Group Insolvency Under the IBC and the Evolving Framework

Vikrant D. Shetty

Oct 1

10 min read

Updated: Oct 21

Group Insolvency Under IBC: IBBI Discussion Paper and International Models

The Insolvency and Bankruptcy Code, 2016 provides no statutory framework for group insolvency, so each company in a corporate group facing default must undergo a separate corporate insolvency resolution process before the National Company Law Tribunal. Tribunals and the Insolvency and Bankruptcy Board of India have nonetheless permitted procedural coordination, such as joint hearings and shared timelines, for related companies. The Board's February 2025 discussion paper proposes a fuller framework, drawing on the UNCITRAL Model Law on Enterprise Group Insolvency and comparative practice abroad. This article sets out the current position, the proposed reforms and the options available to practitioners today.

The Current Position Under the IBC

Under the existing framework, each entity in a corporate group that defaults on its financial obligations must undergo a separate CIRP. The Resolution Professionals in each proceeding are independent of each other, the Committees of Creditors are separate, and there is no statutory mechanism for joint hearings, coordinated timelines, or pooling of assets. Two CIRP proceedings involving related companies may be assigned to different Benches of the same NCLT or even to different NCLTs across the country, depending on the registered office of each corporate debtor.

This entity-by-entity approach creates several problems in practice. Inter-company claims between group entities in CIRP must be filed, adjudicated, and valued in each separate proceeding. The Resolution Professional in one entity's CIRP may lack access to information held by a related entity's RP. Resolution applicants interested in acquiring the group as a whole face practical difficulties in submitting a plan that covers multiple concurrent CIRPs with different CoC compositions, voting thresholds, and timelines.

The IBBI's Discussion Papers

The IBBI first took up the subject of group insolvency in a Discussion Paper published in 2019, which invited stakeholder comments on the feasibility and design of a group insolvency framework. The paper surveyed international approaches and identified the core issues: substantive consolidation (where the assets and liabilities of related entities are pooled), procedural coordination (where proceedings remain separate but are managed together), and a hybrid approach combining elements of both.

A second and more detailed Discussion Paper was published by the IBBI in February 2025, building on the findings of the Cross-Border Insolvency Rules/Regulations Committee (CBIRC), which submitted its second report on enterprise group insolvency in December 2021. The 2025 paper drew on the UNCITRAL Model Law on Enterprise Group Insolvency and identified specific legislative amendments that would be needed to operationalise group insolvency within the IBC framework.

International Models

UNCITRAL Model Law on Enterprise Group Insolvency

The UNCITRAL Model Law on Enterprise Group Insolvency, adopted in 2019, provides a framework for coordinating insolvency proceedings of multiple members of the same enterprise group. Key features include: the appointment of a group representative (a single insolvency practitioner with coordinating authority across the group proceedings); procedural coordination mechanisms including joint hearings and shared information; provisions for a group insolvency solution (a plan addressing multiple entities together); and safeguards to ensure that coordination does not prejudice the interests of creditors of individual group members.

The Lehman Brothers Experience

The collapse of the Lehman Brothers group in September 2008 involved approximately 2,985 legal entities across more than 50 countries. The absence of a coordinated international group insolvency framework meant that separate proceedings were opened in the United States (under Chapter 11 of the US Bankruptcy Code), the United Kingdom, and numerous other jurisdictions, with each court applying its own national insolvency law. Cross-border coordination was achieved through protocols agreed between the administrators in different jurisdictions, but this process was ad hoc and costly.

The Lehman experience accelerated international debate on the need for a more systematic framework for enterprise group insolvency, contributing to the work that eventually produced the UNCITRAL Model Law. India has not yet adopted any UNCITRAL insolvency model law, though the Ministry of Corporate Affairs constituted a committee in 2016 to consider cross-border insolvency reforms.

How Do the United States and the European Union Approach Group Insolvency?

The United States Bankruptcy Code allows related debtors to file jointly and permits substantive consolidation in appropriate cases where the assets and liabilities of related entities are so commingled that separation is impractical or harmful to creditors. The European Union's Insolvency Regulation (Recast), which entered into force in 2017, provides a coordination framework for insolvency proceedings of companies belonging to a corporate group, including the possibility of appointing a coordination judge, opening coordination proceedings, and proposing a group coordination plan.

What Design Questions Must India's Group Insolvency Framework Answer?

