Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Restructuring Debt and Remedies of Lenders

Updated 11 October 2026 · Fact-checked

Debt restructuring changes the terms of existing debt, such as tenure, rate or amount, so a stressed company can repay. Lenders also have remedies: suing, enforcing security under SARFAESI, or starting insolvency under the IBC. In answers, state the mechanism, the condition, the authority and the result.

Understand Restructuring Debt and Remedies of Lenders

Debt restructuring means changing the terms of a loan or debenture when the borrower cannot pay as agreed. The lender accepts a changed deal because it expects to recover more than it would by forcing a sale or liquidation. Common changes are a longer repayment period, a lower interest rate, a moratorium on principal, conversion of part of the debt into equity, or a write-off of part of the dues.

A one-time settlement (OTS) is a different route. The borrower pays an agreed lump sum, usually less than the full dues, and the lender closes the account. Think of it as a negotiated exit rather than a rescheduling. Banks follow their own board-approved policies for OTS, so do not quote fixed percentages in your answer.

Restructuring can also be done through court. Under section 230 of the Companies Act, 2013, a company can propose a compromise or arrangement with its creditors or any class of them. The Tribunal orders a meeting. If a majority of persons representing three-fourths in value of the creditors or class, voting in person, by proxy or by postal ballot, agree, and the Tribunal sanctions it, the scheme binds the company and all the creditors or the class of creditors concerned (and the liquidator and contributories if the company is being wound up). Where the scheme is a corporate debt restructuring consented to by not less than 75% of secured creditors in value, the company must disclose it by affidavit, with a creditors' responsibility statement, safeguards for other creditors, an auditor's liquidity-test report and a registered valuer's report.

If restructuring fails, lenders turn to remedies. A debenture holder can sue for the money due, enforce the charge through the debenture trustee, and seek appointment of a receiver or sale of the secured assets, as the trust deed allows. A secured lender such as a bank can enforce its security without going to court under the SARFAESI Act, 2002, usually after classifying the account as a non-performing asset and issuing a demand notice, followed by possession and sale of the asset. Details such as the notice period and the 60% value threshold are in the Act, but state them only if you are sure.

The Insolvency and Bankruptcy Code, 2016 (IBC) works differently. A financial creditor, operational creditor or the corporate debtor can start the corporate insolvency resolution process before the NCLT on default. Control passes to a resolution professional and the creditors' committee decides on a resolution plan. SARFAESI is a secured creditor's individual recovery tool. IBC is a collective process for all creditors, aimed at resolution, with liquidation as the last step.

Key rules to remember

Creditors' approval for a scheme (section 230(6)): Majority of persons representing three-fourths in value of the creditors or class voting in person, by proxy or by postal ballot; Both limbs apply: a majority of persons and three-fourths in value of those voting. The Tribunal must then sanction the scheme for it to bind.
Corporate debt restructuring disclosure (section 230(2)(c)): Consent of not less than 75% of secured creditors in value; Needs a creditors' responsibility statement, auditor's liquidity-test report and registered valuer's report.
Dispensing with a creditors' meeting (section 230(9)): Creditors or class holding at least 90% in value confirm by affidavit; The Tribunal may then dispense with the meeting. It is a power, not an automatic right.
Objection to a scheme (section 230(4) proviso): Holders of ≥ 10% shareholding or debt ≥ 5% of total outstanding debt (latest audited statements); Only such persons may object to the compromise or arrangement.
Filing of Tribunal order (section 230(8)): Within 30 days of receipt of the order, with the Registrar; The company files it.
Notice to regulators (section 230(5)): Representations within 30 days of receipt of notice; If none, it is presumed they have none to make.

How to solve Restructuring Debt and Remedies of Lenders questions

Use this method for any question on restructuring or lender remedies. It keeps you in the provision, analysis, conclusion format.

1Read the facts and identify the lender type: bank or financial institution, debenture holder, operational creditor, or a mix.
2Check the stage: is the account performing, stressed, or already in default or NPA?
3Choose the route: out-of-court restructuring, OTS, scheme under section 230, SARFAESI, suit, or IBC.
4State the rule for that route in plain words with its conditions, such as the three-fourths value majority or the Tribunal's sanction.
5Apply the numbers or facts given. Check each threshold against the data in the question.
6Conclude clearly: which route is available or better, and what the lender or company should do next.
7Add one practical point such as board approval, filing of the order within 30 days, or informing the debenture trustee.

Quickest way: Route-selection shortcut

When to use it: Use when the question asks which remedy a lender should choose or compares routes, and time is short.

Ask: does the lender hold security? If yes, SARFAESI is possible. If no, think suit or IBC.
Ask: is the aim to save the company? If yes, think restructuring, section 230 or IBC resolution.
Ask: is the aim quick recovery by one lender? That points to SARFAESI or OTS.
Ask: are many creditors involved with default? That points to IBC as a collective process.
Write the answer in three lines: rule, application, conclusion.

