Post-IBC Workouts: How Insurance Covers (or Doesn't) Insolvent Creditors, Resolution Applicants, and Acquirers

Since the Insolvency and Bankruptcy Code, 2016 (IBC) came into force, more than 7,500 corporate insolvency resolution processes (CIRPs) have been admitted by the National Company Law Tribunal (NCLT). Of these, roughly 1,000 have resulted in approved resolution plans, over 2,800 have moved into liquidation, and the remainder are pending or have been withdrawn. Behind each of these files sit live insurance policies, contested claims, resolution professionals exposed to personal liability, and acquirers trying to price distressed assets with incomplete coverage information.

Insurance is often an afterthought in IBC proceedings, yet it touches almost every stakeholder. The corporate debtor carries property, liability, marine, cyber, and employee benefit policies that continue to run during the moratorium. Former directors face claims from creditors, the committee of creditors (CoC), and eventually the resolution applicant, often years after they left the board. The resolution professional (RP) assumes custody of the corporate debtor's affairs and personal liability for decisions taken under section 25 of the IBC. Committee of creditors members vote on commercial matters and face allegations of preferential treatment. Resolution applicants inherit a legal entity with embedded policies, run-off obligations, and unsettled claims.

For Indian underwriters, brokers, and risk managers, the IBC framework raises questions that standard policy wordings were not drafted to answer. Does the section 14 moratorium stay insurance claim proceedings? Can a resolution applicant rely on the target's existing D&O policy, or must it buy fresh cover at closing? What happens to unpaid premium during the CIRP? How do insurance recoveries flow through the section 53 waterfall? NCLT, NCLAT, and Supreme Court decisions between 2019 and 2025 have clarified some of these questions, but many remain contested. This guide examines the practical insurance implications at each stage of the IBC process and identifies the coverage issues that Indian stakeholders should pressure-test before, during, and after a CIRP.

Section 14 of the IBC imposes a moratorium upon admission of the CIRP application, prohibiting the institution or continuation of suits or proceedings against the corporate debtor. The moratorium runs for the duration of the CIRP, typically 180 days extendable to 330 days. A recurring question in the first few years of the IBC was whether this moratorium stays insurance-related proceedings.

The case law has settled into a reasonably clear position. Proceedings where the corporate debtor is being pursued for a liability (for example, a third party suing the corporate debtor for damages that would be covered under its liability policy) fall squarely within the moratorium. The third party cannot continue its suit against the corporate debtor during the moratorium, but can lodge its claim with the resolution professional under regulation 12 of the CIRP Regulations. However, proceedings brought by the corporate debtor against its insurer, to recover a claim owed under a policy, are not stayed by section 14. The Supreme Court in Power Grid Corporation of India Ltd v. Jyoti Structures Ltd (2017) held that section 14 does not bar proceedings that are beneficial to the corporate debtor. NCLAT followed this reasoning in subsequent insurance-related matters, confirming that the RP can continue prosecuting insurance claims on behalf of the corporate debtor.

The practical implication: if the corporate debtor had a property insurance claim pending against its insurer at the time of CIRP commencement, say a fire loss of INR 45 crore where the surveyor's report was contested, the RP steps into the shoes of the former management and continues the claim. The insurer cannot argue that the moratorium suspends the claim or that the CIRP admission terminates the policy. However, the insurer retains all substantive defences it would have had pre-CIRP, including breach of warranty, non-disclosure, and exclusion-based arguments.

A related issue: what about subrogation recoveries by the corporate debtor's insurer after paying a claim? Where the insurer pays a claim pre-CIRP and then seeks to subrogate against the corporate debtor's counterparties, the moratorium does not apply because the corporate debtor is not the respondent in the subrogation action. Where the insurer has paid a third party under a liability policy and seeks to recover from the corporate debtor (say, under an insured-versus-insured clause or for a defence cost advance), the moratorium applies and the insurer must lodge a claim with the RP.

Policy premium during the CIRP is treated as a cost of CIRP under section 5(13) and ranks as an insolvency resolution process cost in the section 53 waterfall. The RP has the statutory duty under section 25(2)(a) to preserve and protect the assets of the corporate debtor, which includes maintaining insurance cover. Non-payment of premium that results in lapse of cover may expose the RP to personal liability under section 70 and to claims from the CoC.

The IBC creates a new class of corporate actors (resolution professionals, members of the committee of creditors, and resolution applicants' representatives on the CoC subcommittees) whose liability exposure was not contemplated by standard Indian D&O policy wordings. Coverage gaps and ambiguities have emerged.

