Introduction
The Creditor-Initiated Insolvency Resolution Process (CIIRP) framework 2026 marks an important shift in Indian insolvency law. It moves away from the fully court-driven logic of CIIRP and toward an out-of-court, debtor-in-possession model in which the existing management remains in control, but under creditor-led supervision. The attraction is obvious; faster resolution, less litigation, and a better chance of preserving going-concern value before a distressed business loses everything. Recent reporting on India’s proposed creditor-initiated insolvency framework shows exactly this policy direction, wherein creditors may be allowed to trigger insolvency outside the tribunal system. At the same time, management continues to run the company under supervision.
That said, this is the point at which the paradox emerges. The entire CIIRP approach assumes that management has “skin in the game.” As such, the directors and promoters will behave more responsibly since they have much at stake. This makes a lot of sense and could well be correct. Nevertheless, the same framework has the potential to act as a means of self-preservation, selective revelation and insider advantage. In simpler terms, what should help prevent stakeholder oppression becomes the very reason why it takes place.
Anatomy of the CIIRP Framework
The CIIRP process is a mix of Corporate Insolvency Resolution Process (CIRP) and a pre-pack restructuring process. It is neither court-supervised nor purely a private settlement process. As proposed in the draft process framework, the process is triggered by the notified financial creditors, the debtor remains in possession, and a Resolution Professional (RP) manages the process to ensure compliance and disseminate information.
This is what also makes the concept of CIIRP different from CIRP and pre-packed insolvency. In the case of CIRP, the company’s current management is replaced, and the RP assumes control. In the CIIRP framework, however, the same management team continues to work to maintain the company’s operations during the negotiation process. Compared to the pre-packed form of resolution, CIIRP relies more on creditors’ actions and covers a wider scope of issues; however, the aim of using the informal form persists.
The issue here is that the design also undermines several of the tough provisions typically associated with a formal insolvency proceeding. According to the draft paper, the CIIRP does not follow the same principle as the CIRP regarding the statutory moratorium, and the NCLT’s role is largely confined to moratorium applications, objections by the corporate debtor, and conversion to CIRP or withdrawal. This is important, as insolvency laws not only require efficiency but also create an appropriate environment for negotiations. If the process leaves the courtroom too quickly, the weaker party will be left with almost no protection.
The Structural Paradox: Debtor Control v. Creditor Oversight
The promise of the debtor-in-possession model is simple: the people who know the company best are the ones who should try to save it. In theory, promoters have the strongest incentive to preserve value because they are the ones who lose the most if the business collapses. That is the “skin in the game” argument. It sounds sensible, and in some businesses, it is the only realistic way to preserve value quickly.
However, the rules of the game change, and so do the incentives. Once an enterprise gets into dire straits, the old belief that shareholders and managers will automatically take steps to maximise the enterprise’s long-term well-being is no longer as realistic as it once was. If the equity stake in an enterprise is almost valueless anyway, management may be tempted to engage in practices such as delayed reporting, asset stripping, a preference for associates, and other forms of manipulation. This is the age-old agency cost problem: the principal of the situation might be acting against his own interest.
This is when the “paradox” comes into play. The CIIRP retains management control based on its expectation that the management will behave responsibly as an owner. However, once insolvency intensifies, this control itself can serve to defend insiders at the expense of creditors. In theory, the role of the RP is to serve a balancing function. However, the draft contends that supervision is inadequate if it cannot effectively veto suspect activities, demand forensic investigations, or regulate related-party activities.
This issue is equally uncomfortable with the reasoning of the Supreme Court in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta. The judicial deference to the wisdom of the creditor was based on an independent insolvency administration and statutory protection. With CIIRP, which combines debtor control without much judicial supervision, the institutional setup has been changed, thus putting in question the validity of the same judicial deference.
The second, more fundamental aspect, is that of fiduciary duty. Normally, in the day-to-day running of business organisations, it is clear that the directors of the companies work for their companies and the benefit of the shareholders of the same. However, in cases of insolvency of such companies, most legal systems recognise that creditors, in reality, become the risk-bearers for the organisation. The concept of CIIRP mentioned in the draft is not clearly specified regarding this point.