Any group insolvency framework for India would need to address: (a) the definition of 'group' and the threshold for bringing entities within the framework; (b) whether to permit substantive consolidation of assets and liabilities or only procedural coordination; (c) how to handle conflicts of interest between group entities (one entity may be a creditor of another); (d) the role of the IBBI and NCLT in facilitating coordination; and (e) cross-border dimensions, since many large Indian corporate groups have overseas subsidiaries or parents.

The IBBI's 2025 Discussion Paper specifically flagged the tension between group coordination and creditor rights protection. Creditors of a solvent subsidiary, for example, should not be prejudiced by substantive consolidation with an insolvent parent. The paper recommended a procedural coordination model as the starting point, with substantive consolidation available only in exceptional circumstances with court approval.

Implications for Practitioners

In the absence of a statutory group insolvency framework, practitioners handling concurrent CIRPs of related entities must manage coordination informally. Resolution Professionals may cooperate voluntarily on information sharing. Lenders with exposure to multiple group entities should file claims in each separate CIRP and engage in each CoC independently. Resolution applicants interested in group acquisitions should structure bids to address each CIRP separately, while negotiating for simultaneous or sequenced approvals from the respective NCLTs.

The Objective That Drives Group Insolvency

Group insolvency has no comprehensive statutory code in India yet, and the subject has been developed through an IBBI discussion paper and through decisions of the tribunals, but the guiding star remains the object of the Code that the Supreme Court identified in Swiss Ribbons (P) Ltd. v. Union of India [(2019) 4 SCC 17], namely the maximisation of value and the revival of the corporate debtor. Where a business is run across several interlinked companies, resolving each in isolation can destroy value that a coordinated approach would preserve, and it is this value-maximising objective that has driven tribunals and the regulator to develop tools for dealing with corporate groups even in the absence of a dedicated statutory framework.

Why Do Corporate Groups Create Distinct Insolvency Problems?

Corporate groups pose distinctive difficulties in insolvency because assets, operations, guarantees, and financing are frequently entangled across multiple entities. A single business may be spread over several companies that share assets, guarantee each other's borrowings, and depend on one another for supplies and services, so that the insolvency of one reverberates through the rest. Resolving such companies separately can lead to inconsistent outcomes, duplicated costs, and the break-up of what is in substance a single enterprise. Recognising these interdependencies is the first step, and it is why creditors and professionals increasingly look for ways to deal with the group as a whole rather than treating each company as an island.

The Tools and the Evolving Framework

In the absence of a full statutory regime, two broad tools have emerged. Procedural coordination allows the insolvencies of related companies to be administered together, for example before the same bench and with coordinated timelines, so that information is shared and the process is more efficient, while each company's estate remains distinct. Substantive consolidation, a more far-reaching measure by which the assets and liabilities of group companies are pooled, has been applied by tribunals only in exceptional cases where the affairs of the companies are so intertwined that separation is impractical or unjust. As the discussion around a dedicated group-insolvency framework continues, parties should expect coordination to be the norm and consolidation to remain exceptional, and should structure their approach accordingly.

Until a comprehensive statutory framework is enacted, group insolvency in India will continue to be handled pragmatically, case by case, with tribunals drawing on the value-maximisation objective of the Code to coordinate related insolvencies and, in rare cases, to consolidate them. Creditors dealing with a corporate group should map the interdependencies early and press for coordination where it will preserve value.

Frequently Asked Questions

Does the IBC currently allow group insolvency proceedings?

No. The IBC does not provide a statutory mechanism for group insolvency. Each entity in a corporate group must undergo a separate CIRP, with an independent Resolution Professional and Committee of Creditors.

What is the IBBI's current proposal on group insolvency?

The IBBI's Discussion Paper of February 2025 proposes a procedural coordination model based on the UNCITRAL Model Law on Enterprise Group Insolvency. It recommends legislative amendments to the IBC to enable joint hearings, shared information, and a group insolvency solution without mandating substantive consolidation.

Can assets of one group company be used to pay creditors of another in the current framework?

Not without court approval. Inter-company claims must be filed in each entity's CIRP and ranked according to the applicable waterfall. The assets of a solvent subsidiary cannot be simply transferred to pay creditors of an insolvent parent without separate legal proceedings.

How are inter-company claims treated in concurrent CIRPs?

Inter-company claims are filed in each relevant CIRP as financial or operational debts, depending on their nature. They are subject to the same claim admission process as third-party claims and rank according to the Section 53 waterfall.

What is substantive consolidation and does India allow it?

Substantive consolidation is the pooling of assets and liabilities of multiple related entities into a single estate for distribution to all creditors. India does not currently have a statutory basis for substantive consolidation under the IBC.

