The Insolvency and Bankruptcy Code (IBC) was enacted to prioritise resolution over recovery and value maximisation over enforcement, but its implementation reveals a persistent paradox in Committee of Creditors (CoC) behaviour. While CoCs formally endorse resolution, they often function with a recovery-centric mindset focused on minimising haircuts, enforcing security, and exiting early. This approach undermines business continuity, operational revival, and long-term value creation, quietly steering many Corporate Insolvency Resolution Processes (CIRPs) toward liquidation despite viable resolution potential. Early CoC conduct frequently concentrates on fee controls, suspicion of resolution professionals, and defensive risk management, with insufficient attention to stabilising operations, employee morale, interim funding, or preserving going-concern value. As businesses weaken, serious resolution applicants withdraw, discouraged by rigid conditions, delayed decisions, and excessive risk transfer. The tendency to equate “best value” with highest upfront cash recovery ignores deferred payouts, equity upside, future cash flows, employment preservation, and long-term tax contributions. Courts can enforce legality and timelines but cannot impose a commercial resolution mindset. Structural incentives—recovery-based performance metrics, officer rotation, and risk aversion—reinforce this behaviour. The IBC framework presumes creditors will act as temporary owners; when they act as recovery agents, liquidation becomes legally valid but economically inefficient. Sustainable resolution requires a shift toward business-led, holistic decision-making.
The Insolvency and Bankruptcy Code (IBC) was designed with a clear objective:
1. Resolution over recovery.
2. Value maximisation over enforcement.
Yet, on the ground, most CIRPs reveal a paradox that few openly discuss:
The Committee of Creditors (CoC) formally supports resolution — but operationally behaves like a recovery tribunal.
This contradiction quietly pushes many CIRPs toward liquidation, even when viable resolution is possible.
1. Resolution and Recovery Are Not the Same Thing
Resolution is about:
- business continuity
- revival of operations
- future cash flows
- risk sharing
- long-term value
Recovery is about:
- immediate haircut minimisation
- security enforcement mindset
- historical dues
- exit at the earliest
IBC is a resolution law, not a recovery mechanism. But many CoC decisions are driven by legacy recovery thinking.
2. Early CoC Behaviour Sets the Tone of CIRP
In the first few CoC meetings, focus is often on:
- fee negotiations
- expense caps
- suspicion of RP actions
- risk avoidance
- defensive decision-making
Very little discussion happens on:
- stabilising operations
- customer retention
- employee morale
- interim funding
- preserving going-concern value
When the business weakens early, bidders notice — and quietly exit.
3. The “Best Value” Myth in Resolution Plans
Many CoCs equate highest upfront cash recovery with “best value”.
But resolution value should consider:
- deferred payouts
- equity upside
- business revival
- employment preservation
- future tax contribution
A slightly lower immediate payout with strong continuity often creates higher real value — but gets rejected.
4. How Recovery Mindset Discourages Resolution Applicants
Resolution applicants look for:
- stability
- predictability
- cooperation
- realistic valuation
A recovery-focused CoC environment creates:
- excessive conditions
- delayed decisions
- risk shifting to applicants
- lack of commercial flexibility
Serious applicants walk away — not because the business is bad, but because the process is hostile.
5. Courts Can’t Fix a Commercial Mindset
Judicial forums can:
- interpret law
- enforce timelines
- correct procedural illegality
But courts cannot force a resolution mindset. If CoC decisions are commercially defensive, liquidation becomes the natural outcome — legally valid, but economically inefficient.
6. Why This Paradox Exists (Uncomfortable Truths)
- Most lenders are still evaluated on recovery metrics, not resolution success
- Officers rotate; long-term outcomes don’t impact careers
- Risk aversion is rewarded more than revival
- Resolution requires judgement; recovery feels safer
This structural incentive mismatch drives behaviour.
7. What Needs to Change for IBC to Truly Work
- CoC decision-making must be business-led, not only credit-led
- Early-stage focus must shift to value preservation, not only control
- Resolution plans should be evaluated holistically, not just on upfront cash
- Commercial flexibility should be encouraged, not feared
IBC does not fail because of law —it struggles because of mindset.
Conclusion: IBC Needs Creditors Who Think Like Owners, Not Enforcers
The IBC framework assumes creditors will act as temporary owners, balancing risk and reward. When creditors act only as recovery agents, resolution becomes accidental — not intentional.
If we want fewer liquidations and more successful resolutions, we must confront the CoC paradox honestly.
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Author Note: The author is an Insolvency Resolution Professional with extensive experience in managing multiple CIRP and liquidation assignments. For queries or professional discussions related to the Insolvency and Bankruptcy Code (IBC), you may reach out to: Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.
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