Transplanting Chapter 11: Path Dependency and the Rejection of Debtor-in-Possession Rescue in the UK and India

Global corporate restructuring has long been divided between two models. London built its practice on creditor control, while New York built Chapter 11 around the debtor in possession (DIP). In recent years, both the United Kingdom and India have tried to bridge this divide by grafting US-style DIP mechanisms onto their creditor-heavy regimes. The UK introduced a standalone debtor-in-possession moratorium through the Corporate Insolvency and Governance Act 2020 (CIGA). Within a year, India introduced the Pre-packaged Insolvency Resolution Process (PPIRP) under the Insolvency and Bankruptcy Code 2016 (IBC), a hybrid DIP route reserved for micro, small and medium enterprises (MSMEs). Both experiments were ambitious. Both have fallen flat in practice. This post argues that the underuse of the CIGA moratorium and the PPIRP is not a teething problem of new legislation. It reveals an institutional rejection of the DIP concept itself, rooted in lenders’ old habit of control and their distrust of incumbent management, which continues to override statutory attempts to normalise debtor-led rescue in both jurisdictions.

The Illusion of Convergence

Legislatures often assume that enacting a statute will, on its own, change market behaviour. The data from both countries is unkind to that assumption. Between June 2020 and April 2026, the UK Insolvency Service recorded only 69 companies obtaining the standalone moratorium under Part A1 of the Insolvency Act 1986, a period that spans both the pandemic support years and the record insolvency volumes that followed. Administrations, in which an insolvency practitioner displaces incumbent management altogether, ran into the thousands over the same period, with 1,597 in 2024 alone. An administration usually marks the point where rescue has already failed, so the two are not direct alternatives, yet the imbalance shows where distressed companies finish. The restructuring plan under Part 26A of the Companies Act 2006 stood at 57 registered plans by April 2026, a modest number that nonetheless includes the largest and most contested restructurings of the period. Practitioners have gravitated towards procedures in which creditors and their advisers keep control of the outcome.

The Indian numbers are equally stark. The PPIRP was designed for the MSME sector, and India has an estimated 63.4 million MSMEs. Most of those enterprises are unregistered or carry no institutional debt, so the truly eligible pool is far smaller. Even against that pool, take-up barely registers. By March 2026, the Insolvency and Bankruptcy Board of India (IBBI) had reported only 18 PPIRP admissions by the National Company Law Tribunal (NCLT). The standard Corporate Insolvency Resolution Process (CIRP), a creditor-in-control procedure open to corporate debtors of every size, had recorded 8,987 cumulative admissions since 2016.

India’s PPIRP and the Grip of Vigilance

The failure of the PPIRP begins with the friction between the statute and Indian banking psychology. Section 54A of the IBC was meant to protect MSME promoters from losing their businesses. Yet it demands, as a pre-initiation gate, the approval of unrelated financial creditors holding at least 66 per cent of the financial debt. That gate places the promoter’s survival in the hands of its lenders, which in India overwhelmingly means public sector banks.

Lenders do not trust debtors, and no statute changes that commercial reality by itself. Officers of public sector banks operate as quasi-civil servants. They work under the standing scrutiny of the Central Bureau of Investigation, the Central Vigilance Commission and the Comptroller and Auditor General, all of which examine debt haircuts closely. A banker who approves a haircut while the defaulting promoter stays in control takes on a serious personal risk. The rational course is to reject the pre-pack and push the MSME into a standard CIRP, where an independent resolution professional takes charge. The tribunal’s order then sanitises the haircut and shields the officer from vigilance inquiries. Where the debt sits with one or two lenders, pre-packs occasionally succeed, as in Amrit India Limited and Sudal Industries. Where the debt is syndicated across several public sector banks, the 66 per cent threshold becomes close to unattainable. Cost and unfamiliarity play their part, but institutional fear is what smothers statutory intent.

The UK Moratorium and the Monitor’s Dilemma

The UK’s attempt to engineer a DIP culture suffers from design flaws of its own. The Part A1 moratorium gives a company an initial 20 business days of protection from enforcement, with directors remaining in control and an insolvency practitioner appointed as monitor. The monitor must certify, and must keep confirming, that the moratorium is likely to result in the rescue of the company as a going concern. If the company later collapses into administration, the monitor faces the prospect of claims from out-of-the-money creditors for failing to terminate earlier. Professional risk aversion does the rest.

The financial services carve-out compounds the problem. The payment holiday covers most debts but excludes liabilities arising under contracts involving financial services, which include bank loans. The debtor therefore gains no breathing space from the very creditors it most needs relief from. Section 174A of the Insolvency Act 1986 adds a further deterrent. If the company enters administration or liquidation within 12 weeks of the moratorium ending, unpaid moratorium debts, bank debt included, take super-priority over ordinary administration expenses. Few alternative financiers will advance rescue capital against that structural advantage.

Part 26A calls for separate treatment, because the restructuring plan and the moratorium are not substitutes. The moratorium buys breathing space but contains no mechanism for binding dissenting creditors. The plan exists precisely to bind them, so it is unsurprising that the leading plan cases turn on valuation and priority. The Court of Appeal has now ruled on plans three times since the start of 2024. In Re AGPS Bondco plc [2024] EWCA Civ 24 it set aside the Adler plan for departing from pari passu distribution without proper justification. In Re Thames Water Utilities Holdings Ltd [2025] EWCA Civ 475 it upheld the interim plan that kept Britain’s largest water utility out of special administration. In Saipem SpA v Petrofac Ltd [2025] EWCA Civ 821 it set aside sanction again, this time for the unfair allocation of the benefits generated by the restructuring. A dense jurisprudence has built up at speed, while the moratorium barely features in the law reports because it is barely used. The contrast is cultural rather than functional. The profession will invest heavily in contests over value in which creditors keep the final say. It has shown no comparable appetite for a tool that asks lenders to stand still and trust incumbent management.

Path Dependency and the Limits of Legal Transplants

The fate of the Part A1 moratorium and the PPIRP exposes the limits of statutory transplantation. Insolvency regimes do not operate in a vacuum. They are products of their credit markets and their banking cultures. Chapter 11 works in New York because section 364 of the 1978 Bankruptcy Code lets courts grant rescue lenders priority over existing creditors, and a deep market for specialised DIP financing has grown around that power in the decades since. London and New Delhi copied the procedural shell without the financing architecture beneath it. Their credit markets rest on secured bank lending and floating charges, and their incumbent lenders hold the economic leverage with no appetite for leaving defaulting management in control. Statutes can rewrite procedure. They cannot, by themselves, rewrite the risk appetite of a financial sector. Until lending cultures in the UK and India shift from asset-backed enforcement towards cash-flow-based rescue, the DIP elements of both regimes will remain largely dead letters.

David Grant is a Partner at Troutman Pepper Locke LLP.

Manas Raj Singh is an Advocate in Delhi.