Restructuring, Distressed Deals and Exits
Two of the frameworks on this page were replaced or extensively amended within the last ten months, and the tax treatment of one common exit route changed for the second time in eighteen months. This is the area where content written from settled knowledge is most likely to be wrong.
- Resolution outside insolvency, under directions issued in November 2025
- The Insolvency and Bankruptcy Code as amended in April 2026
- Carve-outs and divestitures
- Buyback, and the treatment that reversed on 1 April 2026
- Capital gains on an exit, labelled by Act and year
Resolution under the Reserve Bank's directions, which are not the 2019 ones
Most stress is resolved outside the insolvency framework, under the Reserve Bank's prudential regime. That regime changed. The Prudential Framework for Resolution of Stressed Assets of 7 June 2019 is no longer the operative instrument. It has been superseded by the Reserve Bank of India (Commercial Banks, Resolution of Stressed Assets) Directions, 2025, reference RBI/DOR/2025-26/165, dated 28 November 2025 and updated on 1 July 2026, with parallel directions issued the same day for small finance banks, regional rural banks, urban and rural co-operative banks, local area banks, non-banking financial companies and all India financial institutions. We say superseded rather than repealed because Chapter XI of the 2025 Directions, headed repeal and saving, could not be read. The architecture carries over, which is why the change is easy to miss: a review period of thirty days from default, an inter-creditor agreement binding at seventy-five per cent by value and sixty per cent of signatories by number, and implementation of a resolution plan within a hundred and eighty days of the end of the review period, with additional provisioning if that is missed.
For a borrower, the practical consequence is that the thirty day review period is the window in which a resolution is cheapest to arrange, and it starts at default rather than at the point anyone starts negotiating.
An extensively amended Code, and the part of it that is not yet in force
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 is Act No. 6 of 2026 and received assent on 6 April 2026. It commences on such date as the Central Government appoints by notification, with power to appoint different dates for different provisions. The amendment is far larger than the abolition of the fast-track route it is usually described by.
| What the 2026 Amendment Act does | Detail |
|---|---|
| Omits the fast-track process | Chapter IV, sections 55 to 58, omitted. Also omits sections 38 to 42, section 74 and section 76 |
| Inserts a creditor-initiated resolution process | New Chapter IV-A, sections 58A to 58K: initiation by a financial creditor at 51 per cent, debtor objection within 30 days, completion in 150 days extendable once by 45, conversion to the standard process on failure, withdrawal of the public announcement at 90 per cent |
| Inserts a group insolvency framework | New Chapter VA: common bench, coordination between committees of creditors and professionals, a common professional, and binding group coordination agreements |
| Tightens timelines | Admission decision under section 7 in 14 days with reasons recorded if missed; a new section 31(2A) requiring the adjudicating authority to decide on a resolution plan within 30 days; a liquidation order within 30 days under a new section 33(2A) |
| Changes withdrawal | Section 12A substituted: withdrawal at 90 per cent of committee voting share, and no withdrawal before the committee is constituted or after resolution plans are invited |
| Protects a resolution applicant | New sub-sections in section 31 protecting licences and permits and extinguishing pre-approval claims |
| Allows restoration before liquidation | New section 33(1A) and (1B) permitting a one-time restoration of the resolution process before liquidation |
| Separates the professional roles | The resolution professional may no longer become the liquidator. A new section 34A lets the committee replace the liquidator at 66 per cent |
| Lowers the pre-packaged thresholds | Approval thresholds in the pre-packaged process for micro, small and medium enterprises cut from 66 per cent to 51 per cent |
| Raises penalties | Disciplinary penalty cap raised from 1 crore to 2 crore rupees; a substituted section 235A of not less than 1 lakh rupees per day up to three times the loss or gain, capped at 5 crore rupees where unquantifiable; a new section 183A penalty for frivolous proceedings |
Source: the gazette text of the Insolvency and Bankruptcy Code (Amendment) Act, 2026, hosted by the Insolvency and Bankruptcy Board of India, read 1 September 2026.
