Comparative Analysis With Global Insolvency Frameworks

Author: LawSphereX

Category: Corporate & Insolvency

Published: 2026-08-23T18:51:36.337Z

Updated: 2026-08-30T07:06:43.331Z

COMPARATIVE

ANALYSIS

WITH GLOBAL INSOLVENCY FRAMEWORKS

Lakshay Mehta, Amity University, Noida

INTRODUCTION

India’s Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC) was introduced in 2016 as part of the government’s effort to streamline corporate insolvency resolution, reducing delays and improving transparency. The code aims to balance the rights of creditors and debtors while ensuring the survival of distressed businesses wherever possible. The CIRP is a structured framework designed to maximize the value of distressed companies, with a primary focus on creditor recovery. However, while it has undoubtedly improved the insolvency process, certain challenges still persist in comparison to more established models such as the U. S. Chapter 11 bankruptcy proceedings and the U. K. Insolvency Act 1986. 1 In the U. S.

, Chapter 11 Bankruptcy has long been regarded as a leading model for corporate insolvency resolution, particularly due to its flexibility in allowing businesses to restructure while maintaining operations. Similarly, the U. K. Insolvency Act 1986 is known for its emphasis on business rescue and preserving the going-concern value of companies facing financial distress. India’s CIRP shares similarities with both models, but it also has distinct characteristics that make it unique. 2 This chapter will provide an in-depth comparison of India’s CIRP, U. S. Chapter 11, and the U. K. Insolvency Act 1986, with a particular focus on the framework of each system, the role of creditors, management control, timelines, and judicial involvement.

It will examine how these models deal with key issues such as creditor rights, business rescue, liquidation, crossborder insolvency, and the overall impact of each system on distressed companies. Through this comparative analysis, we will better understand the strengths and weaknesses of India’s CIRP and draw lessons that can potentially help in refining its insolvency resolution framework. 1 “Carruthers, B. G. , & Halliday, T. C. (2000). Professionals in Systemic Reform of Bankruptcy Law: The 1978 US Bankruptcy Code and the English Insolvency Act of 1986. Am. Bankr. LJ, 74, 35.

2 Ibid.

U.S. CHAPTER 11 BANKRUPTCY VS. INDIA’S CIRP

1. Debtor-in-Possession (DIP) Model vs. Resolution Professional Control

The Debtor-in-Possession (DIP) model under U. S. Chapter 11 offers a fundamental difference from India’s CIRP, particularly in terms of management control during the insolvency process. Under Chapter 11, once a company files for bankruptcy protection, it continues to manage its dayto-day operations. The management retains control over the company’s assets, but its actions are subject to the oversight of the court and the creditors’ committee. The company is given the opportunity to develop a reorganization plan that must be approved by creditors and the court. The DIP model is based on the principle that management, being familiar with the business’s operations, is best suited to propose a solution for the company’s financial distress.

This allows the company to continue its business operations, preserve its value as a going concern, and generate revenues to support the restructuring process. However, the court can remove the management if there is a concern about mismanagement or if it is determined that the management’s actions are in bad faith. 3 By contrast, India’s CIRP follows a more interventionist approach. The Interim Resolution Professional (IRP), appointed by the National Company Law Tribunal (NCLT), takes control of the debtor company’s assets and operations from the moment the CIRP is initiated. The Resolution Professional (RP), once confirmed by the creditors, continues to oversee the operations, replacing the company’s management. This approach is designed to ensure impartiality in the management of the company and prevent the potential misuse of assets by the existing management.

While the RP may seek to maximize the value of the company, it is often argued that the removal of experienced management can sometimes lead to inefficiencies, particularly in complex restructuring cases. 4 The key difference between the DIP model in Chapter 11 and the RP control model in India is that in the U. S. , there is greater flexibility for management to retain control, as long as they are acting in good faith. In contrast, India’s CIRP focuses more on maintaining objectivity and neutrality by removing management and entrusting control to the appointed professional. 3 Zhang, Y. , Xu, S. Y. , & Tan, G. M. (2024). Unraveling the effects of DIP payment reform on inpatient healthcare: insights into impacts and challenges. BMC Health Services Research, 24(1), 887. 4 Saini, J. , & Kumar, S.

The Emergence of Insolvency and Bankruptcy Reforms in India; in Reference to Company Law Tribunal Working.

This distinction has significant implications for the speed and success of the resolution process. In Chapter 11, management’s continuity allows for a smoother transition, as they are more familiar with operational complexities and may have ongoing relationships with key stakeholders. On the other hand, in India’s CIRP, the transition of control to the RP can sometimes lead to delays, as the new management may take time to understand the operational intricacies of the company.

