When debtors hold on to the wheel: A comparative perspective on India’s CIIRP and Singapore’s Scheme of Arrangement

Every rescue regime answers one question first: who controls the company while its financial distress is addressed?

India’s newly introduced Creditor-Initiated Insolvency Resolution Process (“CIIRP”), inserted as Chapter IV-A of the Insolvency and Bankruptcy Code, 2016 (“IBC”), answers that question through a hybrid model: creditors initiate the process, but the company’s management remains in control, not the creditors who triggered it. The management can lead the restructuring process subject to the supervision of a resolution professional (“RP”). It intentionally sits between India’s two existing regimes — the Corporate Insolvency Resolution Process (“CIRP”), which is creditor-driven and displaces management on admission, and the Pre-Packaged Insolvency Resolution Process, which preserves debtor control but only for micro, small and medium enterprises.

Singapore’s scheme of arrangement — a court-supervised compromise between a company and its creditors — operates in a similar vein. The company’s management remains in control by default, creditors vote on a compromise proposed by the company, and the court’s role is focused on integrity of the process and procedural discipline rather than the commercial bargain proposed for the restructuring. The result is a debtor-in-possession model close enough to India’s CIIRP.

Both the CIIRP and Singapore’s scheme of arrangement share a staged structure. Where the law on CIIRP can rely on ten years of extensive precedents created by Indian insolvency tribunals for CIRP cases, it still leaves open some new questions that may see litigation in the first wave of cases. Singapore’s answers to these questions were tested by a specialist court and a decade of appellate decisions and may serve as a reference point.

The CIIRP operates as a debtor-in-possession model initiated after securing the approval of a majority of a notified class of financial creditors (with reference to their debt amount). A notice is served upon the debtor to make representations within 30 days, and if any representation is filed, the financial creditor must secure fresh approval from a majority of such notified class of financial creditors (with reference to their debt amount) before commencing the process. In practice, however, we expect that the time period and tonality of this notice and responses will be somewhat orchestrated. This is because we expect that the debtor and its management ought to have coordinated with the relevant financial creditors before any initiation; for the creditors to choose a debtor-in-possession model over an already available creditor-in-control model without having coordinated with the debtor and its management may be foolhardy. With the second round of approvals for initiation, an RP is appointed. The management is not displaced; the company continues to run its business subject to the RP’s oversight.

Unlike CIRP, the moratorium against creditor enforcement in the CIIRP does not kick in automatically on admission. Under the CIIRP, the RP may apply for it, after obtaining the approval of 51% of notified financial creditors and the moratorium kicks in immediately upon the filing of such application without any court process (in practice, this application can be filed the day the RP is appointed). The National Company Law Tribunal (“NCLT”) may subsequently hear the application and decide for or against the moratorium.

The committee of creditors (“CoC”) is constituted, an information memorandum is prepared, and a resolution plan is negotiated within a hard 150-day window. This window may be extended once, by up to 45 days, subject to 66% CoC approval and NCLT approval. The standard of disclosure owed to creditors is a core determinant of the process’s integrity. The RP’s obligation to prepare an information memorandum, combined with the express liability imposed on promoters and personnel of the corporate debtor for omissions or misleading information provided by them for that memorandum, builds a statutory disclosure baseline into the process. What Singapore law adds is the standard against which that baseline should be measured: procedural correctness at the threshold should turn not only on formal compliance with notice and approval steps, but on whether creditors and the RP had access to disclosure sufficient to make the 51% approvals informed rather than nominal.

CIIRP can fail for various reasons and then the IBC provides for conversion into CIRP. The CoC may itself vote to convert in CIRP, again by a 66% voting threshold. Alternatively, the NCLT may order conversion where (a) no resolution plan is received within the stipulated timeframe; (b) the corporate debtor or its personnel have failed to assist or cooperate with the RP; or (c) the NCLT rejects the CIIRP resolution plan.

The NCLT’s role is deliberately narrow: it examines whether a default occurred and whether the prescribed procedure was followed, not whether the restructuring is commercially sound.

In a scheme of arrangement, the company applies to court for leave to convene a creditors’ meeting to vote on a proposed compromise. The management is not displaced at any stage. The regime is now governed by Part 5 of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”).

As under the CIIRP, a moratorium must be applied for, while section 64 of the IRDA provides for an interim 30-day automatic moratorium on filing of the application, within which the court hears whether to extend it for the period sufficient for the company to formally propose a scheme. In Re IM Skaugen SE, the Singapore High Court held that the test for granting an extension, is whether, on a broad assessment, there is a reasonable prospect of the intended compromise working and being acceptable to the general run of creditors. The two key factors are good faith, and sufficient evidence of creditor support. This was tested recently in Re Energe Asia Pte Ltd, where the court dismissed a moratorium application on both the grounds – bad faith, and no credible, independent creditor support. Singapore also draws the same line between threshold and final scrutiny in its disclosure duty. At the leave stage, the Court of Appeal (“CA”) has held that the applicant bears a duty to “unreservedly disclose all material information” to assist the court in determining how the creditors’ meeting is to be conducted. The CA has since confirmed, in Pathfinder, that this duty is less onerous than what is required later: by the time creditors actually vote, the company must have disclosed enough for them to “exercise their voting rights meaningfully.”

Before any vote is taken, creditors must also be sorted into classes. The CA in TT International Ltd, found that creditors should be classed together only if their rights are sufficiently similar to allow them to consult with a view to their common interest. Within a class, the scheme is approved by a majority in number, representing three-fourths in value of the debt, of those present and voting. Where a class dissents, Section 70 of the IRDA permits a cross-class cram-down if a majority in number representing three-fourths in value of all creditors voting across every class have agreed, and the court is satisfied that the scheme is fair and equitable to each dissenting class and does not discriminate unfairly between classes.

The Singapore court’s role at the sanction stage is similarly confined. It does not substitute its own commercial judgment for that of the creditors but must be satisfied that the statutory and jurisdictional requirements are met, that the class was fairly represented and not coerced by the majority, and that the scheme is one which an intelligent and honest creditor could reasonably approve. Once sanctioned and the order is lodged, the scheme binds all creditors, including dissentients.

Whether the CIIRP becomes a genuine early-intervention tool or simply another compressed route into CIRP will depend, among many factors, on whether creditors’ consent to the scheme or resolution plan was informed, whether the moratorium was earned, and how much scrutiny the NCLT exercises at the threshold. Singapore offers a useful reference point as a jurisdiction that has spent years testing cross border restructurings with the debtor in the driving seat and creditors engaged throughout.

About the authors: Smitha Menon is a Partner and Head of Restructuring & Insolvency Practice at WongPartnership. Kajal Bhatia is an Associate at the Firm.

Bahram N. Vakil is a Co-founder of AZB & Partners. Nilang Desai is a Senior Partner at the Firm.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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