What lessons does the Lehman Brothers case hold for India's group insolvency framework?

Lehman demonstrated the cost and inefficiency of entity-by-entity insolvency proceedings across a complex group. Coordination protocols can be agreed ad hoc but are time-consuming and contentious. A pre-agreed statutory framework reduces uncertainty, lowers transaction costs, and produces better outcomes for creditors.

Which NCLT bench hears the insolvency of a group company, and can related companies be heard together?

Each company in a corporate group is assigned to the National Company Law Tribunal bench with territorial jurisdiction over its registered office, so companies incorporated in different states can end up before different benches even when they belong to the same group. There is no statutory rule requiring a single group bench. In practice, tribunals have sometimes directed joint hearings or a common Resolution Professional across related company insolvencies where doing so serves the objective of value maximisation, but this remains a case-by-case exercise of discretion rather than an entitlement.

What is a group representative under the UNCITRAL Model Law on Enterprise Group Insolvency?

A group representative is a single insolvency practitioner, drawn from one member's proceeding, who is given authority to act for coordination purposes across the insolvencies of the whole enterprise group. The role exists to give the group a single point of contact for communicating with courts and creditors in different jurisdictions and to streamline procedural coordination. India has not adopted the UNCITRAL Model Law on Enterprise Group Insolvency, so the concept of a group representative currently has no equivalent under the Insolvency and Bankruptcy Code, 2016.

What did the Cross-Border Insolvency Rules/Regulations Committee recommend on group insolvency?

The Cross-Border Insolvency Rules/Regulations Committee, known as the CBIRC, submitted its second report on enterprise group insolvency in December 2021. Its findings fed directly into the Insolvency and Bankruptcy Board of India's more detailed discussion paper published in February 2025, which drew on the CBIRC's work and on the UNCITRAL Model Law to identify the specific legislative amendments that would be needed to operationalise a group insolvency framework within the Code.

Can creditors of a solvent group company object to being drawn into a coordinated insolvency process?

Yes. The Insolvency and Bankruptcy Board of India's 2025 discussion paper specifically flagged the risk that creditors of a solvent subsidiary could be prejudiced if its assets were pooled with those of an insolvent parent through substantive consolidation. For this reason, the paper recommends procedural coordination, which keeps each company's estate legally distinct, as the default model, and proposes that substantive consolidation be available only in exceptional cases with the tribunal's approval and appropriate safeguards for such creditors.

Does procedural coordination require the separate committees of creditors of each group company to merge?

No. Procedural coordination allows related insolvencies to be administered together, for example before a common bench and on aligned timelines, with information shared between Resolution Professionals, but it does not merge the Committees of Creditors. Each company's committee continues to vote separately on matters concerning that company, including on its own resolution plan, because procedural coordination is designed to improve efficiency and information flow without displacing the separate legal identity and creditor rights of each entity in the group.

How does India's group insolvency proposal address cross-border aspects?

The Insolvency and Bankruptcy Board of India's 2025 discussion paper identifies cross-border coordination as one of the design questions a framework must answer, since many large Indian corporate groups have overseas subsidiaries or parent companies. India has not yet notified a cross-border insolvency framework based on the UNCITRAL Model Law on Cross-Border Insolvency, and the paper contemplates that any domestic group insolvency mechanism would eventually need to interact with whatever cross-border regime is ultimately adopted.

What practical steps can a resolution professional take today to coordinate related insolvencies without a statutory framework?

In the absence of a statutory group insolvency framework, a Resolution Professional can request the National Company Law Tribunal to direct joint hearings or aligned timelines with the Resolution Professional of a related company, share information voluntarily where confidentiality permits, and flag inter-company claims early so they can be filed and adjudicated consistently across the separate proceedings. Lenders with exposure across a group should likewise file claims in each corporate insolvency resolution process and engage with each Committee of Creditors independently until a formal coordination mechanism exists.

What triggered the Ministry of Corporate Affairs to examine cross-border insolvency reform in India?

The Ministry of Corporate Affairs constituted a committee in 2016 to examine cross-border insolvency reform, reflecting the recognition that Indian companies with overseas operations, or foreign companies with Indian assets, needed a coordinated mechanism when insolvency proceedings arose in more than one country. That work has informed subsequent discussion of both cross-border and group insolvency, since a corporate group with entities incorporated in different countries raises both issues at once, though neither a cross-border nor a group insolvency framework has yet been enacted.