Resolution professionals face personal liability under several provisions. Section 70 penalises wilful concealment or default in duties. Section 208(2) imposes professional conduct obligations under the IBBI Code of Conduct. Civil suits by former promoters, homebuyers, operational creditors, and other stakeholders target RPs for allegedly breaching fiduciary duties during the CIRP. The IBBI has itself initiated disciplinary proceedings against more than 250 insolvency professionals between 2019 and 2025, with penalties ranging from warnings to suspension and cancellation of registration.

Most RPs carry [professional indemnity insurance](/glossary/professional-indemnity) specific to insolvency practitioners, typically with limits of INR 5-25 crore depending on the size of the firm and the complexity of assignments. Policy wordings in this segment have matured, with specific extensions for IBC-related claims, IBBI disciplinary proceedings, and costs of defence in NCLT and appellate forums. Premium rates for mid-complexity IP policies are in the range of 0.8-1.5% of the limit, with defence cost sublimits of 25-40% of the aggregate limit.

Committee of creditors members face a different set of risks. CoC members vote on the resolution plan, the RP's fees, and extensions of the CIRP period. Disgruntled operational creditors, homebuyers, or unsuccessful resolution applicants frequently challenge CoC decisions alleging preferential treatment or collusion. The D&O policies held by financial creditors (banks, NBFCs) often exclude claims arising from regulatory investigations, and there has been debate whether CoC representation falls within the definition of an insured capacity. Insurers have clarified in recent wordings that representation on the CoC is covered provided the individual is acting in their capacity as an officer of the financial creditor, but the position is less clear for external nominees.

Former directors of the corporate debtor face the sharpest D&O exposure. Section 66 of the IBC empowers the NCLT, on the RP's application, to direct former directors to contribute to the assets of the corporate debtor where fraudulent trading or wrongful trading is established. Section 43 (preferential transactions), section 45 (undervalued transactions), and section 49 (defrauding creditors) create additional exposures. In Anuj Jain v. Axis Bank Ltd (2020), the Supreme Court confirmed that transactions flagged under sections 43 to 51 are to be unwound in favour of the corporate debtor. NCLT orders directing individual directors to pay sums running into hundreds of crores have followed.

Former directors typically rely on three layers of protection. The run-off or tail coverage under the D&O policy in place at the time of the CIRP admission. Side A coverage, which responds where the corporate debtor cannot or will not indemnify the director (which is almost always the case post-CIRP). The corporate debtor's D&O policy purchased by the resolution applicant post-closing, which may include a specific carve-in for pre-closing acts if negotiated.

The practical issue: the D&O policy in force at the time of CIRP admission typically has an annual policy period. When the policy expires, the RP or the acquirer may not renew it because the corporate debtor no longer has the insured persons (former directors have left) or the CoC has not authorised the premium. A tail purchase (run-off cover) extends the claim notification period to six or seven years post-expiry. Tail premium is typically 125-250% of the expiring annual premium. Former directors who expect to face section 66 or similar actions should insist, as part of their departure arrangements, that the corporate debtor purchase a tail before they leave. Post-CIRP, the tail cover is often the only D&O protection they have, because the resolution applicant's new policy excludes pre-closing acts.

When an acquirer submits a resolution plan under the IBC, the eventual transfer of the corporate debtor to the resolution applicant under section 31 carries significant insurance implications. The plan approval creates a fresh starting point for the corporate debtor, but the insurance position is far from clean.

The first question is policy continuity. Unlike a share purchase transaction outside the IBC, where existing policies typically continue unaffected, IBC approved resolution plans may extinguish certain obligations and liabilities under the waterfall, creating uncertainty about whether policies remain in force. The resolution plan itself can address this. Well-drafted plans include specific provisions dealing with insurance policies, either requiring the RP to maintain cover until closing, to purchase a tail for pre-closing D&O exposures, or to transfer the existing policies to the resolution applicant at closing.

Second question: are existing policies assignable? Most Indian insurance policies contain a change of control clause that allows the insurer to terminate the policy or require re-underwriting on a change of control. Under IBC, the transfer of the corporate debtor pursuant to an approved resolution plan arguably does not trigger the change of control clause because the policyholder (the corporate debtor) remains the same legal entity. However, insurers have argued the contrary, and several disputes have gone to NCLT and civil courts. The safer course for a resolution applicant is to engage with the incumbent insurers early and to either obtain written confirmation that existing policies will continue or replace them with fresh policies effective from the closing date.

Third question: what about run-off cover for pre-closing exposures? The corporate debtor will almost certainly face tax claims, regulatory proceedings, environmental liabilities, product liability claims, and employee-related claims for acts or omissions that occurred before the CIRP or during the CIRP. The approved resolution plan typically includes a clean slate provision, supported by the Supreme Court's decision in Ghanashyam Mishra and Sons v. Edelweiss Asset Reconstruction Company (2021), which held that claims not included in the approved plan are extinguished. However, the clean slate does not cover every exposure, particularly statutory dues that were not lodged, claims from regulators, and contingent liabilities crystallising post-closing. Resolution applicants should therefore negotiate tail cover for pre-closing property, liability, and D&O policies as a specific condition in the resolution plan, with the premium included in the plan consideration.

