Corporate Debt Restructuring (CDR) is a strategic process where financially distressed companies reorganize their debt obligations to achieve stability and avoid insolvency. Its primary purpose is to reduce financial strain by renegotiating loan terms, extending repayment periods or lowering interest rates, ensuring business continuity and creditor recovery. CDR was introduced by the Reserve Bank of India in 2001, which provides a structured framework for banks and financial institutions to collaboratively restructure corporate debts. The Insolvency and Bankruptcy Code, 2016 further strengthens this process and offers a legal pathway in order to resolve distressed assets efficiently.
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What is Corporate Debt Restructuring?
Corporate Debt Restructuring (CDR) is a process in India where banks and financial institutions work together to help companies that are struggling financially by reorganizing their debts. It’s a voluntary process, meaning it’s not required by law and it’s designed to step in when companies face challenges due to internal issues (like poor management) or external factors (like economic downturns).
The goal is to support these companies quickly so they can recover and continue operating, while also protecting the interests of people and groups involved, such as lenders, investors, and creditors.
CDR is especially useful for companies that borrow from multiple banks or financial institutions. It ensures everyone works as a team to manage the company’s debts.
The main aim is to stop companies from failing to repay their loans by adjusting the loan terms, for example, lowering interest rates or giving more time to pay back the money.
This helps keep businesses running and supports the overall financial system by preventing company failures. CDR is ideal for businesses that are fundamentally strong but are facing short-term money problems due to things like rising interest rates or changes in currency values.
Legal Framework for Corporate Debt Restructuring
The rules for CDR were first set up in 2001 by the Reserve Bank of India (RBI), which created guidelines for banks and financial institutions to follow. These guidelines are not laws, so CDR remains a flexible, voluntary process. They are based on global standards for handling financial distress and restructuring, ensuring the process is practical and effective.
Unlike the Insolvency and Bankruptcy Code, 2016 (IBC), which became active on December 1, 2016, CDR doesn’t involve formal legal processes. The IBC is India’s main law for dealing with insolvency and bankruptcy and is more creditor-friendly, meaning it prioritizes the needs of those owed money.
Under the IBC, a process called the Corporate Insolvency Resolution Process (CIRP) lets creditors, organized as a Committee of Creditors (CoC), lead efforts to resolve a company’s financial problems. Because the IBC is more structured and legally binding, it has become more popular than CDR for formal debt restructuring.
As of April 2025, the IBC remains the go-to option for formal restructuring, with additional rules for personal guarantors (people who promise to repay a company’s debts) in place since December 1, 2019. The IBC’s structured approach, where creditors take control, differs from CDR’s informal setup, which doesn’t offer protections like stopping creditors from taking legal action during the process.
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Operational Structure and Eligibility of Corporate Debt Restructuring
The CDR process is managed by three main groups:
CDR Standing Forum: This group includes representatives from banks and financial institutions (but not non-banking financial companies, co-operative banks, or regional rural banks). It creates policies, ensures the process moves quickly, and reviews decisions made by the other groups.
CDR Empowered Group: This group looks at initial reports from the CDR Cell, checks if restructuring is possible, and approves the final restructuring plans, making sure they benefit creditors.
CDR Cell: This is the first point of contact for companies applying for CDR. It reviews the company’s financial health and governance practices, then sends a report to the Empowered Group within 30 days for further decisions.
To qualify for CDR, a company must have loans from multiple banks and owe at least ₹100 million in total debt, covering all types of assets under RBI’s rules. Companies already involved in legal cases, like those with the Debt Recovery Tribunal (DRT), Board for Industrial and Financial Reconstruction (BIFR), or other recovery lawsuits, can still apply. A bank or financial institution that holds at least 20% of the company’s working capital or term loan can start the CDR process, ensuring major creditors are involved.
Recent RBI updates have made CDR stronger by requiring company owners (promoters) to invest more of their own money, often held in a secure account, and to take the first hit if the company fails to repay. Banks can also report issues with auditors to the Institute of Chartered Accountants of India (ICAI) and form Joint Lending Forums to work together on restructuring plans. There’s also a limit on converting debt to equity (10% for preference shares) to balance the interests of creditors and the company.
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Relationship of Corporate Debt Restructuring with the Insolvency and Bankruptcy Code (IBC)
CDR and the IBC both aim to help companies in financial trouble, but they work in very different ways. The IBC, active since December 1, 2016, with rules for personal guarantors added on December 1, 2019, offers a formal process through the Corporate Insolvency Resolution Process (CIRP). To start CIRP, a company must owe at least ₹10 million.
A resolution professional oversees the process under the National Company Law Tribunal (NCLT), with the Committee of Creditors (CoC) making key decisions.
In the IBC, a restructuring plan needs approval from 66% of the CoC and the NCLT, and once approved, it applies to everyone involved, including options to swap debt for company shares.
The IBC also pauses legal actions and creditor enforcement during CIRP, giving the company breathing room. CDR, however, doesn’t offer this pause and depends on creditors agreeing voluntarily, which can be tricky if some creditors don’t cooperate.
RBI rules from June 7, 2019, allow for informal restructuring agreements, but these only involve specific lenders and don’t fully address debts owed to non-financial creditors.
Since the IBC started, it has been used much more than CDR or other options like Schemes under the Companies Act, 2013. These Schemes require approval from most affected groups (a majority in number holding 75% in value) and don’t pause legal actions, making them less appealing due to the high approval bar.
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Recent Trends and Usage
By 2025, CDR will be used less often, with the IBC taking over as the main tool for formal debt restructuring.
Companies with large debts are more likely to go through IBC processes than CDR. The economic environment, influenced by things like lower interest rates, has seen a lot of restructuring activity, mostly driven by the IBC.
The IBC’s creditor-focused approach, where the CoC leads decisions, has made it more popular than CDR’s informal setup.
The IBC can handle complex cases better, with features like forcing all creditors to follow a plan (cross-class cramdown) and pausing legal actions, addressing weaknesses in CDR, especially when creditors try to enforce repayments.
Summary
Corporate Debt Restructuring (CDR) in India is a voluntary, non-legal tool for reorganizing company debts, guided by RBI rules since 2001. However, its importance has decreased with the rise of the Insolvency and Bankruptcy Code, 2016, which offers a formal, creditor-friendly process with strong legal backing and protections like pausing creditor actions. While CDR works well for quick, agreed-upon solutions, the IBC is the top choice for complex, formal restructuring, showing how India’s insolvency system has evolved.
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Corporate Debt Restructuring: FAQs
Q1. What is corporate debt restructuring?
A voluntary process in India where banks help financially distressed companies restructure debts to avoid default, guided by RBI guidelines.
Q2. What do you mean by corporate restructuring?
Corporate restructuring involves reorganizing a company’s debts, operations, or structure to improve financial stability and efficiency, often under distress.
Q3. What is the meaning of debt restructuring?
Debt restructuring is modifying loan terms, like interest rates or repayment periods in order to ease financial burden for a struggling borrower.
Q4. What is a CDR in finance?
CDR (Corporate Debt Restructuring) is an RBI-guided mechanism for Indian companies to restructure debts with multiple banks, preventing insolvency.
Q5. How does CDR work?
CDR involves a CDR Cell assessing eligibility, an Empowered Group approving plans, and 75% creditor consent to restructure debts, binding all.