2. CREDITOR INVOLVEMENT

Creditors play a central role in both U. S. Chapter 11 and India’s CIRP, but the structure and power dynamics are different in each model. In Chapter 11, creditors are represented through the Creditors’ Committee, which typically includes representatives of the major creditor groups, such as secured creditors and unsecured creditors. This committee has significant influence over the reorganization plan, and its approval is necessary for the plan to move forward. The committee can negotiate directly with the debtor to shape the terms of the reorganization plan, and it can propose its own plan if it disagrees with the debtor’s proposal. The role of creditors in the CIRP is somewhat similar, but the Committee of Creditors (CoC) in India is dominated by financial creditors.

According to Section 21 of the IBC, the CoC is responsible for approving the resolution plan, but it is predominantly composed of financial creditors, such as banks, financial institutions, and bondholders. Operational creditors, including suppliers, employees, and contractors, have limited representation in the CoC and no voting rights in the decision-making process unless their claims are significant enough to influence the resolution plan. 5 The CoC’s primary role in India’s CIRP is to evaluate the resolution plan, with the majority vote determining whether the plan is approved. In this regard, financial creditors hold a disproportionate amount of power, which often leads to tensions between different types of creditors.

For instance, operational creditors in India have raised concerns that the system disproportionately favors financial creditors, leaving them with minimal recourse during the insolvency process. In the U. S. , the creditor committee has more balanced participation, and the process allows for 5 Pareek, V. (2023). Eligibility Criteria for Resolution Applicants: Role of Committee of Creditors and Power of Adjudicating Authority. Dharmashastra Nat'l L. Univ. L. Rev. , 85. greater negotiation between the debtor and various types of creditors. This can result in more equitable solutions and a more collaborative approach to the reorganization process. On the other hand, India’s CIRP can sometimes lead to conflicts, as operational creditors may feel sidelined or inadequately compensated, which has led to delays in certain cases.

3. TIME FRAME FOR RESOLUTION

One of the defining features of the CIRP in India is its emphasis on a time-bound resolution process. Section 12 of the IBC specifies that the insolvency resolution process must be completed within 180 days, extendable by an additional 90 days. The strict timeline is designed to ensure that companies are not allowed to remain in a state of financial distress for prolonged periods, which could erode their value and impact creditor recoveries. However, the rigid timeline has been criticized in cases where more time is required for complex negotiations and reorganization. 6 In contrast, the U. S. Chapter 11 system does not impose strict timelines for the completion of the reorganization process. This provides more flexibility for companies to negotiate with creditors, address operational issues, and develop a reorganization plan that is in the best interests of all stakeholders.

However, this flexibility has also led to criticisms that Chapter 11 cases can drag on for extended periods, leading to significant costs and potential asset erosion. Some companies may go through prolonged Chapter 11 proceedings before eventually being liquidated, which can result in a loss of value for creditors and stakeholders. 7 While the flexibility in Chapter 11 allows for more tailored solutions in complex cases, the timebound nature of India’s CIRP ensures that the insolvency process is expedited, reducing the risk of prolonged uncertainty and the associated economic costs. However, the strict timelines in India may also lead to rushed decisions, particularly in cases where businesses require more time to work out a comprehensive restructuring plan. The trade-off between flexibility and speed in these two models is a key point of comparison.

Chapter 11 offers a more flexible and debtor-friendly approach, while India’s CIRP prioritizes efficiency and quick resolution, potentially at the expense of a thorough examination of all options. 6 Jain, M. (2023). Unpacking the Shortcomings in India's Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. Issue 1 Indian JL & Legal Rsch. , 5, 1.

7 Ibid.

4. JUDICIAL INTERVENTION

The role of the judiciary is another area where significant differences exist between U. S. Chapter 11 and India’s CIRP. In the U. S. system, judicial involvement is generally limited to overseeing the bankruptcy process and ensuring that the debtor and creditors follow the correct legal procedures. The court’s role is largely supervisory, ensuring that the interests of creditors are protected and that the debtor follows the necessary steps to reorganize. Court intervention is required if the debtor’s management seeks to change the terms of the bankruptcy proceedings or if there is a dispute over the reorganization plan. In India’s CIRP, however, judicial oversight is more pronounced.