Stakeholder Oppression: Who gets sidelined?
The most serious criticism of CIIRP is that it can work well for sophisticated financial creditors and incumbent management while leaving everyone else with very little say. Minority shareholders are one obvious casualty. Because the NCLT’s role is confined to specific gatekeeping functions, minority shareholders may have no immediate forum to challenge dilution, unfair debt-to-equity conversions, or asset transfers negotiated by management and creditors. In practical terms, they may see the value of their stake altered without meaningful consultation.
The position of operational creditors is no better either. Suppliers, vendors, landlords, service providers, and other types of creditors are not the driving forces behind the CIIRP procedure. It is neither initiated by them nor is the creditor committee that negotiates the result run by them. As noted in the draft, such an approach may increase the risk of subordination, since a stressed company is likely to pay its operational debts selectively to avoid taking a more drastic measure. Thus, operational creditors may find themselves late on payments, at a disadvantage during negotiations, and left out of the key decision-making table.
Perhaps more than any other stakeholder category, the employee class may be considered the most vulnerable one. The draft points out that there is a lack of mandatory disclosures to be made by workers in the initial phase of CIIRP. This is very problematic, since employees will be the first to suffer from wage delays and restructuring decisions, and the last to be informed of everything. Although in the case of liquidation, the law allows the prioritisation of employees, in the case of restructuring, they have little say.
The CIIRP scheme is a bold effort to speed up insolvency proceedings while lowering costs and making the process more commercially viable. It is certainly not the fault of such a scheme for being too ambitious. The reality is that the shift towards creditor-initiated and management-continuity insolvency procedures is justified by the need to reduce delays and losses associated with distressed firms. However, the success of such a process hinges on safeguards, without which the very scheme intended to help companies can lead to their downfall.
This is the crux of the paradox: CIIRP seeks to save the company by relying on the debtor’s good faith; however, without stringent controls, such reliance can become exclusionary. Any feasible reform will have to retain the speed factor while also protecting the interests of the people who stand to be excluded, i.e., minority stockholders, business creditors, and workers.
Comparative Analysis
Regimes for restructuring have shown, on comparative analysis, that DIP restructuring will work only when managerial independence is offset by effective independent oversight, transparency and judicial supervision. Viewed from this angle, the CIIRP deviates from established international norms by increasing the space for management discretion without adding complementary institutional checks.
The United States’ Chapter 11 regime illustrates that debtor control operates within a comprehensive accountability framework. Although management ordinarily remains in possession, key decisions like DIP financing, disclosure statements, plan confirmation, require continuous Bankruptcy Court supervision, reinforced by the United States Trustee and the Official Committee of Unsecured Creditors, which together reduce agency costs and facilitate stakeholder participation. Even within this supervisory framework, scholars continue to identify concerns regarding lender dominance and managerial opportunism, suggesting that such risks are likely to intensify where comparable safeguards are absent.
Restructuring flexibility is likewise balanced with creditor protection under the United Kingdom’s Part 26A of the Companies Act, 2006. Specifically, under section 901G of the Act, a court can sanction a cross-class cramdown only where it is demonstrably “no worse off” than in the relevant alternative. A proper judicial examination of such issues would maintain the efficiency of the process without undermining the aspect of distribution, minority shareholder protection, and fairness. The process in Singapore is similar in that the control by the debtor is maintained by means of judicial oversight of moratoriums and stakeholder communication for the same purpose. Indeed, the Indian system has always understood the importance of certainty for its legitimacy.
Likewise, Indian jurisprudence recognizes that the results of insolvency are contingent on procedural certainty. As per the Supreme Court’s decision in Ebix Singapore Pvt Ltd v Committee of Creditors of Educomp Solutions Ltd, predictability and finality were deemed essential components of the IBC, since uncertainty would defeat value maximization for corporate reorganization. However, procedural certainty and process fairness are two different things – predictability is just one aspect of sustainable restructuring, which requires stakeholders’ confidence in the fact that the process is conducted openly and fairly.
