The Insolvency and Bankruptcy Code, 2016 (“IBC”) was conceived as a time-bound, creditor-driven mechanism to preserve enterprise value and impose market discipline on distressed firms. Over time, however, the functioning of the Corporate Insolvency Resolution Process (“CIRP”) has revealed structural stress. Admission delays, repeated adjournments, litigation at every stage, and information asymmetry between creditors and debtors have diluted the promise of speed. Empirical data published by the Insolvency and Bankruptcy Board of India (“IBBI”) shows that a significant number of cases are either resolved before admission or continue far beyond the statutory timeline once admitted [1].

It is in this context that the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, introduces the Creditor-Initiated Insolvency Resolution Process (“CIIRP”) [2]. CIIRP is designed as a distinct, creditor-initiated insolvency process that precedes and may transition into CIRP. It allows the existing management to continue running the business under the supervision of a Resolution Professional (“RP”), with the possibility of conversion into CIRP if governance risks emerge.

While CIIRP is presented as a pragmatic response to systemic delays, it represents a significant departure from the governance logic of CIRP. The shift from management displacement to management continuity, coupled with supervisory rather than executive powers for the RP, raises foundational questions about accountability, value protection, and the integrity of the insolvency framework. This article examines whether CIIRP, as proposed, strikes an appropriate balance between facilitating settlement and safeguarding collective creditor interests.

Why CIIRP Was Proposed ?

Any evaluation of CIIRP must begin with the data that prompted legislative reconsideration. Two trends are particularly relevant.

First, a very large number of insolvency applications never reach admission. According to IBBI statistics, more than thirty thousand cases were settled before admission as of December 2024 [3]. This indicates that creditors and debtors frequently reach negotiated outcomes once the threat of insolvency becomes real, but before the formal machinery of CIRP is triggered.

Second, cases that do enter CIRP often take much longer than envisaged. Official data placed before Parliament shows that as of March 2025, 1,194 CIRPs which resulted in resolution plans took an average of 597 days for completion, even after excluding the time excluded by the Adjudicating Authority, far exceeding the statutory timelines prescribed under the Code, [4] largely due to litigation over admission, eligibility, valuation, and plan approval.

A brief snapshot illustrates the point:

This evidence explains the policy motivation behind CIIRP. The legislature appears to be searching for a structured “middle space” between informal workouts and full CIRP, where settlement can occur without immediately invoking the most intrusive features of insolvency law.

While early commentary on CIIRP has focused on speed and creditor empowerment, limited attention has been paid to its governance consequences during the pre-CIRP phase, particularly where management control is retained without collective protections.

CIIRP Architecture

CIIRP changes the insolvency system in three basic aspects.

First, it enables the management of the corporate debtor to stay in command at a time when it is admittedly experiencing financial stress. CIIRP maintains continuity in the operation, unlike CIRP where the board is suspended and RP becomes the new manager.

Second, the RP's role is primarily supervisory, though reinforced by statutory veto, reporting, and conversion-trigger powers. The RP oversees activities, seeks information, might have veto authority against certain actions, and could turn to the adjudicating authority in order to be converted into CIRP in instances of misconduct or non-cooperation.

Third, CIIRP does not trigger an automatic moratorium comparable to Section 14 of the IBC, though a moratorium may be sought and granted by the Adjudicating Authority under Section 58G [2]. Creditors are not precluded by subsequent orders, and in the case of individual enforcement actions at least may persist without restraint. This structure reflects an implicit legislative assumption that distress at an early phase can be addressed with supervision and not displacement, and that the danger of conversion to CIRP will keep the management in line.

Uncontrolled Supervision

Separation of responsibility and authority is a critical issue with CIIRP. The management still has the operational authority, but the RP has the duty of oversight and no executive control. This is not a trifling issue as Indian insolvency experience indicates.

CIRP jurisprudence has consistently recognised the displacement of the existing management as a key safeguard against asset stripping, preferential transactions, and information asymmetry [5]. These risks cannot be eliminated under CIIRP simply because it is called pre-CIRP. Financial distress tends to increase incentives to opportunistic behaviour and this is especially true where assets are still in the hands of promoters.

The supervisory tools used by the RP, such as veto powers and reporting commitments, are vaguely defined in the Bill. Although it is not clear whether a veto is an automatic process, how the disagreements concerning vetoes will be solved, and whether additional and frequent adjudication before the tribunal will become necessary. In the absence of clarity, supervision will be reactive and not proactive.

