The government introduced the Insolvency and Prevention Code (Amendment) Bill, 2025 in Parliament this week. Its implementation will improve the insolvency process. Experts say that this will take less time for the solution and the process will be more transparent. The bill has been sent to the Select Committee of Parliament for consideration. Let us know what changes will come after this bill is passed.
IBBI clarification will now take the form of law
Experts say that upcoming changes can be divided into three categories. The first change will be related to the explanations that have been introduced by the Indian Insolvency and Recognition Board (IBBI) through rules and now they are being given the form of law. The second change is being made to reduce the time taken in the insolvency process. The third change can affect the rights of stakeholders.
The Supreme Court’s decision in the 2022 Rainbow Papers case will be overturned
The most prominent amendment is the proposed explanation related to Section 3 (31). Its purpose is to reverse the Supreme Court’s decision in the 2022 Rainbow Papers case. It is known as State Tax Officer vs. Rainbow Papers Limited (2022). It was decided that government authorities could be considered as ‘safe creditors’ under IBC.
Safe creditors will always be given high priority
Safe creditors are mainly considered banks. They have interest in the assets of the loan company. Their debt is supported by the collateral. This gives them a legal claim on any asset or specific assets. Safe creditors are given high location in priority. This means that safe creditors have authority over the money received on selling the company’s assets.
Priority below banks
In terms of priority, the government dues are placed below banks. If due to any law, the claim of the government authority is kept equal to the claim of safe creditors, then both will get the same priority during liquidation. The Supreme Court gave a decision in this regard in 2022. It has been changed through this amendment bill.
Commercial debt structure will be strong
It has been said in this bill that even if there is no arrears on the government and it is safe, it will not get priority. Nor will it be considered safe under IBC. Rahil Patel, partner of Gandhi Law Associates, said that it has made it clear that the government’s claim will not automatically come equal to safe creditors in the course of recovery. This will strengthen the commercial debt structure.
No action against the company during stay
The bill also includes a proposal to amend Section 14 of the IBC. This section relates to adjournment. It is a quiet period that is declared when a company or corporate debt is entered into a corporate insolvency solution process (CIRP). During adjournment, no one can sue the company, sell its assets or take any legal action against him.