Fourth question: fresh policies versus continued policies. In practice, many resolution applicants find it simpler to replace all policies at closing. A fresh property policy with the reinstatement value updated to reflect post-CIRP asset condition, a fresh liability stack covering the resolution applicant's directors and the newly appointed corporate debtor's board, and fresh marine, cyber, and benefit policies. The fresh-policy approach avoids disputes with incumbent insurers about continuity but sacrifices the benefit of any favourable policy terms in the existing cover.

Fifth question: section 32A immunity. Section 32A, introduced by amendment in 2020, grants the corporate debtor immunity from prosecution for offences committed prior to the commencement of the CIRP, where the resolution plan is approved and the resolution applicant is not a related party of the corporate debtor. This immunity reduces (but does not eliminate) the resolution applicant's exposure to criminal and regulatory actions for pre-closing conduct. From an insurance perspective, section 32A reduces the quantum of run-off cover that the resolution applicant may need to purchase, because the universe of potential claims is narrower than in a non-IBC acquisition.

Section 66 of the IBC empowers the NCLT to direct persons who were knowingly parties to fraudulent trading to make contributions to the assets of the corporate debtor. This provision is one of the most significant D&O exposures created by the IBC and has produced some of the largest NCLT orders against former directors.

The threshold for a section 66 order is high. The RP must establish, on application to the NCLT, that the business of the corporate debtor was carried on with intent to defraud creditors or for any fraudulent purpose, and that the respondent was knowingly a party to such conduct. The Supreme Court in Tata Consultancy Services Ltd v. Vishal Ghisulal Jain (2022) clarified the procedural requirements for such applications, and NCLAT has further refined the evidentiary standards in subsequent matters.

For D&O insurance purposes, section 66 claims raise several difficult issues. Most Indian D&O policies exclude claims arising from fraudulent or dishonest conduct, either at the outset or on a final adjudication basis. The final adjudication approach (where the exclusion only applies once a court has made a final finding of fraud, subject to exhaustion of appeals) is the standard in international D&O wordings but is only sporadically available in Indian placements. Where the outset exclusion applies, the insurer can deny defence costs from the moment a section 66 application is filed, leaving the former director to fund their defence personally.

The distinction between section 66 (fraudulent trading) and sections 43 to 49 (preferential, undervalued, or extortionate transactions) is important. Sections 43 to 49 claims do not require proof of fraudulent intent; they turn on objective criteria such as the timing of the transaction relative to the insolvency commencement date and whether the counterparty was a related party. D&O policies are more likely to cover these claims, subject to any specific exclusions for preferences and claw-backs.

Former management should check the dishonesty exclusion wording before any IBC proceeding escalates. Standard protections to negotiate include: (1) a severability clause, so that one insured's fraud does not void cover for other innocent directors; (2) final adjudication language, so that defence costs are funded until the court makes a non-appealable finding of fraud; (3) advancement of defence costs, so that defence expenses are paid as incurred; and (4) Side A DIC (difference in conditions) cover, which responds where the primary policy is denied or exhausted.

Premium impact: for companies that have either been admitted to CIRP or are considered to be at elevated insolvency risk, D&O premiums for the incumbent board and the run-off tail have increased materially since 2020. Insurers have applied loadings of 50-200% on the expiring premium for companies in the near-default zone, and for companies already in CIRP, Side A cover for former directors is available only from a narrow panel of insurers and at premiums often exceeding 5% of the limit.

Where the CIRP does not result in a resolution plan and the corporate debtor moves into liquidation, section 53 of the IBC governs the priority of distributions. Insurance proceeds received by the liquidator form part of the liquidation estate under section 36 and are distributed in accordance with the waterfall. The characterisation of insurance proceeds determines how far down the waterfall they flow before being exhausted.

Section 53 establishes the following order of priority: (1) insolvency resolution process costs and liquidation costs; (2) workmen's dues for the period of 24 months preceding the liquidation commencement date and debts owed to a secured creditor where the creditor has relinquished its security; (3) wages and unpaid dues owed to employees other than workmen for the period of 12 months preceding the liquidation commencement date; (4) financial debts owed to unsecured creditors; (5) Central and State Government dues in respect of the whole or any part of two years preceding the liquidation commencement date, and debts owed to a secured creditor following enforcement of security interest; (6) any remaining debts and dues; (7) preference shareholders; (8) equity shareholders.