The National Company Law Tribunal (NCLT) plays an active role from the initiation of the process, overseeing the admission of the insolvency petition, appointing the IRP, and approving the final resolution plan. The NCLT can also intervene in cases where there are disputes between creditors or if the Resolution Professional is not performing their duties adequately. Additionally, decisions made by the NCLT can be appealed to the National Company Law Appellate Tribunal (NCLAT), adding an additional layer of judicial involvement and potential delays. 8 While judicial oversight is necessary to ensure fairness and transparency in both systems, the active role of the courts in India’s CIRP can lead to delays, particularly in cases where appeals are filed or disputes arise.

In comparison, the more passive role of the court in Chapter 11 may facilitate a quicker resolution, although it also means that disputes may not be resolved as rapidly, and there could be less judicial oversight on complex cases.

5. U.K. INSOLVENCY ACT 1986 VS. INDIA’S CIRP

ADMINISTRATOR-CONTROLLED PROCESS VS. RP-CONTROLLED PROCESS The U. K. Insolvency Act 1986 introduces the concept of administration, where an administrator is appointed to oversee the insolvency process and try to rescue the company as a going concern. The administrator is typically appointed by the company, creditors, or the court and has significant discretion in how the company’s affairs are managed during the process. The administrator’s primary objective is to preserve the company’s value and protect jobs, ensuring that creditors receive the best possible return. In India’s CIRP, the Resolution Professional (RP) takes control of the debtor company’s assets 8 Kohli, R. (2015). Corporate Bankruptcy and Insolvency Resolution in India: Lacunae in the Present and Remedy for the Future. RGNUL Fin. & Mercantile L. Rev. , 3, 97. 9 Supra note 87.

and operations immediately upon the initiation of the insolvency process. The RP is responsible for managing the day-to-day operations of the company and ensuring that the insolvency process moves forward efficiently. The RP is essentially a court-appointed professional who manages the affairs of the company without the involvement of the company’s management. While both the U. K. administration and India’s CIRP involve the appointment of a professional to oversee the insolvency process, the key difference lies in the level of control retained by the company’s management. In the U. K. , the administration model allows for more flexibility and autonomy for the debtor company’s management in managing its operations.

On the other hand, India’s CIRP removes the company’s management from the decision-making process, which can result in greater control and impartiality, but may also introduce inefficiencies if the appointed professional lacks deep knowledge of the company’s operational intricacies.

6. CREDITOR PRIORITY AND CLASSIFICATION

The U. K. Insolvency Act 1986 establishes a well-defined hierarchy of creditor claims, providing clarity regarding the order of payment in the event of insolvency. The system distinguishes between secured creditors, preferential creditors, and unsecured creditors, giving each category a clearly defined order of priority. Secured creditors are paid first, followed by preferential creditors (such as employees and certain tax authorities), with unsecured creditors (such as suppliers and trade creditors) taking the last position. This structured approach is meant to ensure fairness and clarity in how creditors are treated during the insolvency process. 9 • Key Provisions: The Insolvency Act 1986, Section 175 outlines the priority order for creditors, including the treatment of secured, preferential, and unsecured creditors.

This structure is designed to be straightforward and reduces the potential for disputes over creditor priority. On the other hand, India’s CIRP, under Section 53 of the Insolvency and Bankruptcy Code (IBC), provides a similar priority structure, but the practical application has led to significant controversy. While financial creditors, particularly secured creditors, hold a dominant position in the Committee of Creditors (CoC) and are prioritized in the payment order, operational creditors often feel marginalized in the decision-making process. Operational creditors, such as employees, vendors, and suppliers, are classified as unsecured creditors and are typically at the end of the payment priority order, which creates dissatisfaction, especially when the 9 Kargbo, A. K. (2009).

The Post-1986 UK Insolvency System: A Study of Mode of Resolution and of Company Outcome (Doctoral dissertation, City University London). company’s value is primarily derived from the ongoing operations rather than from assets alone. • Key Provisions: Section 53 of the IBC governs the order of priority during liquidation, giving preferential treatment to secured creditors, followed by unsecured financial creditors, and then operational creditors. However, operational creditors often find themselves significantly disadvantaged, especially in cases where the value of the company lies in its workforce or customer relationships. The comparison highlights that the U. K. system provides a clear and universally accepted hierarchy, ensuring greater certainty and less room for conflict.

In contrast, India’s CIRP system has faced criticism for its focus on financial creditors at the expense of operational creditors, leading to delays and dissatisfaction. The broader issue is that operational creditors, whose claims may be critical to the ongoing viability of the company, often feel sidelined in the CoC and are inadequately compensated in comparison to financial creditors. This imbalance in creditor representation remains a significant challenge in the Indian system.