Though there are some procedural differences, the United States, the United Kingdom, and Singapore share the same institutional principle: the exercise of debtor control is justified only when it is accompanied by appropriate mechanisms of oversight, transparency, and engagement of stakeholders. The main problem of CIIRP is precisely the deviation from this institutional principle: while debtor-in-possession restructuring is adopted in Singapore, the corresponding governance architecture is not introduced.
Mapping the Legislative Gaps
Modern scholarship has moved away from the notion that management control is inherently the most effective means for achieving corporate rescue and has instead emphasized the role of structural reforms and institutional constraints in assuring the legitimacy of such an approach. It is, moreover, the consensus among insolvency practitioners, including INSOL International, that practitioner independence and stakeholder confidence are critical to the effectiveness of any restructuring regime. Evaluated against this benchmark, CIIRP exhibits a significant governance deficit by concentrating restructuring authority in the debtor and financial creditors without equivalent mechanisms of supervision or accountability. Four interrelated legislative deficiencies give shape to this problematic regime.
First, there is a significant institutional deficit stemming from the role of the RP. Although the RP performs a central supervisory role, the current law sets forth no general principles for establishing independence, avoiding conflicts of interest, ensuring disclosure, or preventing or requiring removal of the supervisor. Such oversight mechanisms, by contrast, are clearly established for auditors under the Companies Act, 2013, despite a lack of statutory or common law independence for such professionals; the statutory scheme nevertheless establishes clear rules for audits.
Second, the framework creates a distinct fiduciary deficit. Whereas there is a clear, even if disputed, rationale for restricting the day-to-day intervention of the judiciary in debtor-creditor negotiations namely, the avoidance of the delays and litigation costs the CIRP’s detailed judicial scrutiny incurred, there is no alternative mechanism to limit the resulting informational asymmetry, particularly in light of a number of uncertainties about disclosure obligations under the CIIRP for publicly traded firms.
Third, the CIIRP entails a serious participatory deficit with regard to the operational creditors, given that in the seminal case of Swiss Ribbons Pvt Ltd v Union of India, the Supreme Court upheld the differential treatment of financial and operational creditors based on the premise that the IBC provided adequate judicial oversight, independent insolvency administration and broad process safeguards to guard against arbitrary outcomes. By significantly de-emphasizing such safeguards to advance a particularized vision of debt resolution, by restoring much creditor primacy at the cost of process safeguards, the CIIRP alters the factual premise of that crucial holding.
The final aspect that leads to the existence of this accountability gap is a remedial deficit, evidenced by the lack of mechanisms for judicial involvement in case of failure of the restructuring process. Collectively, these deficits create an accountability gap, in which the shortcomings of an unregulated RP, the dangers of inadequate disclosure, and insufficient judicial involvement compound to undermine procedural legitimacy.
Towards a Four-Pillar Governance Model for CIIRP
The shortcomings in the current governance structures of CIIRP cannot be ignored, but that does not mean the restructuring process has to be abandoned or that the CIRP process has to be followed. Such an approach is consistent with internationally recognized principles of restructuring such as the World Bank Principles for Effective Insolvency and Creditor/Debtor Regimes and the UNCITRAL Legislative Guide on Insolvency Law, which emphasize on regulation proportionate to the role of independent professionals, structured disclosures and judicial intervention to safeguard integrity of the process. These guides are not legally binding but are generally accepted as persuasive benchmarks for evaluating the institutional design of insolvency regimes. The trade-off addresses real concerns of backlog at the NCLT and value erosion due to delays under the previous CIRP scheme. But expedition does not have to be at the expense of institutional accountability.
