For a director, the day a company is admitted into insolvency is a sharp break. The board's powers are suspended, an interim resolution professional takes over the company's management, and decisions that directors made for years are now made by others. Many directors are unsure what this means for them personally: are they still directors, do they still have duties, can they be blamed for what went wrong, and can they try to win the company back?
This guide answers those questions. It covers what changes on admission, what directors must still do, what rights they keep, where personal liability can arise, and how to protect yourself. It reflects the Insolvency and Bankruptcy Code as amended up to 26 May 2026.
हिंदी में सारांश
जब किसी कंपनी को दिवाला पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ में सà¥à¤µà¥€à¤•à¤¾à¤° किया जाता है, तो उसका बोरà¥à¤¡ निलंबित हो जाता है और अंतरिम रेज़ोलà¥à¤¯à¥‚शन पà¥à¤°à¥‹à¤«à¥‡à¤¶à¤¨à¤² कंपनी चलाता है। निदेशकों को रिकॉरà¥à¤¡ सौंपने और सहयोग करने का करà¥à¤¤à¤µà¥à¤¯ होता है। वे CoC बैठकों में बिना वोट के à¤à¤¾à¤— ले सकते हैं। निदेशकों पर धोखाधड़ी या गलत टà¥à¤°à¥‡à¤¡à¤¿à¤‚ग के लिठवà¥à¤¯à¤•à¥à¤¤à¤¿à¤—त दायितà¥à¤µ, संदिगà¥à¤§ लेनदेनों पर कारà¥à¤¯à¤µà¤¾à¤¹à¥€ और वà¥à¤¯à¤•à¥à¤¤à¤¿à¤—त गारंटी का जोखिम रहता है।
What changes for directors
The board is suspended
Under Section 17, the board's powers pass to the interim resolution professional. Directors are not removed, but cannot act for the company.
Duty to cooperate
Directors must hand over records, assets and passwords and assist the professional, under Section 19.
Right to attend meetings
Directors can attend committee of creditors meetings without a vote, under Section 24(3).
Possible personal liability
Directors can be ordered to contribute to the company's assets for fraudulent or wrongful trading under Section 66.
Guarantees remain
Personal guarantees for the company's loans survive and can be enforced separately.
Bidding is restricted
Directors and promoters may be barred from submitting a plan by Section 29A, with relief for MSMEs.
What directors must do
The first duty is to hand over. Section 19 requires the company's personnel, including directors, to extend all assistance and cooperation to the professional. In practice, this means handing over books of account, statutory registers, bank details, passwords to accounting software and email, title documents, information about pending litigation, and details of assets and their location. If directors do not cooperate, the professional can apply to the NCLT for directions, and the tribunal can order compliance. Persistent non-cooperation can lead to penalties.
Directors should also continue to comply with any personal statutory duties that remain, and should not enter into transactions on behalf of the company. Any attempt to dispose of company assets after admission is void and can lead to serious consequences. A sensible director keeps copies of key documents for their own records before handing over, because they may need them to answer questions later about decisions taken before insolvency.
Where personal liability arises
Wrongful trading. Under Section 66(2), if a director knew or ought to have known, before the insolvency started, that there was no reasonable prospect of avoiding it, and did not exercise due diligence to minimise losses to creditors, the NCLT can order the director to make a contribution to the company's assets. This targets directors who kept trading and taking credit when the company was clearly sinking.
Fraudulent trading. Under Section 66(1), anyone knowingly party to carrying on business with intent to defraud creditors can be ordered to contribute.
Avoidance transactions. The resolution professional reviews transactions before insolvency and can apply to reverse preferential, undervalued, fraudulent and extortionate transactions. Directors who approved payments to related parties, or sold assets cheaply to friends or family, may be named. Since the 2026 amendment, look-back periods run from the date the insolvency application was filed. See avoidance transactions.
Criminal provisions. The Code contains offences for concealing property, falsifying books, fraudulent dealings and false information, which can apply to officers of the company.
Guarantees. Most bank loans to companies are backed by directors' personal guarantees, which survive the company's insolvency and plan. Lenders can pursue guarantors through insolvency under Part III of the Code, and since 26 May 2026 filing by or against a guarantor of a company loan does not trigger an interim moratorium. See personal guarantor insolvency explained.
Cheque bounce cases. Under P. Mohanraj v Shah Brothers Ispat (2021), Section 138 proceedings against the company are covered by the moratorium, but proceedings against directors personally can continue.
What a director should do on admission
Read the admission order
Note the date, the professional appointed and any directions to the management.
Make copies for yourself
Keep personal copies of board minutes, approvals and key correspondence before handing over.
Hand over promptly and in writing
Deliver records and access to the professional, with a written list and acknowledgment.
List your personal exposure
Note every personal guarantee, any cheques signed and any transactions that may be questioned.
Take advice early
Speak to a lawyer about your position as a director and guarantor, and about any appeal against admission.
Engage with the process
Attend committee meetings, answer the professional's questions in writing, and consider whether you are eligible to support a plan.
