17/08/2026
Professional LinkedIn Post | Insolvency & Bankruptcy Code (IBC)
The Insolvency and Bankruptcy Board of India (IBBI) has proposed tighter checks on Insolvency Professionals (IPs) to prevent the misuse of the Corporate Insolvency Resolution Process (CIRP).
The proposed safeguards are aimed at ensuring that CIRP is used strictly for genuine insolvency resolution and not as a mechanism to settle disputes, dilute liabilities, close or merge companies without appropriate scrutiny, or avoid investigations and prosecution.
Key areas highlighted by IBBI include:
IPs should examine qualified audit reports and investigate material weaknesses in controls or related-party transactions.
Greater scrutiny is proposed where a debt is assigned shortly before insolvency proceedings, particularly where a single creditor subsequently exercises significant influence over the Committee of Creditors (CoC).
Investments, loans and advances involving related or group entities require enhanced diligence, especially where there are concerns regarding diversion or fraudulent use of funds.
IBBI has flagged lender concentration around the initiation of CIRP as a potential red flag.
Other warning signs include significant transactions involving related/group entities, common promoters or directors across connected companies, difficulties in verifying assets, and limited cooperation from bidders.
IPs are expected to examine connected companies and group entities around the time of CIRP initiation and assess whether transactions or structures indicate possible misuse.
Professional Takeaway
The proposed guidance reinforces a broader regulatory message: insolvency professionals, lenders, creditors and management must exercise heightened diligence when initiating or participating in CIRP. Transactions involving related parties, connected entities, recent debt assignments and concentrated creditor influence may receive closer regulatory attention.
For businesses and stakeholders, strong documentation, transparent governance, independent verification of transactions and robust compliance controls will become increasingly important in reducing regulatory and insolvency-related risks.
As India’s insolvency framework continues to evolve, proactive compliance and responsible use of the IBC will be critical for maintaining stakeholder confidence and protecting the integrity of the resolution process.
Source: News report/image provided by the user, dated 16 August. This LinkedIn post is a professionally edited summary and does not reproduce the article verbatim.