One might ask if increased governance safeguards would impede the objective of expediting restructuring under the CIIRP regime. This question would not be out of place given the experience under the earlier CIRP regime, which was plagued with delays. This is one concern the proposed reforms aim to address: by leaning more on regulatory oversight, formal disclosure, and restricted judicial intervention instead of regular judicial oversight, efficiency is maintained, and the governance risk associated with the DIP restructuring is controlled. It is therefore proposed that CIIRP be developed with a four-pillar governance model, with each pillar directly correlating with one of the four governance deficiencies previously identified, i.e. Institutional, fiduciary, participatory and remedial, to address each structural issue within the CIIRP.
The first pillar is institutional integrity. There should be a framework of statutory safeguards related to independence, conflicts, disclosure, recusal and replacement applicable to the RP. IBBI should be mandated to periodically monitor the independence, compliance and stakeholder grievances of the RP. Rather than continuous judicial scrutiny of the RP, additional regulatory oversight through safeguards could be added and would be more efficient. These safeguards can be broadly introduced through targeted amendments to regulations framed by IBBI and through subordinate legislation so that no broad-based amendments to the Companies Act, 2013, are required and there remains flexibility in implementation.
The second pillar is substantive fairness. Where there are resolution plans that would impact the rights of the stakeholders, then an independent fairness opinion must be issued by a registered valuer or an accredited restructuring professional. From the practices elsewhere, the analysis should confirm that the minorities and creditors who are in similar position are not in worse off position compared to the relevant alternative. In case of listed companies, this would supplement the provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.
The third pillar is inclusive participation. This necessitates an Enhanced Disclosure Matrix, and secure digital Stakeholder Information Portal for materially affected stakeholders to access relevant financial information, while safeguarding commercially sensitive data, and to engage in a meaningful manner in the resolution process. This is in tune with the principle of participatory rights outlined in the UNCITRAL Legislative Guide on Insolvency Law.
The fourth pillar is responsive support and oversight. Instead of routine judicial involvement, recourse should be provided for limited judicial intervention to the National Company Law Tribunal in instances where there is a prima facie case of fraud, material non-disclosure, conflicts with the RP or other egregious procedural malfeasance.
These pillars will together enhance the efficiency, transparency, stakeholder confidence and long-term legitimacy of CIIRP by integrating governance safeguards and without a fundamental transformation of the underlying DIP restructuring model.
Conclusion
The framework set out in this article is a fundamental departure in Indian insolvency law; by incorporating a debtor-in-possession mechanism, the CIIRP envisages an earlier and more business-friendly and streamlined process of corporate restructurings. Yet its primary drawback is not that it allows management to remain in control of its business, but that it allows them to remain in control without comparable protections against abuse of that control, without appropriate disclosures and with very limited protection of stakeholders. The case presented here has argued that the “skin in the game” argument which legitimizes the continuation of managerial control cannot operate effectively without such protections.
The four-pillar governance framework which is proposed above shows that such limitations on managerial control need not negate the benefits which motivated the establishment of the CIIRP. Indeed, governance and speed should be understood not as competing objectives, but as complementary means by which the credible prospect of a facilitated, expeditious corporate restructuring can be achieved, which relies on strong governance structures that are transparent, accountable and involve stakeholders, with judicial intervention reserved for cases of genuine procedural failure rather than exercised routinely.
Ultimately, the fate of the CIIRP will not be determined by the amount of control that debtors have, but by whether they have it in an environment that fosters trust and that does not permit “skin in the game” to be merely a pretext for the oppression of stakeholders.
(This post has been authored by Kinshi Walia and Priyanshi Agarwal, 3rd Year students at Dr. Ram Manohar Lohiya National Law University, Lucknow)
CITE AS: Kinshi Walia and Priyanshi Agarwal, ‘THE “SKIN IN THE GAME” PARADOX IN CIIRP: DEBTOR-IN-POSSESSION AND STAKEHOLDER PROTECTION’ (The Contemporary Law Forum, 20 August 2026) <https://tclf.in/2026/08/20/the-skin-in-the-game-paradox-in-ciirp-debtor-in-possession-and-stakeholder-protection/> date of access.