India’s new insolvency route can preserve more value if lenders act early

India’s insolvency reform will improve recoveries if it gets viable companies into restructuring before their businesses disintegrate. The amendment that received assent on 6 April creates a creditor-initiated process for eligible companies and allows incumbent management to continue under oversight. It also sets a shorter timetable. The law provides for commencement through separate government notifications, so the new route should be understood as the design Parliament has approved. The economic test is whether lenders begin earlier, preserve viable operations and obtain better recoveries after allowing for time. A quicker process is useful only if it protects enough value to justify the powers it gives financial creditors. The April 2026 amendment as published in the Gazette · PRS Legislative Research on creditor-initiated resolution

Why time before admission matters

The Insolvency and Bankruptcy Board of India reports that 1,376 cases that produced resolution plans by December 2025 took an average of 619 days to conclude, after excluding time the adjudicating authority excluded. That is a historical average among cases ending in approved plans. It does not include every case that entered insolvency, and says little about the time between the first sign of distress and formal commencement. That pre-process period matters. Customers can move to other suppliers, skilled workers can leave and orders can expire. A business whose assets would have earned more together can become a collection of machines and receivables before a buyer gets a chance to bid. IBBI’s December 2025 quarterly data

The Board also reports about ₹4.11 lakh crore realised through resolution plans against about ₹12.99 lakh crore in claims in the relevant cases, roughly 32% by that comparison. The same report records realisations above estimated liquidation value. These comparisons use different baselines. Claims describe what creditors are owed. Liquidation value approximates what a break-up might yield at entry. A restructuring can beat liquidation value and still leave creditors with a large loss on their claims. Neither ratio establishes what recovery would have been if lenders had acted earlier. That requires comparing cases with similar asset quality and distress at entry, and taking account of the time until money actually arrives. IBBI’s December 2025 quarterly data

Consider two plans each paying a lender ₹50 crore in a single instalment. At an assumed discount rate of 12% a year, receipt after six months is worth about ₹47.25 crore at the start, while receipt after two years is worth about ₹39.86 crore. The difference is about ₹7.4 crore in present value before legal costs. A later payment could still be preferable if a longer sales process finds a materially better buyer or if the shorter timetable leads to an unreliable commitment. The exercise puts a price on delay. The best bid still depends on the size and reliability of the payment.

The new process changes bargaining as well as the clock

The creditor-initiated route gives specified financial creditors a way to start after default, subject to the approvals and debtor representations set out in the statute. The approval threshold for eligible initiating financial creditors is at least 51% of the relevant debt by value. The law sets 150 days from commencement, with provision for an extension of up to 45 days on the specified approvals. The board or partners ordinarily retain management during the process, with oversight by the resolution professional and powers for the committee of creditors and tribunal. Keeping managers in place can preserve knowledge, contracts and relationships that would be costly for an administrator to rebuild. The April 2026 amendment as published in the Gazette · PRS Legislative Research on creditor-initiated resolution

The price of that continuity is the risk that incumbent management has information and incentives other creditors cannot see. A business in distress may have little reason to reveal which assets are most valuable or where transactions with related parties have moved cash. An insider may benefit from delaying a sale or controlling access to records. A credible resolution professional, prompt disclosure of cash flows and independent valuation are essential. The process also needs a workable path to transfer control or move to the ordinary route when existing management obstructs a fair resolution. The new structure is strongest when continuity protects operations and oversight protects the sale process. The April 2026 amendment as published in the Gazette

Suppliers can carry losses that secured lenders can absorb

A large lender can spread losses across a loan book. An unpaid supplier may have most of its working capital tied up in one debtor. If a quick process preserves a viable buyer, suppliers can benefit from future orders and from recovering some existing bills. If it moves quickly mainly because banks settle among themselves, smaller creditors may have little opportunity to verify what they are owed or challenge an unfair assumption. The rules should give them timely notice, a credible way to submit and correct claims, and enough information to compare what a plan offers with the relevant alternatives. These protections can improve the quality of a decision without turning every step into litigation. The April 2026 amendment as published in the Gazette · PRS Legislative Research on creditor-initiated resolution

The strongest argument against additional process is that delay itself often harms those suppliers. A stalled company can stop buying from them long before the final court order. Requiring a tribunal hearing for every operating decision can destroy much of the advantage of an earlier restructuring. The balance is to identify the decisions where oversight has the highest value: contested admission, disposal of important assets, conflicts of interest and the treatment of different classes of creditor. Faster agreement on ordinary operating decisions makes sense when those safeguards are credible. A good process distinguishes the actions that keep the business trading from those that decide who bears the permanent loss. The April 2026 amendment as published in the Gazette

The amendment also enables rules for coordinated proceedings involving companies in a group. That could prevent a viable operating company and the entity that holds essential assets from being sold on incompatible timetables. Coordination is valuable when a joint sale preserves operating links or makes the business intelligible to bidders. Creditors lent to individual legal entities, however, and a joint process can obscure which assets secured which loan. Common information and coordination can often capture part of the benefit while preserving a transparent account of claims and recoveries by entity. The eventual rules should make clear when coordination changes the administration of a case and when it changes the distribution of value. The April 2026 amendment as published in the Gazette · PRS Legislative Research on creditor-initiated resolution

There is also a selection problem in comparing the new route with the old one. Lenders may send relatively healthy companies through the faster process and leave the hardest cases to ordinary insolvency. Higher recoveries among the first group would then partly reflect which companies entered, rather than an effect of the route. Evaluation should compare debtors with similar sector, size, days in arrears and going-concern prospects, and report cases that convert to the ordinary process along with successful ones. Otherwise a faster median for completed cases may conceal time spent by firms that tried the new route and failed to resolve. The April 2026 amendment as published in the Gazette · IBBI’s December 2025 quarterly data

Judge the reform by earlier entry and lasting recoveries

Publish the time from default to commencement, from commencement to plan approval and from approval to cash recovery. Report recovery in present-value terms alongside recoveries relative to claims and estimated liquidation value. Include the treatment of operational creditors, repeat defaults and the survival of the underlying business after restructuring, with at least a year of follow-up for resolved cases. If eligible cases begin sooner and preserve more value without shifting unexplained losses onto suppliers, the case for expanding the route strengthens. If recoveries look better only because healthier companies were selected or because plans defer payments beyond the reported dates, the evidence is weaker. The point of the shorter clock is to save a business while it can still be saved. IBBI’s December 2025 quarterly data · The April 2026 amendment as published in the Gazette