Common mistakes in Restructuring Debt and Remedies of Lenders

Treating SARFAESI and IBC as the same remedy.
Both deal with defaults by borrowers and both involve banks.
Fix: Remember that SARFAESI is a secured creditor's own enforcement outside court, while IBC is a collective process before the NCLT led by a resolution professional.
Saying a scheme binds creditors once they vote in favour.
Students forget the Tribunal's role.
Fix: State that the three-fourths value majority is needed and the Tribunal must sanction the scheme. Only then is it binding.
Confusing the 75% secured creditor consent with the three-fourths voting majority.
Both use three-fourths, so they blur together.
Fix: The 75% secured creditors' consent is a disclosure condition for a corporate debt restructuring scheme. The three-fourths in value majority is the voting requirement at the meeting.
Mixing up OTS with restructuring.
Both involve a changed deal with the lender.
Fix: Restructuring changes the terms and the loan continues. OTS is a lump-sum payment that closes the account.
Quoting exact SARFAESI figures or section numbers from memory.
Students try to look precise.
Fix: Give the rule in words unless you are certain of the number. A wrong figure loses marks.
Ignoring debenture holders' own remedies and the trustee's role.
Students focus only on bank loans.
Fix: Mention the debenture trustee, the trust deed, the right to sue and to enforce the charge.

Worked examples

Example 1

Rao Textiles Ltd proposes a compromise with its creditors. At the Tribunal-ordered meeting, the creditors present and voting hold debts of ₹10,00,000 in value. Creditors holding ₹7,00,000 vote in favour. Is the three-fourths value requirement met?

Show the solution

Rule: the compromise needs a majority of persons representing three-fourths in value of the creditors voting.
Three-fourths of ₹10,00,000 = ₹7,50,000.
Votes in favour in value are ₹7,00,000, which is less than ₹7,50,000.
So the value limb fails, and the scheme fails regardless of whether the majority-in-number limb is met.

Answer: The requirement is not met. At least ₹7,50,000 in value was needed, but only ₹7,00,000 voted in favour. The value limb fails, so the scheme fails regardless of whether the majority-in-number limb is met. It cannot be treated as approved, and the Tribunal cannot sanction it on these votes.

Example 2

Mehta Steels Ltd defaulted on a secured term loan and on debentures. The bank holds a charge on the plant. Advise the bank on its options and the key difference between them.

Show the solution

Identify facts: the bank is a secured creditor with default, and debenture holders are also unpaid.
Option 1, SARFAESI: the bank can enforce its security interest without court intervention, after the account is classified as an NPA and a demand notice is issued, then take possession and sell the plant.
Option 2, IBC: the bank, as a financial creditor, can apply to the NCLT for corporate insolvency resolution on default. The process is collective and run by a resolution professional.
Option 3, restructuring or section 230 scheme: if the company is viable, the bank may agree to new terms or a scheme sanctioned by the Tribunal.
Debenture holders act through the debenture trustee under the trust deed to enforce their charge or sue.
Difference: SARFAESI is the bank's individual recovery of its own security. IBC is a collective process for all creditors.

Answer: The bank may enforce its security under SARFAESI for quick individual recovery, or start IBC for a collective resolution. If the business is viable, it can instead restructure or use a section 230 scheme. SARFAESI helps only the secured lender enforcing. IBC involves all creditors and seeks resolution first.

Exam tips

Frame answers as rule, application, conclusion. Examiners reward the conclusion.
Learn the section 230 numbers: three-fourths in value, 75% secured creditors, 90% for dispensing, 10% and 5% for objections.
For comparison questions such as IBC vs SARFAESI, write a point-wise contrast on who can act, forum, nature and outcome.
Do not quote section numbers of SARFAESI or IBC unless you are certain. Explain the rule in words.
Add a practical compliance point, such as filing the Tribunal order with the Registrar within 30 days.

Practice questions from Raising of Funds from Debt and Procedural Aspects

Restructuring Debt and Remedies of Lenders: frequently asked questions

What is the difference between IBC and SARFAESI?

SARFAESI lets a secured creditor enforce its own security without going to court. IBC is a collective process before the NCLT where a resolution professional runs the company and creditors decide on a resolution plan. IBC is open to financial and operational creditors, while SARFAESI is for secured lenders.

What is a one-time settlement?

It is an agreement where the borrower pays a lump sum, often less than the full dues, and the lender closes the account. Banks follow their own approved policies for it. It differs from restructuring, where the loan continues on new terms.

How is a debt restructuring scheme approved under the Companies Act, 2013?

Under section 230, the Tribunal orders a creditors' meeting. A majority representing three-fourths in value of those voting must agree. The Tribunal then sanctions the scheme and the company files the order with the Registrar within 30 days.

What remedies do debenture holders have against a company?

They can sue for the amount due, and act through the debenture trustee to enforce the charge as the trust deed allows, including seeking a receiver or sale of secured assets. They can also use the IBC as financial creditors where default occurs.