7. BUSINESS RESCUE CULTURE

The U. K. Insolvency Act 1986 places significant emphasis on rescuing businesses in distress, rather than merely liquidating them. Under the Administration process, the administrator is tasked with ensuring that the business remains operational and continues to function as a going concern whenever possible. The key objectives of the administration process are to either rescue the company or achieve the best possible return for creditors by preserving the company’s operational value. 10 • Key Provisions: Section 3 of the Insolvency Act sets out the objectives of administration, including rescuing the company as a going concern, achieving a better return for creditors than through liquidation, and realizing assets to maximize creditor recovery. The administrator has wide discretion in pursuing these objectives, which provides flexibility in managing distressed companies.

11 India’s CIRP, while also emphasizing business rescue, faces challenges in balancing business continuity with the need to adhere to strict timelines. Section 12 of the IBC mandates a 180day period for resolution, extendable by 90 days. This strict timeline can sometimes force 10 McCormack, G. (2008). Corporate rescue law--an Anglo-American perspective. Edward Elgar Publishing.

11 Ibid.

companies toward liquidation instead of allowing a comprehensive restructuring or reorganization plan to develop. The pressure to complete the insolvency process within a set timeframe often leads to rushed decision-making, where business rescue becomes secondary to completing the process. 12 • Key Provisions: Section 12 of the IBC outlines the mandatory timeframes for CIRP, which is a departure from the more flexible approach seen in the U. K. system. This time-based approach can sometimes inhibit the possibility of a successful reorganization, especially for companies with complex operations that need more time to restructure effectively. While both systems aim to preserve the value of distressed companies, the U. K. model is more flexible and adaptable to the idea of business rescue, allowing for a longer period to try and restructure the company.

India’s approach, however, is more focused on time efficiency, often pushing companies towards liquidation if a resolution plan is not approved within the prescribed period. This rigidity in India’s timeline can undermine the goal of rescuing businesses, especially those that require a longer time frame for recovery. Judicial Role in Insolvency The role of the judiciary in insolvency proceedings is another key area where the U. K. Insolvency Act 1986 and India’s CIRP differ significantly. In the U. K. system, judicial involvement is largely supervisory, with the court’s role limited to overseeing the process and ensuring that the administration is carried out fairly and in accordance with the law. The administrator is given considerable autonomy in handling the day-to-day management of the company and proposing solutions to resolve the financial distress.

13 • Key Provisions: Section 7 of the Insolvency Act outlines the role of the court in overseeing the appointment of the administrator and ensuring that the administration process is conducted properly. The court's role is more passive after the appointment of the administrator, with limited involvement unless required for resolving disputes. 14 In contrast, India’s CIRP places a much more active role in the hands of the judiciary. The National Company Law Tribunal (NCLT) is involved from the very beginning of the process,

12 Ibid.

13 Patil, S. S. (2023). A Comparative Analysis of Indian Pre-packaged Insolvency Process with that of US and UK. In Comparative Approaches in Law and Policy (pp. 289-299). Singapore: Springer Nature Singapore.

14 Ibid.

determining whether the insolvency petition should be admitted and overseeing the overall resolution process. Once a resolution plan is proposed by the Committee of Creditors (CoC), the NCLT must approve or reject it. In addition, decisions made by the NCLT can be appealed to the National Company Law Appellate Tribunal (NCLAT), creating an additional layer of judicial oversight. This extensive judicial involvement can create delays, particularly when appeals are filed or disputes arise between creditors or the debtor. • Key Provisions: Section 60 of the IBC establishes the jurisdiction of the NCLT and NCLAT over insolvency matters. The active judicial role in India’s CIRP process can sometimes slow down the proceedings, especially in complex cases where there is substantial disagreement among stakeholders. The difference in judicial involvement between the U. K.

and India lies in the level of court intervention. The U. K. system allows for greater flexibility and autonomy in the insolvency process, with judicial oversight focused primarily on ensuring fairness. On the other hand, India’s CIRP is more judicially driven, with a greater degree of involvement from the NCLT and NCLAT. While judicial involvement ensures fairness and transparency in the process, it can lead to delays and slow down the resolution process, particularly when there are challenges or appeals at multiple stages. CROSS-BORDER INSOLVENCY U. S. Chapter 11’s Approach to Cross-Border Insolvency Cross-border insolvency has become increasingly important as businesses operate globally. U. S. Chapter 11 provides a clear framework for dealing with cross-border insolvency cases, particularly under Chapter 15 of the Bankruptcy Code, which facilitates cooperation between U. S.

