IBBI proposes ‘mini group insolvency’ to streamline resolution of interconnected entities

In a major step toward improving the insolvency resolution framework, the Insolvency and Bankruptcy Board of India (IBBI) has proposed a mechanism for better coordination of the Corporate Insolvency Resolution Process (CIRP) for interconnected entities.

A discussion paper released by the regulator highlights the inefficiencies, escalated costs and conflicts arising from the absence of a structured approach when multiple related entities undergo CIRP simultaneously. The proposed amendments seek to introduce joint hearings, appointment of a common resolution professional, information-sharing protocols and coordinated timelines to enhance efficiency and value realisation.

This initiative is being viewed as a “mini group insolvency” mechanism, laying the groundwork for a more comprehensive group insolvency framework under the Insolvency and Bankruptcy Code (IBC). Recent judicial precedents in cases such as Videocon Industries and SREI Infrastructure Finance have underscored the need for a more sophisticated approach to handling interconnected corporate entities.

“The provisions on coordinated insolvency resolution for interconnected entities serve as a preamble to the full-fledged group insolvency framework. Additionally, allowing interim finance providers in the Committee of Creditors (CoC) as observers and enabling part-wise resolution of corporate debtors will generate more interest and participation, driving successful resolutions,” Hari Hara Mishra, CEO of the Association of ARCs in India, said.

Lacking coordinated mechanisms

Anjali Jain, Partner at Areness Law, pointed out that the IBC in its current form lacks coordination mechanisms for group companies, often disregarding the synergies of interconnected assets. “The proposals for joint hearings, a common resolution professional and coordinated timelines are progressive steps that can help companies monetise underlying values more effectively,” she noted.

The discussion paper outlines eleven proposals aimed at improving the efficiency, transparency and effectiveness of CIRP, including provisions for managing essential services and streamlining resolution plan submissions. The IBBI has invited public comments on these proposals until February 25.

The proposed mechanism for Coordinated Insolvency Resolution for Interconnected Entities includes provisions for joint hearings; appointment of a common resolution professional; information sharing protocols and coordinated timelines.

In another decision, IBBI has also decided to allow resolution plans for part-wise resolution of corporate debtor.