Two things about the Amendment Act are widely stated and are not correct, and both matter to anyone planning around it. The first is cross-border insolvency. Section 71 of the Amendment Act inserts section 240B, empowering the Central Government to provide an electronic portal, and section 240C, empowering it to prescribe rules for cross-border insolvency proceedings, including recognition of foreign proceedings, relief, judicial cooperation, assistance and coordination. Section 240C is more than an ordinary rule-making power, but it is an enabling provision rather than a working framework: it needs commencement, rules and the relevant notifications before anything happens under it. The Act does not itself introduce an operative cross-border insolvency regime, and should not be described as having done so. Group insolvency is enabled separately, by a new section 59A.
The second is what is actually in force. Commencement was effected by S.O. 2625(E) dated 22 May 2026, which appointed 26 May 2026 for a long list of the Amendment Act's own sections. The date 26 May belongs to the commencement, not to the notification. What that notification leaves out is the point: it omits amendment section 42, which inserts the group insolvency provision, and amendment section 71, which inserts sections 240B and 240C. Neither had been brought into force as at 18 September 2026, so neither the electronic portal provision nor the cross-border enabling provision is presently operative. Amendment section 40, which inserts the creditor-initiated process described in the table above, was also excluded and has not commenced.
Who may submit a resolution plan is governed by section 29A, which the 2026 Amendment Act did not change. It disqualifies a person, anyone acting jointly or in concert with that person, and in one case a connected person, who is an undischarged insolvent; a wilful defaulter under the Reserve Bank's guidelines; a person with an account, or an account of a corporate debtor under that person's management or control or of which that person is a promoter, classified as a non-performing asset for at least a year before the insolvency commencement date; a person convicted of an offence punishable with two years or more under an Act in the Twelfth Schedule or seven years or more under any other law; a person disqualified from acting as a director; a person barred by the securities regulator from trading in securities or accessing the securities market; a promoter or controller of a corporate debtor in which a preferential, undervalued, extortionate credit or fraudulent transaction occurred and an order has been made; a guarantor whose guarantee for a corporate debtor in insolvency has been invoked and remains unpaid; a person under a corresponding disability abroad; and a person having a connected person who is ineligible on any of those grounds.
The exceptions are where the work is. The non-performing asset bar can be cured by paying all overdue amounts with interest and charges before the plan is submitted, and it generally does not apply to a resolution applicant that is a financial entity and not a related party of the corporate debtor. The conviction bar falls away two years after release. The avoidance-transaction bar does not catch a transaction that predates the applicant's own acquisition of the debtor under an approved plan or scheme, provided the applicant did not contribute to it. And for a micro, small or medium enterprise, section 240A disapplies the non-performing asset and invoked-guarantee grounds, leaving the rest. The Amendment Act extends the existing section 29A test to the proposed creditor-initiated process through a new section 58E(1)(c), but that is an extension of the test, not a change to the grounds, and it is one of the provisions that has not commenced.
Separating a business that was never separate
A carve-out is a divestiture of something that is not currently a standalone business, and the difficulty is rarely the transaction. It is establishing what the business being sold actually is. Shared functions, shared contracts, shared systems, shared people and shared premises all have to be allocated, and each allocation is a judgement that affects the reported profitability of what is being sold.
Carve-out financial information is therefore prepared rather than extracted, and the basis of preparation is as important as the numbers. A buyer will test the standalone cost assumptions hard, because the seller has an incentive to allocate cost away from the business being sold. Transitional service arrangements bridge the gap after completion, and their pricing and duration are a negotiation in their own right rather than an afterthought.
The structure will usually be a slump sale or a scheme, for the reasons in guide 1, and the employee transfer question is the one that most often determines the timetable.
The treatment that reversed on 1 April 2026
This is the single most likely thing on these pages to be stated wrongly elsewhere, because the position changed twice in eighteen months and each change was widely written up as permanent.
From 1 October 2024, buyback proceeds were taxed as a deemed dividend in the shareholder's hands and the company-level buyback distribution tax was removed. That is the correct position for financial year 2024-25 and financial year 2025-26. It is not the position for tax year 2026-27. In the Income-tax Act, 2025 as amended by the Finance Act, 2026, sub-clause (f) of the definition of dividend in section 2(40), which covered a payment by a company on the purchase of its own shares, is omitted with effect from 1 April 2026. With that sub-clause gone, buyback reverts to capital gains treatment in the shareholder's hands from that date, with the cost of acquisition recognised.
