IBBI Proposes Mandatory Minimum Shareholding for Directors and Partners in Insolvency Professional Entities to Strengthen Governance
- REEDLAW
- Nov 18, 2025
- 4 min read
REEDLAW Legal News Network reports: In a significant regulatory development, the Insolvency and Bankruptcy Board of India released a Discussion Paper on 17 November 2025 proposing mandatory minimum shareholding requirements for all directors and partners of Insolvency Professional Entities. Aiming to strengthen governance, improve accountability, and ensure equitable ownership structures within IPEs, the proposal marks a major step toward reinforcing transparency and professional independence within the insolvency framework.
The Discussion Paper highlighted that wide disparities in ownership patterns across IPEs have resulted in governance imbalances, concentration of decision-making power, and misalignment between ownership and professional responsibility. In many entities, a small group of members holds disproportionately large stakes while several Insolvency Professionals—who shoulder core responsibilities such as functioning as IRP, RP, or Liquidator—have minimal equity participation. The IBBI observed that such disparities undermine professional independence and create potential conflict-of-interest scenarios, necessitating the introduction of minimum shareholding norms to ensure fairness, transparency, and balanced control within IPEs.
The current regulatory regime under the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, recognises companies, registered partnership firms, and LLPs as IPEs. These entities are permitted to render support services to Insolvency Professionals (IPs) or undertake insolvency assignments themselves. While the regulations mandate that the majority of partners or directors in an IPE must be registered IPs, there is presently no prescription on the minimum stake or capital contribution required to be held by each member. This regulatory gap has resulted in significant variance in ownership patterns across IPEs, often leading to governance concerns.
The IBBI highlighted several structural issues emerging from the current landscape. In many IPEs, a small group of IPs or investors hold disproportionately large ownership stakes, which allows them to exercise dominant control over key decisions, despite other members bearing equivalent professional responsibilities. Conversely, many IPs contributing significantly to insolvency assignments hold nominal stakes of less than 5%, diluting their alignment with the long-term goals and governance of the IPE. Data analysed by the Board revealed that in IPEs with ten or more members, 77% of members held below 5% stake, yet these low-stake partners managed over 70% of individual IP assignments, such as IRP, RP, and Liquidator roles. The Board noted that such misalignment between ownership and responsibility creates a governance imbalance and undermines equitable participation.
The absence of a defined capital threshold has also led to divergent ownership models, a lack of transparency, and inconsistencies in accountability. In certain cases, non-IP partners have acquired substantial stakes, posing risks to professional independence. Since IPs routinely handle confidential, sensitive, and commercially valuable information—including resolution plans, financial records, and proprietary data—the integrity of the insolvency process requires that governance of the IPE remain firmly rooted in professional discipline and fiduciary principles.
To remedy these concerns, the IBBI proposed that every director or partner of an IPE must hold at least 5% of the paid-up equity share capital or capital contribution. For IPEs with more than twenty members, this threshold may be proportionately reduced on a pro-rata basis to ensure fairness and feasibility. The proposal aims to introduce a standardised and transparent ownership structure that strengthens individual accountability, fosters equitable decision-making, and aligns personal stakes with professional responsibilities. According to the Board, minimum financial participation by every member will ensure improved governance, reduce concentration risks, and enhance the long-term stability of IPEs.
The IBBI underscored that insolvency practice is a public-interest profession, entrusted with decisions affecting creditors, debtors, and stakeholders across the financial system. As institutional platforms supporting IPs, IPEs must uphold the highest standards of governance, independence, and professionalism. Prescribing minimum shareholding norms will allow the Board to better monitor compliance, foster uniformity across IPEs, and protect the integrity of the insolvency resolution framework.
To finalise this reform, the Board has invited public comments until 7 December 2025. Stakeholders—including Corporate Debtors, Creditors, Insolvency Professionals, IPEs, IPAs, investors, and academics—may submit feedback through the IBBI website under the “Public Comments” section by selecting either General or Specific Comments and identifying the relevant provisions. After analysing the responses, the Board intends to notify appropriate amendments under Section 196 of the Insolvency and Bankruptcy Code, 2016.
This proposed reform marks an important step toward strengthening the governance architecture of IPEs, enhancing transparency, and ensuring that insolvency professionals who shoulder legal and fiduciary responsibilities also hold meaningful financial participation in the entities they represent.
Public comments
The Board accordingly solicits comments on the proposals discussed above.
Submission of comments
Comments may be submitted electronically by December 7, 2025. For providing comments, please follow the process as under:
(i) Visit the IBBI website, www.ibbi.gov.in;
(ii) Select ‘Public Comments’;
(iii) Select ‘Discussion paper – “Improving the Governance Structure of Insolvency Professional Agencies (IPAs)”
(iv) Provide your Name and Email ID;
(v) Select the stakeholder category, namely, -
a) Corporate Debtor;
b) Personal Guarantor to a Corporate Debtor;
c) Proprietorship firms;
d) Partnership firms;
e) Creditor to a Corporate Debtor;
f) Insolvency Professional;
g) Insolvency Professional Agency;
h) Insolvency Professional Entity;
i) Academics;
j) Investor; or
k) Others.
(vi) Select the kind of comments you wish to make, namely,
a) General Comments, or
b) Specific Comments.
(vii) If you have selected ‘General Comments’, please select one of the following options:
a) Inconsistency, if any, between the provisions within the regulations (intra regulations);
b) Inconsistency, if any, between the provisions in different regulations (inter regulations);
c) Inconsistency, if any, between the provisions in the regulations with those in the rules;
d) Inconsistency, if any, between the provisions in the regulations with those in the Code;
e) Inconsistency, if any, between the provisions in the regulations with those in any other law; f) Any difficulty in implementation of any of the provisions in the regulations;
g) Any provision that should have been provided in the regulations, but has not been provided; or
h) Any provision that has been provided in the regulations but should not have been provided. And then write comments under the selected option.
(viii) If you have selected ‘Specific Comments’, please select para/regulation number and then sub-para/sub-regulation number and write comments under the selected para/sub-para or regulation/sub-regulation number.
(viii) You can make comments on more than one para/sub-para or regulation/sub-regulation number by clicking on More Comments and repeating the process outlined above from point (vi) onwards.
(ix) Click ‘Submit’ if you have no more comments to mark.
(x) Download the Discussion Paper:
Comments