Creditor-led insolvency: A new paradigm for India

India’s insolvency framework is poised for a significant evolution with the proposed creditor-initiated insolvency resolution process (CIIRP) under the Insolvency and Bankruptcy Code (Amendment) Bill, 2025. This new proposed regime represents a strategic shift towards a hybrid regime blending a debtor-in-possession model with strong creditor oversight, empowering creditors with a faster, less judicially intensive mechanism for resolving financial distress. The CIIRP is a nuanced framework tailored to specific scenarios, with the following key features:

1. 1. Siddhant Kant
      Partner
      Shardul Amarchand Mangaldas & Co

      Eligibility. The CIIRP will apply to notified classes of corporate debtors. Policymakers have indicated that it would include large corporations as well.

   2. Creditor-driven initiation. Only specified financial creditors can initiate the CIIRP. This requires creditors representing at least 51% of the financial debt to vote at two distinct stages to authorise the process. This ensures it is a collective decision and not a frivolous action.
   3. Out-of-court commencement. The CIIRP begins not with a court order, but with a public announcement by the resolution professional (RP). This bypasses National Company Law Tribunal (NCLT) delays that have plagued the corporate insolvency resolution process (CIRP).
   4. Management continuity. Unlike a CIRP, where the RP takes over management, in a CIIRP the existing board retains control of daily operations. The RP’s role is that of a monitor and safeguard, with the power to veto decisions that are prejudicial to creditor interests, such as the sale of key assets or taking on new loans without approval.
   5. Time-bound process. The CIIRP is designed with a strict timeline of 150 days, extendable by 45 days, i.e. for a maximum of 195 days. If a resolution plan is not approved within this period, the process automatically converts into a CIRP.

CIIRP v CIRP

The CIIRP is fundamentally distinct from the existing CIRP. While the CIRP is a court-driven creditor-in-control process where an RP takes over management after the NCLT admission, the CIIRP is designed for speed, with co-ordination between the debtor and creditors with minimal judicial intervention, thereby negating judicial bottlenecks.

Global creditor-led regimes

Charu Bansal
Principal Associate
Shardul Amarchand Mangaldas & Co

India’s proposed CIIRP draws inspiration from creditor-centric insolvency frameworks around the world. The insolvency regime in the UK is a prime example of a creditor-centric system, and it has long prioritised creditor interests. Creditors’ voluntary liquidation empowers creditors to control the winding-up process and appoint liquidators. Additionally, secured creditors are permitted to appoint administrators directly, without court intervention.

In the US, the debtor-in-possession model is provided under chapter 11 of the US Bankruptcy Code. Creditors wield significant influence. If the debtor fails to file a viable plan within 120 days, creditors may propose competing plans. Further, under chapter 7 liquidation, creditors can file involuntary petitions, triggering the appointment of a trustee to replace management.

In Australia, the insolvency system offers a blend of options including a deed of company arrangement, which allows for a flexible arrangement between the company and its creditors. Like the CIIRP, this allows for a voluntary, out-of-court restructuring under the oversight of a registered practitioner.

These global models demonstrate that efficient insolvency systems can effectively balance creditor empowerment with oversight mechanisms, a vision that is mirrored in India’s CIIRP.

The collaborative core

The new CIIRP framework offers several key opportunities. It empowers creditors by allowing them to initiate a swift resolution without waiting for a tribunal, which can enhance recoveries and prevent asset erosion. It also incentivises debtors to engage in proactive, early-stage debt restructuring. By eliminating the need for early-stage NCLT intervention, the CIIRP has the potential to ease the burden on the NCLT.

The success of the CIIRP will depend on well-trained RPs who can safeguard creditor interests without interfering in day-to-day management.

Most importantly, the framework is premised on the willingness of lenders and the debtor’s management to collaborate. Without this collaboration, the entire out-of-court framework could fail, forcing conversion into a more time-consuming CIRP.

Conclusion

The introduction of the CIIRP is a transformative step towards building a more agile and creditor-led insolvency regime in India. While the CIRP will remain the primary tool for large-scale restructurings, the CIIRP offers a streamlined, scalable alternative. Its success will depend on effective implementation and the willingness of lenders and debtors to collaborate.

Siddhant Kant is a partner, Charu Bansal is a principal associate and Tanya Chib is an associate at Shardul Amarchand Mangaldas & Co

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