A promoter-specific charge came in alongside the reversal, and the numbers quoted for it in commentary look contradictory only because two different things are being quoted. Section 42 of the Finance Act, 2026 substitutes section 69(2) and (3) of the Income-tax Act, 2025, and applies from 1 April 2026. Where a buyback under section 68 of the Companies Act, 2013 is made from a promoter, the statute imposes an additional income tax on the gain, on top of the ordinary capital gains rate.
| The gain on the buyback | Promoter is a domestic company | Promoter is not a domestic company |
|---|---|---|
| Short-term capital gain under section 196 | 2 per cent additional tax, giving 22 per cent in total | 10 per cent additional tax, giving 30 per cent in total |
| Long-term capital gain under section 197 or 198 | 9.5 per cent additional tax, giving 22 per cent in total | 17.5 per cent additional tax, giving 30 per cent in total |
Section 69 of the Income-tax Act, 2025 as substituted by section 42 of the Finance Act, 2026. Confirmed by our subject matter expert on 17 September 2026. The 22 and 30 per cent figures are headline aggregates before surcharge and cess: the additional tax itself carries a 12 per cent surcharge, and the ordinary capital gains component carries whatever surcharge applies to that taxpayer, so neither is a final effective rate.
Who counts as a promoter for this charge is defined and the definition is wider than it looks. For a company listed on a recognised stock exchange in India it is the meaning in regulation 2(k) of the buy-back regulations. In any other case, including an unlisted company, it is either a promoter within section 2(69) of the Companies Act, 2013 or a person holding, directly or indirectly, more than ten per cent of the shareholding. The threshold is more than ten per cent, not ten per cent or more. The charge is confined to a purchase of its own shares or specified securities made in accordance with section 68, and should not be stretched to every redemption, capital reduction or other transaction that looks economically like a buyback.
The Companies Act limits sit alongside the tax. A buyback authorised by the board alone is limited to ten per cent of paid-up equity capital and free reserves. Anything larger needs a special resolution, which under section 114 means votes in favour of at least three times the votes against. In every case the buyback may not exceed twenty-five per cent of aggregate paid-up capital and free reserves, and a buyback of equity shares is separately capped at twenty-five per cent of total paid-up equity capital in that financial year. Those two twenty-five per cent tests are frequently collapsed into one and they are not the same test: the denominators differ and both have to be satisfied. After the buyback, aggregate secured and unsecured debt must not exceed twice paid-up capital and free reserves, a ratio of two to one, unless the company falls within a class for which a higher ratio has been specifically notified.
The rest of section 68 is procedural but binding: the articles must authorise the buyback, only fully paid-up shares or specified securities may be bought back, the buyback must be completed within one year of the board or special resolution, and a new offer cannot be made within one year after the close of the previous one. A listed company complies with the buy-back regulations in addition; an unlisted one follows the prescribed rules under the Act.
Holding periods and rates, by section number in the 2025 Act
Under the Income-tax Act, 2025, a short-term capital asset is one held for not more than twenty-four months immediately preceding the transfer, reduced to twelve months for a security listed on a recognised stock exchange in India, units of the Unit Trust of India, units of an equity-oriented fund and zero coupon bonds. That definition was read at source and is the boundary that decides which rate applies.
The rates, and the sections they now sit in, are set out below for tax year 2026-27.
| The share and the gain | Provision of the Income-tax Act, 2025 | Base rate |
|---|---|---|
| Short-term gain on a listed equity share where the sale is chargeable to securities transaction tax | Section 196 | 20 per cent |
| Long-term gain on a listed equity share meeting the acquisition and transfer securities transaction tax conditions | Section 198 | 12.5 per cent on aggregate qualifying gains above 1.25 lakh rupees |
| Long-term gain on listed shares outside section 198 | Section 197 | 12.5 per cent |
| Long-term gain on unlisted shares | Section 197 | 12.5 per cent |
| Short-term gain on unlisted shares, or on listed shares outside section 196 | No special capital gains rate provision | The ordinary rate applicable to that taxpayer |
Confirmed by our subject matter expert on 17 September 2026 against the department's own text of sections 196, 197 and 198. Surcharge and health and education cess apply in addition to every base rate shown.