courts and foreign courts involved in insolvency proceedings. This approach allows for the recognition of foreign insolvency proceedings, enabling creditors and other stakeholders in multiple jurisdictions to coordinate their actions and resolve the insolvency more effectively. 15 • Key Provisions: Chapter 15 of the U. S. Bankruptcy Code provides mechanisms for recognizing foreign insolvency proceedings, ensuring that foreign creditors and stakeholders are treated fairly. This framework is designed to allow U. S. courts to work with foreign courts, which is crucial when dealing with multinational companies that 15 Evans, J. , & Borders, A. L. (2014). Strategically surviving bankruptcy during a global financial crisis: The importance of understanding chapter 15. Journal of Business Research, 67(1), 2738-2742. have assets or operations in multiple countries.

16 India’s CIRP, however, lacks a comprehensive framework for cross-border insolvency. While Sections 234 and 235 of the IBC provide for cooperation with foreign creditors and jurisdictions, the provisions are less robust compared to the U. S. system. India’s approach to cross-border insolvency is still in the early stages, with limited mechanisms for ensuring smooth coordination with foreign courts. • Key Provisions: Section 234 and 235 of the IBC provide the framework for cooperation with foreign jurisdictions in insolvency matters, but they lack the detailed provisions and procedural clarity seen in Chapter 15 of the U. S. Bankruptcy Code. The lack of a robust cross-border insolvency framework in India’s CIRP poses challenges in dealing with multinational corporations or cases involving foreign creditors.

While there is a provision for cooperation, the absence of clear guidelines and a well-established international recognition mechanism makes the process more difficult and less efficient. Impact of Cross-Border Insolvency on Resolution In a globalized economy, companies often have assets, liabilities, and creditors in multiple jurisdictions. In such cases, the resolution process becomes far more complex, as different legal systems, courts, and creditors must coordinate their efforts to ensure that the insolvency is resolved in a fair and efficient manner. The U. S. Chapter 11 framework’s Chapter 15 mechanism provides a structured approach to handling cross-border insolvency cases, ensuring that foreign creditors are treated equitably and that the resolution process proceeds smoothly across jurisdictions.

In contrast, India’s CIRP lacks the clarity and structure necessary to effectively handle crossborder insolvency cases. While there are provisions for cooperation with foreign jurisdictions, these provisions are not as developed as in the U. S. system, and there is often a lack of clarity regarding how foreign creditors’ claims should be handled or how foreign insolvency proceedings should be recognized in India. The impact of cross-border insolvency on the resolution process is particularly evident in cases involving large multinational corporations. Without a clear framework for international cooperation, these cases can become bogged down by jurisdictional conflicts and delays in the

16 Chung, J. J. (2006). The New Chapter 15 of the Bankruptcy Code

A Step Toward Erosion of National Sovereignty. Nw. J. Int'l L. & Bus. , 27, 89. resolution process. Conclusion India’s Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) has significantly reformed the country’s insolvency regime by introducing a structured, time-bound, and creditor-driven resolution process. However, when compared to global insolvency frameworks, particularly Chapter 11 of the U. S. Bankruptcy Code and Administration under the UK Insolvency Act, 1986, key differences in approach and effectiveness emerge. The U. S. model is debtor-in-possession, allowing companies to retain control during restructuring, fostering business continuity and flexibility in resolution plans.

In contrast, CIRP follows a creditor-in-control model, where management is displaced and replaced by a Resolution Professional (RP), ensuring transparency but sometimes limiting restructuring agility. The UK administration process, while creditor-focused, provides greater flexibility through mechanisms like pre-pack administration, which is still evolving in India. A critical difference lies in institutional efficiency. The U. S. and UK benefit from specialized bankruptcy courts, experienced insolvency professionals, and mature financial ecosystems, leading to more predictable and efficient resolutions. While CIRP enforces a strict 330-day timeline, judicial delays, litigation, and a relatively nascent insolvency ecosystem often hinder swift resolutions in India. Additionally, the role of operational creditors is more pronounced in the U. S.

and UK, whereas in India, their influence remains limited in decision-making. Despite these challenges, CIRP has significantly improved India’s insolvency framework, enhancing creditor recoveries, reducing the stigma around business failure, and strengthening investor confidence. However, to further align with global best practices, India needs to streamline judicial processes, develop specialized insolvency courts, and introduce greater flexibility in resolution mechanisms. By integrating the debtor-friendly aspects of Chapter 11 and the efficiency of UK administration, India can build a more robust insolvency framework that balances creditor rights with business viability.