Proposed amendments to the IBBI (Liquidation Process) Regulations

Proposed amendments to the IBBI (Liquidation Process) Regulations

Proposed amendments to the IBBI (Liquidation Process) Regulations pursuant to the Insolvency and Bankruptcy Code (Amendment) Act, 2025. The objective is to make liquidation faster, more efficient, and creditor-driven.

Detailed Explanation of Key Changes of IBBI (Liquidation Process) Regulations

1. Liquidation to be Completed within 180 Days

Existing Position: Liquidation proceedings often continue for several years. Proposed Change: The liquidator must complete liquidation within 180 days from the liquidation commencement date. The Adjudicating Authority may extend the period by up to 90 days in deserving cases. Which Impact Faster resolution of liquidation cases, Better value preservation of assets and Reduced litigation and administrative costs.

2. Committee of Creditors (CoC) to Continue During Liquidation

Existing Position: After liquidation begins, the Stakeholders’ Consultation Committee (SCC) generally advises the liquidator. Proposed Change: The existing CoC formed during CIRP will continue and supervise liquidation. SCC will be abolished. Which Impact Continuity in decision making, People familiar with the company remain involved and Greater accountability of the liquidator.

3. CoC Approval Required for Major Decisions

The Liquidator must obtain CoC approval for Appointment of professionals, Liquidator’s remuneration, Liquidation costs, Asset valuation, Litigation matters, Extension of sale consideration period, Assignment of difficult-to-realise assets. And Sale strategy and auction process. There is Voting Requirement that Certain major decisions require 66% voting share approval of the CoC.  Which Impact that Increased creditor control and Improved transparency.

4. Replacement of Liquidator by CoC

A new provision allows CoC to replace the liquidator through a 66% vote, subject to approval of the Adjudicating Authority. Which Impact that Better accountability and Protection against ineffective liquidation management.

5. Simplification of Claim Verification

Existing Position: Fresh claims are invited and re-verified during liquidation. And Proposed Change: Claims admitted during CIRP will automatically continue into liquidation. Fresh submission will be required only for New claims. And Updated claim amounts.  Which Impact that Avoids duplication and Saves time and cost.

6. Public Announcement During Liquidation

The public announcement will invite claims only from stakeholders who did not submit claims during CIR. Which Impact: Reduced paperwork and Faster claim finalisation.

7. New Liquidator Fee Structure

Existing Position: Fee based on Asset realization, and Distribution of proceeds.  This is Proposed Change: Fee structure revised to Monthly fee during liquidation, or Distribution-based fee.  Reason of change is to Claim verification work is greatly reduced under the new law. Which Impact that More practical compensation. And Reduced cost burden.

8. Compromise or Arrangement under Section 230

Where a compromise or arrangement scheme is proposed CoC approval is required. The amount payable under the scheme must exceed liquidation value. which Impact that Protects creditors from accepting less than liquidation value.

9. Secured Creditors and Security Interest

Secured creditors must inform the liquidator within 14 days whether they are relinquishing security interest. Which Impact Early clarity on realization process. & Faster distribution.

10. Reporting Requirements Simplified

Several separate reports such as Preliminary Report, Asset Memorandum, Sale Reports and SCC Minutes will be consolidated into Progress Reports and Final Reports. Which Impact Reduced compliance burden & Fewer filings before NCLT.

11. Sale of Assets to Ineligible Persons Restricted

• Liquidator cannot sell assets to persons disqualified under Section 29A of the IBC. Which Impact that Prevents defaulting promoters or ineligible persons from regaining assets indirectly.

12. Restrictions on Sale to Related Parties

• Sale during auction or private sale cannot be made to Related parties, Liquidator’s relatives/related parties and Professionals engaged by the liquidator, without necessary approval. Which Impact: Avoids conflict of interest.

13. Transfer of Guarantor Assets

A new Regulation 8A facilitates transfer of guarantor assets in the CIRP of the principal debtor, subject to CoC approval. Which Impact: Better recovery for creditors. & More efficient insolvency resolution.

14. Not Readily Realisable Assets (NRRA)

Clarifies that NRRA include Contingent claims, Disputed claims, Avoidance transaction recoveries and Fraudulent transaction claims. Whether crystallized or not. Which Impact: that Easier assignment and monetization.

15. Dissolution and Pending Litigation

Even after dissolution Avoidance transaction proceedings, Fraudulent trading applications and Recovery lawsuits. can continue through arrangements approved by the CoC. What Impact that Prevents loss of recoveries merely because the company is dissolved.

16. Reduction of Reserve Price in Auction

Currently, reserve prices may be reduced significantly after failed auctions. Proposed Change: Reserve price reduction will require CoC approval and generally be limited to 10% at a time. this Impact: Better value maximization. & Prevents distress sale of assets.

Important Amendment on TDS/TCS

Treatment of Unremitted TDS/TCS: A significant clarification has been proposed: Where TDS/TCS has been deducted or collected by the Corporate Debtor but not deposited with the Government before liquidation: Such amounts will be treated as third-party assets held in trust, and will not form part of the liquidation estate.

Significance: This is especially important for Income Tax Department, GST authorities, Liquidators, Insolvency Professionals. The proposal follows the NCLT Bengaluru decision in New Age Real Properties LLP v. Bhuvana Infra Projects Pvt. Ltd. dated 04.09.2025, where unremitted TDS was held to belong to the Government and not to the Corporate Debtor.

Overall Impact

The amendments fundamentally transform liquidation from a liquidator-led process into a CoC-supervised process, reduce duplication of work, shorten timelines, strengthen creditor control, improve transparency, and clarify treatment of key issues such as guarantor assets, avoidance proceedings, and unremitted tax deductions

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