Four qualifications belong with that table. The 1.25 lakh rupee threshold belongs only to section 198: it is an annual aggregate for qualifying long-term gains, not a general exemption for share gains and not a per-transaction allowance. Listed status alone does not get a gain into section 196 or section 198, because section 196 generally requires securities transaction tax on the sale and section 198 generally requires it on both acquisition and transfer, subject to the prescribed exceptions. For a non-resident or a foreign company disposing of unlisted securities or shares of a closely held company, section 197(4) supplies the special computation rule without the foreign currency adjustment, and the base long-term rate is still 12.5 per cent. And a resident individual or Hindu undivided family may set any unabsorbed basic exemption limit against these gains, which is separate from the fixed section 198 threshold.
These are the baseline rules. The promoter-specific charge on a buyback, above, is additional to them and is worked out separately.
Two general points on exit tax. First, the structure decides the tax, and it is decided at the start of the transaction rather than at the end, which is why guide 1 comes first. Second, any transaction straddling 1 April 2026 has two tax regimes applying to different parts of the same financial year, and every figure in the model has to be labelled with which Act and which year it belongs to.
One provision worth knowing by its new number: the charge on receipt of property for no or inadequate consideration, which was section 56(2)(x) of the 1961 Act, is section 92(2)(m) of the 2025 Act, with the exclusions in section 92(3). It is verified, and it bites on transactions priced below fair value more often than parties expect.
Questions about restructuring and exit
Is a buyback better than a dividend now?
It depends on the year and on who the shareholder is, and after two reversals in eighteen months it is not a question to answer from memory. The position for tax year 2026-27 differs from the position for the two years before it, and a promoter-specific additional tax now sits on top of the ordinary rate.
When is it too late to restructure outside insolvency?
Later than most boards assume and earlier than most act. The Reserve Bank's review period runs thirty days from default, and the resolution options available inside that window are materially wider than those available once a petition has been admitted.
Can a promoter bid for their own company in insolvency?
Usually not, and section 29A sets out why. The disqualifications and the cure, financial entity, prior-resolution and small enterprise exceptions are all set out above. The 2026 Amendment Act did not change those grounds.
Where to go next
Transaction Advisory Services
Back to the main page: what we do on a deal, how an engagement is structured, and how to reach us.
Preparing for a Transaction: Structures and Approvals
The structuring choice made before anything else, and the approval map that follows from it. Share purchase, asset purchase, slump sale, scheme of arrangement and the fast-track route that got considerably wider in 2025.
Financial and Tax Due Diligence
Quality of earnings, normalised working capital, debt and debt-like items, and the tax exposures a buyer inherits. What a diligence report is, what it is not, and how findings move price and paper.
Buy Side and Sell Side Execution
Running the process: information, term sheet, definitive agreements, warranties and indemnities, conditions precedent, completion mechanics and the integration that starts on day one rather than after it.
Fundraising: Equity, Debt and Capital Markets
Private rounds, the rewritten external commercial borrowing framework, and what changes when the route is public markets, including the tightened small and medium enterprise listing regime.
Send an enquiry
Tell us the situation and the timetable. In a stressed situation the timetable is usually set by someone else, and knowing whose clock is running is the first useful piece of analysis.
Position as at 17 September 2026. Reviewed every six months.
This page is general information, not professional advice. Transaction law and transaction tax in India both moved substantially between September 2025 and April 2026. The fast-track merger route was widened, the external commercial borrowing framework was rewritten, the Reserve Bank replaced its stressed asset framework, the Insolvency and Bankruptcy Code was amended extensively, and the taxation of a share buyback changed for the second time in eighteen months. Every position on these pages was reviewed by a qualified professional in September 2026 and carries the date it was confirmed. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.