Director's rights and limits during CIRP
| Matter | Position |
|---|---|
| Manage the company | No; the professional does |
| Attend CoC meetings | Yes, without a vote |
| Receive CoC papers | Yes, as a participant, subject to confidentiality |
| Appeal against admission | Yes, to the NCLAT within 30 days of pronouncement |
| Propose a settlement | Yes, through Section 12A, after the CoC is formed and before the first invitation for plans |
| Submit a resolution plan | Only if not barred by Section 29A; MSME promoters get relief under Section 240A |
Can directors win the company back?
There are two routes. The first is settlement: paying creditors enough to withdraw the case. Before admission, the applicant can withdraw. After admission, Section 12A now requires the committee to be constituted, 90% of its vote, and withdrawal before the first invitation for plans. In the gap between admission and the committee's formation, settlement is usually pursued through an appeal before the NCLAT. See settlement after admission.
The second is a resolution plan. Section 29A bars, among others, persons who are promoters or managers of a company whose account has been an NPA for over a year (unless they clear the overdue amounts), wilful defaulters, disqualified directors, and those who have given guarantees for a company in insolvency where the guarantee has been invoked and not paid. Connected persons are covered too. For MSMEs, Section 240A lifts some of these bars, which is why the MSME pre-pack can suit promoters. See Section 29A eligibility.
A director who kept good records
Here's a made-up example. A director of a Noida components company faced an avoidance application by the resolution professional, alleging that the company had repaid a Rs 1.5 crore loan to a related company in the year before insolvency. The director had kept personal copies of the board minutes approving the repayment, the original loan agreement and bank records showing the loan had funded raw material purchases.
The NCLT held that the repayment was preferential, because it favoured a related party within the look-back period, and ordered the related company to return the money. But it rejected the allegation that the director had acted fraudulently, because the records showed a genuine loan repaid in the ordinary course. The director avoided personal liability.
A director who did not cooperate
Here's a second made-up example. After a Haryana company was admitted into CIRP, its managing director refused to hand over the accounting software passwords and claimed the books were with an auditor. The resolution professional applied to the NCLT, which directed the director to hand over all records within seven days and warned of consequences. The director complied, but the delay was recorded, and the professional later used it in an application alleging that records had been concealed to hide transactions. Cooperation from the start would have avoided both the order and the suspicion.
A director's protective checklist
- Keep copies of board minutes, approvals and key contracts
- Do not make payments that favour one creditor, especially related parties, when insolvency is near
- Take professional advice when the company cannot meet its debts
- Record the reasons for major decisions in board minutes
- Hand over records promptly and in writing after admission
- Respond to the professional's questions in writing, with documents
- List every personal guarantee and seek advice on each
- Do not sign statements about the company's affairs without advice
Directors of MSMEs
Directors and promoters of registered MSMEs are in a somewhat better position. Section 240A relaxes some of the Section 29A bars for MSMEs, so promoters with NPA accounts or invoked guarantees can still submit a resolution plan for their own company. The MSME pre-packaged process also lets promoters remain in management during the process, with a resolution professional supervising. For an MSME director who sees insolvency coming, considering a pre-pack early, before a creditor files, often preserves more control than waiting.
Key provisions affecting directors
| Provision | What it does |
|---|---|
| Section 17 | Suspends the board; powers pass to the professional |
| Section 19 | Requires personnel and promoters to cooperate with the professional |
| Section 24(3) | Allows directors to attend committee meetings without a vote |
| Sections 43 to 51 | Avoidance of preferential, undervalued and extortionate transactions |
| Section 66 | Contribution for fraudulent and wrongful trading |
| Sections 68 to 77 | Offences by officers, such as concealing property and falsifying books |
| Section 29A | Bars certain promoters and connected persons from submitting plans |
Independent and nominee directors
Independent directors and nominee directors of lenders or investors often ask whether they face the same risks as promoter directors. The suspension of the board applies to all directors equally. Liability for wrongful trading under Section 66(2) applies to a director who knew or ought to have known that insolvency could not be avoided and did not exercise due diligence; an independent director with limited involvement in day-to-day affairs may have a stronger defence, especially if the board minutes record their questions and dissent. Nominee directors should also check the protections in the company's articles and in any indemnity or insurance arrangements. In all cases, a record of the questions asked and the advice received is the best protection.
Frequently Asked Questions
Are directors removed when insolvency starts?
No, but the board is suspended and its powers pass to the professional under Section 17.
Do directors still have duties?
Yes. They must cooperate with the professional and hand over records and assets under Section 19.
Can directors attend committee of creditors meetings?
Yes, without a vote, under Section 24(3).
Can a director be personally liable?
Yes, for fraudulent or wrongful trading under Section 66, and through avoidance applications, guarantees and criminal provisions.
Can a director appeal against admission?
Yes, within 30 days of pronouncement before the NCLAT, plus up to 15 days for sufficient cause.
Can a director submit a resolution plan?
Only if not barred by Section 29A. MSME promoters have relief under Section 240A.
Do cheque bounce cases against directors stop?
No. Cases against the company are covered by the moratorium, but cases against directors personally can continue.
What happens to a director's personal guarantee?
It survives and can be enforced separately, including through personal insolvency proceedings.
Director of a Company in Insolvency?
Tell us your role and send the admission order. We will explain your duties, your risks and the options you still have.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Have a question about your own case?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