The Lack of an Automatic Moratorium

The refusal to offer an automatic moratorium of the CIIRP stage is one of the most significant details of the proposal. The moratorium plays an important role under CIRP. It does not damage the assets base of the debtor, does not render the enforcement of a process fragmented, and generates a collective negotiation setting [6].

Creditors in CIIRP are allowed to proceed with parallel credit recovery proceedings or enforcement actions, or arbitrations. This undermines the insolvency resolution process and instead of stopping the erosion of values, it might increase it. This is especially vulnerable to operational creditors, employees, and minority financial creditors, who have no institutional vehicle such as the Committee of Creditors (CoC) during CIIRP.

The judicial practice before the IBC indicates that despite the existence of a moratorium, the controversies regarding its boundaries are common. Any framework that starts without one is likely to compound, not diminish, litigation.

CIIRP as a Settlement Cushion: The Other Side to the Story

CIIRP can be charitably seen as a kind of mini-CIRP, though more of a structured settlement window. This reading is evidenced by the high amount of pre-admission settlements [3]. CIIRP can give the creditors room and visibility and keep the business running and the negotiations going on.

In this way, CIIRP rationalises what transpires, parties bargain in the shadow of insolvency. Inclusion of an RP, information disclosure, and time-frames would enhance discipline and information asymmetry during such negotiations.

But when the main role of CIIRP is to facilitate settlement, a big question is why not to build up on mediation or any other alternative dispute resolution mechanism instead? Similar results might be obtained with the help of mandatory pre-CIRP mediation, which is backed by minimal statutory protection, without offering an additional insolvency tier [7].

The Risk of Delay, Mediation, and Pre-CIRP Processes

The proposal to introduce CIIRP or mediation as a pre-requisite to CIRP is even more problematic. In case of failure of CIIRP and the case is referred to CIRP, the clock technically starts afresh, although it might have lost time and value, already. The maximum 330-day limit of CIRP is the same, but the total distress period increases.

The risk of strategic disruption is also there. Creditor, employee group or minority stakeholder dissenting to CIIRP proceedings may appeal, commence parallel action or early conversion to CIRP. CIIRP may turn into another battlefield unless there is clarity regarding who can stand, at what point and when.

Towards a Calibrated Framework

CIIRP need not be abandoned to address these concerns. Certain calibrations could strengthen its governance design.

A short, targeted moratorium limited to essential assets and core enforcement actions could preserve value without freezing the business. RP powers should be clearly defined, enforceable, and insulated from constant litigation. Disclosure obligations on management must be strict and time-bound, with real consequences for non-compliance. Finally, conversion applications should be fast-tracked to prevent CIIRP from becoming a delaying tactic.

If the legislature's primary objective is to promote settlement, these safeguards should be complemented by robust mediation frameworks rather than positioned as substitutes.

CIIRP represents a thoughtful attempt to address real weaknesses in India's insolvency system. Its success, however, will depend not on its intent but on its governance architecture. A process that relies on supervision without control, and settlement without protection, risks undermining the very objectives of the IBC.

A calibrated approach that balances early settlement incentives with enforceable oversight and limited protection may allow CIIRP to function as a genuine pre-insolvency tool. Without such balance, CIIRP risks becoming another procedural layer in an already complex insolvency landscape.

Endnotes:

[1] Insolvency and Bankruptcy Board of India, Quarterly Newsletter, October–December 2024.

[2] The Insolvency and Bankruptcy Code (Amendment) Bill, 2025, Bill No. 107 of 2025 (as introduced in Parliament).

[3] Insolvency and Bankruptcy Board of India, Data on Pre-admission Disposal of Applications under IBC (updated till December 2024).

[4] Ministry of Corporate Affairs, Statement on Average Time Taken for Resolution under IBC, Lok Sabha Unstarred Question No. 210, answered on 22 July 2025; see also IBBI Annual Report 2023–24.

[5] Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407; Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17.

[6] Insolvency and Bankruptcy Code, 2016, s. 14; Report of the Bankruptcy Law Reforms Committee, Vol. I (2015).

[7] Law Commission of India, 129th Report; see also Commercial Courts Act, 2015, s. 12-A (pre-institution mediation).

Author is a legal trainee at Tsquare Capital Solutions LLP. Views are personal.