IBBI flags misuse of insolvency law to evade taxes, hide assets

The Insolvency and Bankruptcy Board of India (IBBI) has warned that companies are misusing the corporate insolvency resolution process to evade taxes, conceal assets, and avoid regulatory or criminal action. In a discussion paper released on Friday, the regulator said law enforcement agencies have found cases where the IBC was invoked with malicious intent to settle private debts, facilitate undisclosed mergers, or shield assets from enforcement.

The New Indian Express reports that the IBBI has proposed making insolvency professionals more responsible for identifying and reporting such abuse. The Times of India adds that the regulator has listed at least nine red flags, including shell companies with little business activity, large unexplained related-party loans, and cases where a single creditor dominates the process. Other warning signs include auditors unable to verify assets and minimal creditor participation.

The IBBI has invited comments from stakeholders on the proposed measures, with a deadline of August 24, 2026. Under the plan, insolvency professionals who detect fraud or malicious intent would be required to report the case to the National Company Law Tribunal for action.