approvals, the financial creditor will then appoint a Resolution Professional (RP) and they will then make a public announcement and provide a report to the National Company Law Tribunal (NCLT) and Insolvency and Bankruptcy Board of India (IBBI) verifying that they have complied with all the requirements for initiating a CIIRP. The date on which the public announcement has been made will be the date on which the CIIRP is deemed to commence.
It is important to note that at the CIIRP initiation stage, the NCLT will not be involved, thus confirming that this is an out of court process; however, as a public announcement is a requirement, confidentiality will not be maintained. Once a CIIRP has commenced, an application for a Corporate Insolvency Resolution Process (CIRP) or a Pre-Packed Insolvency Resolution Process cannot be filed or permitted during the CIIRP process.
The corporate debtor is permitted to object to the commencement of CIIRP by approaching the NCLT within 30 days. The NCLT may pass an adverse order if no default has occurred or if initiation does not comply with statutory requirements. In cases where a default exists but initiation criteria are not met, the NCLT is mandated to convert the CIIRP into a CIRP.
Role of the Resolution Professional and Debtor-in-Possession Model
Section 58E sets out the tasks expected of an RP under the Code that generally correspond to the tasks that an RP is expected to perform under Section 18 and Section 25(2); those tasks consist of calling for and collating claims, developing an information memorandum, gathering information from the corporate debtor, constituting a Committee of Creditors (“CoC”), and compiling documents for submission to the National Company Law Tribunal (“NCLT”) and the Insolvency and Bankruptcy Board of India (“IBBI”). The management of the corporate debtor will be expected to assist the RP, who will have access to the corporate debtor’s records and information, as well as to other electronically stored data and or information obtained from governmental entities.
A key departure from the current CIRP is that proposed Section 58F permits the management to retain control under the auspices of the existing board or partners of the corporate debtor. The model of Debtor-in-Possession was conceived to reduce intermediary difficulties, limit loss of value, and lessen disruptions in cash flow caused by a control change. To enhance creditor protection, promoters and/or employees providing false or incomplete information in the information memorandum may be liable for any damages related to those losses. An RP will have a right to attend meetings of the board or the partners and deny any proposals that will have an adverse impact on the CIIRP. The regulations for the CIIRP will be set forth by the Central Government.
The moratorium under proposed Section 58G differs materially from that under the CIRP. It is not automatic upon commencement and must be applied for by the RP after obtaining CoC approval, or approval of financial creditors holding at least 51% in value where the CoC has not yet been constituted. Upon filing the application, the moratorium takes effect automatically, subject to the NCLT’s final decision. Public announcements are required upon filing and rejection of the moratorium application. Importantly, the moratorium commences from the date of application rather than NCLT approval, reflecting the Expert Committee’s recommendations for expedited resolution.
Acceptance of a Resolution Plan
Once the Cord Credit IRP (CIIRP) process has started, the IRP must complete its process within 150 day. If the RP (Resolution Professional) applies for an extension with CoC backing of 66%, the NCLT (National Company Law Tribunal) may grant a 1-time extension of up to 45 days.
If the CIIRP process is not completed and a revocation of the CIIRP process is received, the process will turn into the Company IRP (Corporate IRP), due to lack of time to complete a plan.
A Resolution Plan must have 66% of CoC votes, and the IRP will forward the proposed plan to the NCLT for review and approval. The NCLT will review and approve the Resolution Plan, applying the same guidelines that apply to CIRP (Corporate IRP), and the proposed plan must comply with Section 31 and Section 29A of the Code.
The CIIRP process can be withdrawn after setting up the CoC (Committee of Creditors) but before the first call for a resolution proposal, with 90% backing of the CoC.
Conversion of the CIRP and Applicability of Other Provisions
Section 58H of the proposed Law lays down certain triggers for the NCLT to convert a CIIRP into a CIRP, including not approving a resolution plan/Refusing to cooperate with the management/Rejecting a resolution produced by NCLT. Following such a conversion an RP has the same powers as an IRP and will also declare a moratorium under s.14 and recover all CIIRP costs as CIRP costs.
Section 58K of the proposed Law provides that the CIIRP will also be subject to other provisions found within the Code (such as provisions related to CoC, framework for avoidance transactions, and provisions within the Code that provide adjudication or penalties), but these will be slightly amended.
Conclusion
This new CIIRP framework seeks to find a middle ground between the predictability of approved court restructuring plans and the efficiency associated with restructuring outside of court. The CIIRP includes a debtor-in-possession approach, limits interference by NCLT, and provides specific timeframes for the approval of a resolution, unlike the standard CIRP approaches used in the past. In addition, the CIIRP will incorporate numerous protections for creditors, such as oversight of a RP and converting to a CIRP based on certain events occurring.
It seems that while the CIIRP may be a more timely and flexible approach for resettlement, it will be dependent upon both creditors and debtors agreeing to and working together towards a solution. Ultimately, whether or not financial institutions view CIIRP as a good option within the insolvency marketplace is still uncertain based upon the lack of widespread use of current solutions like FCIRP and pre-packaged insolvencies.
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