Insurance proceeds ordinarily rank as general assets of the corporate debtor and flow down the waterfall. However, where a secured creditor has a specific charge over the insured asset and the policy names the secured creditor as loss payee, the proceeds may be paid directly to the secured creditor outside the waterfall, subject to the secured creditor accounting for any surplus. Where the policy has a third-party beneficiary (for example, a contingency insurance policy for a specific employee claim), the proceeds flow to the beneficiary and not to the estate.

The classification of D&O proceeds raises particular issues in liquidation. Side A proceeds paid directly to former directors for their personal defence costs and indemnifiable losses do not form part of the estate, because the corporate debtor has no entitlement to these proceeds. Side B proceeds, which reimburse the corporate debtor for indemnification paid to directors, flow into the estate. Side C proceeds, which cover the corporate debtor's own securities-related losses, form part of the estate. In IBC liquidations, Side B reimbursement is largely theoretical because the corporate debtor is unlikely to have indemnified directors post-CIRP commencement, so the practical proceeds are limited to Side A (direct to directors) and Side C (direct to the estate).

For liability policies with a deductible retained by the corporate debtor, the deductible ranks as a liquidation cost only to the extent incurred prior to liquidation. Post-liquidation, the liquidator is unlikely to pay the deductible unless recovery is assured. Where the policy has an aggregate limit shared across claims, exhaustion by pre-liquidation claims reduces the cover available for post-liquidation matters.

Reinsurance proceeds follow the direct insurance proceeds. Where the corporate debtor's insurer has reinsured the risk, the reinsurer pays the primary insurer, which then flows the proceeds to the corporate debtor (or its loss payee). The corporate debtor generally has no direct cause of action against the reinsurer under Indian law, absent a cut-through clause, though this is evolving and some IFSCA policies now include cut-through rights.

A body of case law on insurance-IBC interactions has developed between 2019 and 2025, though many questions remain unresolved. The following decisions are essential reference points for Indian insurance practitioners and IBC advisors.

In Power Grid Corporation of India Ltd v. Jyoti Structures Ltd (2017, Delhi High Court, followed by NCLAT), the court held that section 14 does not bar proceedings beneficial to the corporate debtor, establishing that insurance claim recoveries by the corporate debtor against its insurer can continue during the moratorium.

In State Bank of India v. V. Ramakrishnan (2018, Supreme Court), the Court held that the moratorium under section 14 applies to the corporate debtor and does not extend to personal guarantors. Applied to insurance, this means that individual guarantors who are also insured persons under a D&O policy cannot shelter behind the moratorium for claims against them in their personal capacity.

In Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta (2019, Supreme Court), the Court upheld the commercial wisdom of the CoC and clarified the scope of section 31 approval. The judgment confirmed that once a resolution plan is approved, it binds all stakeholders including those who did not lodge claims. This has influenced how insurance receivables and contingent insurance liabilities are treated in resolution plans.

In Ghanashyam Mishra and Sons v. Edelweiss Asset Reconstruction Company (2021, Supreme Court), the Court established the clean slate doctrine, holding that claims not included in the approved resolution plan stand extinguished. For resolution applicants, this decision significantly reduces the universe of pre-closing claims that could trigger insurance responses post-closing.

In Anuj Jain v. Axis Bank Ltd (2020, Supreme Court), the Court addressed preferential transactions under section 43, providing the framework for how NCLTs should approach claw-back applications. The decision has been cited in numerous D&O claims where insurers sought to exclude coverage on the basis of fraudulent or preferential conduct.

In Tata Consultancy Services Ltd v. Vishal Ghisulal Jain (2022, Supreme Court), the Court clarified procedural aspects of section 66 applications, impacting defence strategy for former directors facing fraudulent trading allegations and the associated D&O coverage analysis.

NCLAT has also ruled on specific insurance questions. In a 2023 matter involving a hospitality group, NCLAT held that motor insurance policies on vehicles owned by the corporate debtor must be maintained by the RP at the cost of the estate, and failure to do so exposes the RP to personal liability. In a 2024 pharma sector matter, NCLAT addressed the assignability of product liability policies and confirmed that policies follow the corporate debtor entity when transferred under an approved resolution plan, unless the policy expressly provides otherwise.

For Indian insurance practitioners advising clients on IBC matters, the key takeaway is that insurance questions in IBC contexts are increasingly being contested in NCLT and NCLAT, and policy wordings need to be drafted with specific IBC scenarios in mind. Standard change of control clauses, fraud exclusions, and premium payment provisions drafted for solvent corporate contexts may not operate as intended when the insured is in CIRP, and both insurers and insureds benefit from clearer policy language that contemplates insolvency scenarios.