Insolvency exits, settlements to get tougher after new bill

The amendment makes CoC approval mandatory for withdrawal under Section 12A of the IBC

- Priyanka Gawande & Krishna Yadav

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, tabled in the Lok Sabha on 12 August, closes a key exit route, making it harder for companies to quit insolvency proceedings for an early out-of-court settlement.

The amendment makes the Committee of Creditors' (CoC) approval mandatory for an applicant to withdraw from bankruptcy proceedings under Section 12A of the IBC.

A CoC—a group of financial creditors—is set up by the interim resolution professional (IRP) after the corporate insolvency resolution process (CIRP) is initiated. As of now, companies can withdraw the CIRP application even before the CoC is formed by securing approval from 90% of the creditors.

However, the proposed Clause 8 in Section 12A permits only the IRP to seek withdrawal—and only within a narrow window after the CoC is formed but before the first call for resolution plans. Early or late withdrawals would be barred, and the National Company Law Tribunal (NCLT) must rule within 30 days.