Liquidation Reformed explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The IBC (Amendment) Act, 2026 restructures liquidation: the liquidator is appointed by the Adjudicating Authority with CoC replacement rights, the CIRP CoC continues into liquidation with enhanced supervisory powers, the relinquishment notice period falls from 30 to 14 days, a 66% consent threshold applies for non-relinquishment where there are multiple security holders, and CIRP costs are deducted before distribution to non-relinquishing secured creditors under section 52(8).
Why liquidation was reopened
The reforms rest on a decade of evidence that recovery under liquidation has been poor. The amendment's response is structural rather than cosmetic — it changes who appoints the liquidator, who supervises them, and how secured creditors interact with the estate.
1. Appointment moves to the Adjudicating Authority
| Point | Before | After the 2026 amendment |
|---|---|---|
| Liquidator appointment | CoC recommendation | Direct appointment by the Adjudicating Authority |
| CoC role | Recommends | Retains replacement rights |
| Selection driver | Lender preference | Institutional selection mechanism |
ICAI's observation on the practical consequence: liquidator assignments will follow an institutional selection mechanism rather than being driven solely by lender preferences, which opens the work to professionals empanelled with NCLTs or IBBI. The same principle appears elsewhere in the amendment — under section 10, the IRP is appointed by the Adjudicating Authority and shall not be recommended by the corporate applicant.
2. The CoC continues into liquidation
The same CoC that oversaw the CIRP continues into liquidation, with enhanced supervisory powers. The rationale is institutional continuity: the creditors whose capital is at stake remain engaged in protecting their interests through the realisation process, rather than handing the estate to a process they no longer participate in.
3. The relinquishment changes — four of them
Section 52 gives a secured creditor the choice between relinquishing its security to the liquidation estate and realising it outside. Four changes:
| Change | Position |
|---|---|
| Notice period | Reduced from 30 days to 14 days |
| Multiple security holders | A 66% consent threshold applies for non-relinquishment |
| Value cap | Relinquishment value is capped to the extent of the security value; the unsecured portion falls under the section 53 waterfall |
| CIRP costs | CIRP costs, including liquidator fees, must be deducted before realisation proceeds are distributed to non-relinquishing secured creditors under section 52(8) |
The 66% threshold means a minority security holder can no longer unilaterally stay outside the estate where a charge is shared — the decision is now collective.
The section 52(8) cost deduction settles a long-running dispute. A secured creditor realising outside the estate previously argued it should bear no share of process costs. Under the amendment, CIRP costs including liquidator fees come off before it is paid. Any recovery model built on gross realisation from a charged asset now overstates the outcome.
The value cap is the third quiet change: a creditor whose debt exceeds the value of its security cannot relinquish the whole claim into the estate at face value. The excess is unsecured and takes its place in the section 53 waterfall.
4. The CIRP restart safety valve — section 33(1A)
The amendment introduces flexibility to restart the CIRP during liquidation for a limited period where a viable resolution plan emerges. ICAI describes it as "an important safety valve against premature value destruction", reinforcing the Code's preference for resolution over liquidation wherever revival remains feasible.
The mechanics are in the newly inserted section 33(1A) — Restoration of CIRP, as set out in ICAI's Background Material (Revised July 2026):
| Element | Position |
|---|---|
| Who applies | The Committee of Creditors, after a liquidation order has been passed |
| Approval required | CoC approval by not less than 66% voting share |
| What the Adjudicating Authority may do | Restore the CIRP for a period of up to 120 days |
| How often | Once only |
| Operationalised by | Regulation 40F, IBBI CIRP (Third Amendment) Regulations, 2026 |
All three limits matter. A restoration application is not repeatable, so it should be made when a plan is genuinely deliverable rather than to buy time. And 120 days is the whole restored window — the plan has to be capable of being received, evaluated, approved and filed inside it.
It also pairs with the narrowed section 12A withdrawal window: if withdrawal is closed after the Request for Resolution Plans issues, and no viable plan is received, the restart facility ensures the process is not forced into liquidation prematurely while a genuine revival opportunity exists.
What changes in practice
- For secured creditors — the relinquish-or-realise decision must be made in 14 days, collectively where the charge is shared, and modelled net of CIRP costs.
- For liquidators — appointment now flows from tribunal or IBBI empanelment; and the CoC that supervised the CIRP is still there, with more power.
- For resolution applicants — a liquidation order is no longer necessarily the end; a viable plan emerging during liquidation has a statutory route back.
- For CoC members — engagement does not end at the liquidation order.
Compliance checklist
- Diarise the 14-day relinquishment window from the notice.
- Where security is shared, obtain 66% consent before assuming non-relinquishment.
- Model recoveries net of CIRP costs and liquidator fees under section 52(8).
- Split the claim at security value and route the excess through the section 53 waterfall.
- For IPs, maintain NCLT and IBBI empanelment — that is now the route to liquidator appointments.
- Keep the CoC engaged post-liquidation order; its supervisory role continues.
- Where a viable plan emerges in liquidation, evaluate the CIRP restart route promptly — it is time-limited.
Common mistakes
- Working to the old 30-day relinquishment period.
- A minority security holder assuming it can stay out unilaterally.
- Modelling secured recovery gross of CIRP costs.
- Relinquishing the full claim where it exceeds security value.
- Treating the liquidation order as final when a plan is still achievable.
- Assuming CoC recommendation still determines the liquidator.